Save in 401k or taxable account for 2nd home purchase 12 to 36 months out

[KenZ71]

So, as the title says I'm considering a 2nd home purchase in 12 to 36 months currently 49 years old. Which is the most tax beneficial vehicle for this goal a) 401k b) taxable brokerage c) something else?

I might take a few years off if not completely FIRE about the same time. Current savings in tax advantaged accounts will cover my expenses with a 5% withdrawal rate. Not quite enough to pull the trigger just yet.

Currently socking about 15% in 401k considering upping that to 20 to 30% for that 2nd home but not sure best plan. Already a homeowner so can't go for 1st time homebuyer.

 

[Animorph]

Can you get it out of the 401k when you need it? Will that work OK with your tax situation? Short-term 401k could be a mistake if you go equity heavy and end up with market losses that could have given a capital loss for taxes inside a taxable account.

For 12 months I'd stick with an online savings account/CD. For 36 months I might allow some risk if you have some schedule flexibility (and can wait for stocks to recover if necessary). I'd normally go with a bond fund, but that doesn't seem much better than stocks right now. Not a lot of great options with my normal go-tos right now.

 

[KenZ71]

401k is a Fidelity brokerage so I can invest in almost anything. My investment choice for this would be some preferred stock and REITS regardless the account type as those work best for me.

Current contributions are going in as Roth so I can withdraw tax free. But that would be at 59 1/2. Or, would it?

If we get another market dip / crash/ correction I would just ride it out. My current total today is higher than pre Covid.

So from a tax planning goal what is most efficient? Of course I'll read up on suggestions. Current research has been mixed.

 

[CRLLS]

"Current research has been mixed" I'm not surprised. For any one canned answer there are always better answers depending on one's financial positions and goals. If it were me, I would protect that house money by putting into a CD or some other "insured" short term deposit with an easy and quick method of withdrawal when needed. The current rates are so low that any real difference in tax efficiency between one method or another is minimal IMO. IMO, the important part is to protect that house money against market loss.

Of course if we are talking about a $100M investment and an expected $200K house budget, my need for securing the house budget changes.

Good luck on your plan.