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April 29, 2013

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You are in terrific shape given your age. I really enjoyed your profile, since your lifestyle and goals are quite similar to yours (though we have a few years and a couple of kids over you:-), we travel a fair amount (admittedly less now that kids are still in the toddler/preschool age) and my husband really wants us to custom build our next home

Just a couple of comments:
- since you can't do deductible tIRA anymore, why not do backdoor Roth. Part of your $8K are probably non deducted anyway, but even if they were, you could bite the bullet on one time conversion taxes to be able continue to put away $11k per year in a tax-free growth vehicle that can also be used flexibly. Here is an article on this topic (and by the way, I would heartily recommend the whole Bogleheads forum)
https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

- have you considered negotiating working from home 1-2 days a week, as a way to reduce the commute? It's true that you manage a team, but it's a software development team, and you surely have ways to connect virtually. I work from home 3-4 days a week, and my team is all over the world and it works just fine, as long as you don't have too many juniors to train and coach. And it makes things much more flexible once your kid arrives.

I wouldn't worry too much about expensive tastes, you can afford some splurges and nothing in your profile indicates a likelihood to go overboard with spending. When you are working hard and saving a lot, you deserve some areas of indulgence.

Good luck with the baby!

If your wife is a partner in the practice I would think some kind of SEP could be set up to drastically increase the amount you can get into retirement accounts.

First of all, you're doing great. Nice work. Second, it sounds like you're at risk of starting to spend all your excess cash if you can't find new investment opportunities since you're maxing out all of your tax-advantaged savings. If I were in your position (and frankly, mine is not too much different, and this is what we do), I'd get into real estate investing. That can take all the savings you want to throw at it! Moreover, it can put you in a great position to reach (and maybe far exceed) your goals in the timeframe you've laid out. Good luck!

Nice post, you are doing well. Does anyone at your work live near you so that you can try carpooling to work?

Can you open up an IRA to supplement your 401k savings?

-Mike

I am in a similar position -- got back about 4K when my 401K failed the anti-discrimination test last year, and I max out my IRA but its not deductible. I also pre-pay against the mortgage principal every month ($500) and now I'm putting $500 a month in my taxable investment account. I plan to stick to that plan until I pay off the mortgage. I'm trying to save up enough in liquid savings equal to the mortgage balance. I think I'll feel a lot more secure when I reach that point, even if I don't actually pay it off.

Knock those student loans out ASAP!

Just a thought. We have a mortgage of about $340,000 that we refinanced into a 5 year ARM at ~2.5% (no cost refinance). The ARM reset can never be more than 2% every 5 year period, with a ceiling at 7% over the term of the loan. Like you, we were making extra principle payments already. Now, the cost of our mortgage is $1,550/mth and we continue to make the same payments as before $~2500-3000/mth. All things considered, this is paying down the principal much faster than had we stayed at 3.3% on a 30 year fixed mortgage. Given that you are a dual income family with good savings rate, maybe this would work for you as well.

Also, I just stopped contributing to the traditional roth in addition to the 401k. I am your same age, with a new child and I decided that I have enough in retirement and the traditional IRA isn't as tax advantaged, and in any case, I want that money to be invested in something more liquid, because I want to be able to retire early. Plus, soon you will probably want to start a 529 plan (in fact, might as well start now), and even more of your money will be tied up for long term goals.

I think you are off to a great start! My Thoughts:

* With a child on the way you should consider a 529 plan ( as others have stated) or a prepaid college plan if available where you live. Starting a savings plan for college ASAP will put you in the best position to help your kid(s) out when that time comes (and it comes fast). Some of these plans are tax advantaged as well which helps you solve one of your stated issues.

* Glad to see you have a low rate 20 year mortgage. This should be paid in full about the same time your first child goes to college and will open up cash flow opportunities at that time which will provide flexibility in paying for school or ramping up your savings. I followed a similar path sucessfully.

