Mortgage Payoff While Investing Aggressively

[dsp0725]

The power of $25k plowed into my tax advantaged accounts compounded for 33 years will be awesome, especially when I am able to pull it out completely tax free . I ran the numbers, and assuming a very modest return, it made more sense for me!

What tax advantage accounts are you currently using?

 

[Marita40]

I've been putting the maximum into my HSA over the last years without drawing on it and it has grown into a tidy stash to be used pose retirement for medical expenses.

 

[dsp0725]

I've been putting the maximum into my HSA over the last years without drawing on it and it has grown into a tidy stash to be used pose retirement for medical expenses.

Nice!

what company do you have your HSA through and who manages it for you?

 

[RetireAge50]

I've been jamming the max into retirement accounts for 27 years and have yet to pay off mortgage. If I could have done both at the same time I would have but any remaining money was used to enjoy life while young.

This strategy has paid off as we now have a large portfolio balance and only 59k left on the mortgage. About to retire next year at age 50.

 

[Marita40]

The best strategy, as I've always heard and have done for many years is to max out any tax advantaged vehicles first. If there's money left to save, throw it at the mortgage. For me that means maxing out the 403b, Roth, HSA. I've paid off three mortgages in my lifetime so far but then moved several times and assumed new ones for nicer properties. Mine current one is below 50,000, payment is a whopping 350 per month and there's no real reason to pay it off. In fact I'm about to stop putting extra money on it for a year as I pay for a major remodel. But I do like being debt free so will eventually begin to throw an extra 500 or so to it monthly.

Dave Ramsey is an excellent source for people paying off debt. That's his niche and he's helped many people. But he's not at all great in terms of building wealth. If you are not in debt start looking into more sophisticated financial advice.

 

[pb4uski]

....One of the best feelings is when you own your home free and clear. ...

It feels just as good to have a big ol' taxable account and know you can pay off your mortgage with a few clicks of a mouse.

In the OPs case, I think tax-deferred savings like the 401k/HSA is the way to go rather than pay down the house. He'll most likely save 28% now and pay 15% or less later if he play his card right. I deferred 28%+ and am now paying ~10%.

Plus his tax-deferred will likely return more than his mortgage interest rate but that is chump change compared to the 13% head start that he'll have.

 

[Fedup]

I would refi if it's possible. Your rate seems high. The max contribution for solo 401k is around $53k.


Sent from my iPad using Early Retirement Forum

 

[pb4uski]

+1 on the refi... should be able to shave a point or more off that 4.625%. Or better yet, go with a 15 year... lower rate and faster payoff about 3% today.

 

[calico1597]

We paid our house off in 9 years from a 15 year mortgage. There is a lot of security in having your home paid for. I then added extra $
to the 401K & IRAs.

 

[cyber888]

Your mortgage rate of 4.625% is terrible. With your income, you could pay off your mortgage in 7 - 10 years. So, get a 7-year ARM loan with 2.85% interest or a 10-year ARM loan with 3.25% interest. I've seen rates like this yesterday. That way, most of your payment would go to principal instead of interest.

 

[daylatedollarshort]

We paid our house off in 9 years from a 15 year mortgage. There is a lot of security in having your home paid for. I then added extra $
to the 401K & IRAs.

Personally I don't really understand the difference. If you have $400K in Treasury bills paying 3% and a $400K 2.5% mortgage, or a $400K house with no mortgage, would you feel better with no mortgage?

 

[dsp0725]

What kind of interest rates are you guys getting on your HSA's?

Also, who do you use to buy your muni bonds?

 

[travelover]

What kind of interest rates are you guys getting on your HSA's?..........

My HSA is invested in Vanguard Admiral funds. I use primarily the Total Stock market fund.

 

[pb4uski]

+1 Total Stock in HSAs. No munis now... had some while I was working and I just used Vanguard's muni bond fund.

 

[littleb]

I don't know much about HSA's as an investment tool. Who do you have yours through and how effective are they.

You have to be covered by a High Deductible Health Plan that meets the IRS requirements for a Health Savings Account. Usually when you look for a plan this information is available. The insurance company (Blue Cross, United Heath etc) is the one who makes sure it meets IRS requirements.

After you are covered under the HDHP you can look for a HSA administrator. Many companies offer Vanguard low expense funds. However, you have to research the funds since other funds may have high expense rates.

Some of the companies who administer HDHP's are HealthEquity and Optum Bank. There are many other companies who offer HSA administration.

 

[NgineER]

+1 on the refi... should be able to shave a point or more off that 4.625%. Or better yet, go with a 15 year... lower rate and faster payoff about 3% today.

+1
Refi to 15 or 10 year and get a lower rate while still paying off aggressively. Should save you thousands and pay back in less than a year I imagine.

 

[calico1597]

I was widowed at age 38 with a diabetic child. Unknown to me, he left all his life insurance to the child. Luckily we had mortgage insurance and my house was completely paid for. I felt secure having one less thing to worry about. I remarried a few years later, when we bought our together home it was important to me to get this home paid for.

 

[jkern]

+1
Refi to 15 or 10 year and get a lower rate while still paying off aggressively. Should save you thousands and pay back in less than a year I imagine.

+1

This is exactly what I would do.

 

[Senator]

- LLC made $173k
- I personally made an additional $8200 net from part time job

First of all, you should be maximizing your LLC's business deductions. A company car, off-site meetings, meals and entertainment, office expenses, travel, equipment, cell phones, etc. You pay a 0% tax rate on business expenses. You can even fund a SEP IRA.

Then, you should be taking a salary, via a W2 or 1099. It should be ~50% of what is left. If you are a Java Developer, take $50K as a salary. You pay a 15.3% self employment taxes, plus normal income taxes on this amount. Use a SEP or 401K to save money.

Take the remaining money as a dividend. You pay normal income tax on this income, but no 15.3% self employment tax.

With the money left over, save it.