* My company also failed the 401K discrimination test-- but we solved the problem by taking advantage of the "Safe Harbor " provisions in the law. This allows highly compensated employees to again save the full IRS max of $17.5 annually. I am surprised that your Fortune 500 employer has not taken advantage of these safe harbor provisions actually-- might be worth a call to your HR department to see if it is in the works.

* Although often cited as a toss-up, I think that younger individuals will benefit more from a Roth IRA vs a traditional IRA. You might want to give that issue some thought. There are pros and cons both ways......

Hope that helps..... good luck.

Looks like you are doing well. I would figure out what the dream home would cost as well as buying into the vet business for your wife and the set savings goals for each of those. It will help give you to focus and motivation that you need when you are tempted to buy larger extravagances.

MR and his wife are doing quite well. I don't envy their commutes though.

No reason to rush to pay off loans at a (fixed) 2.2%, especially if you can afford to survive on one income. You look a little under-insured, though, especially given that your wife works in a physically demanding career.

When I hit the limit on tax-advantaged retirement accounts, I just opened up another account that I treat as one (i.e., it's a one-way flow of funds). Make it a fixed auto-deduction, like your 401(k) was, or you may "lose track" of the money.

It gives me great pleasure to read about a young couple that are off to such a great start in their careers and their marriage. You were smart to both pick careers that will always be in demand.

Apropos Steve's post, my daughter went to work for an attorney when she was quite young and became salaried shortly thereafter. She was very fortunate that her boss wanted a SEP-IRA for himself and the story was that he had to also offer it to all of his salaried employees and give them the same percentage of salary as himself for their annual contribution. When I retired in 1992 I took over managing the investment for her SEP-IRA, at that time it had a value of $64,427. She later became office manager and still telecommutes to work to take care of all the billing even though she recently moved from San Jose, CA to Maui. She is now 54 and as I look at her account today it has a value of $1,848,261 and that's without her ever contributing a single dollar of her salary. His contribution to her SEP-IRA for 2012 was $4,680.

@MR
Like yourself I ended up managing software development projects for my company, which is now the largest aerospace company in the US, but that didn't happen until near the end of my career. I started off as a structural engineer but soon found that I preferred writing software that made other people's work easier rather than doing that work myself.

My wife worked as a teacher once the youngest of our 3 children was old enough to be left. Also, like yourself I take care of all the finances and investments whereas my wife complements by liking to do all the things that I don't like doing. I think that's often the formula for a happy marriage and we will have our 53rd. anniversary in July.

@MR
It's great that you have also found opportunities to do some oversea travelling. We did the majority of ours after the youngest child was old enough to take care of himself. Before that our trips were primarily back to England to visit relatives.

Out of our many trips the two that were the most memorable of all were:
1) A "Smithsonian" trip to China called "Hiking the Sacred Peaks". It wasn't long after China opened up to foreigners and we went completely across the country from Beijing in the East to Kunming in the West.

2) A "Wilderness Travel" trip to Africa that started in Nairobi, Kenya and visited Zimbabwe, the Okovango Delta in Botswana, and a small plane flight into the Kalahari deset to visit the Bushhmen. Higlights of that trip were game viewing and visiting a Masai village in the Masai Mara, going to Victoria Falls, close up and then flying over it in a small plane. Then in the Okovango delta we went through the delta by dugout canoes and camped on small islands. Part of the trip was spent in Game Lodges, amd the rest was in a converted ex-army personnel carrier towing a mobile kitchen that allowed us to go cross country.

I apologize for having to split up my post into 3 shorter segments but I find that the Typeset software that this blog uses has a tendency to swallow up long posts for some unexplained reason, whereas short ones get accepted. I for one will be very glad when FMF completes his switchover to the different product that he has under consideration.

PS
In my earlier post I should have said that our next wedding anniversary on July 14th. will be our 57th and NOT our 53rd.

@Old Limey - congratulations on your 57th wedding anniversary! Wow ... perseverance and wise management applies not only in finance ...

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