DW and I bought a house at the end of 2020, and moved from CA to TN where we’re no longer paying state income tax (I’m not, at least). This gives me an extra $500ish take home per pay period since I’m not paying CA state income tax. We can round that to $10k if it helps… I’m nearly 31 years old, and have been maxing my 401k for the last 2-3 years. I -think- our FI timeline is in the next 10 years*, max. Part of our FIRE plan involves having a paid off house (we owe $398k, put 20% down — house is worth about $510k based on Zestimate. we paid $504k, if it matters.)
So I’m wondering… should I drop my 401k contributions down to the company-match level (6%, dollar for dollar match), or keep maxing it out? It is my “Old Me Money” and unless I do the conversion, pay the taxes on it, and wait 5 years after the conversion I won’t be touching it until retirement age, which by that time will be a considerable sum IMO. My 401k balance is ~120k at the moment, and if it compounds at 7% over the next 30 years it will be well beyond what I think we need to sustain ourselves indefinitely.
As it stands, out mortgage is just under $2k/month with $370 going into escrow for taxes & insurance and the remaining being split almost-evenly between interest & principal. I am throwing an extra $1k per month into principal only payments.
I am thinking the money I don’t put towards the 401k could go to paying off the house faster. Without the house payment our monthly spend is $1,500 at the VERY MOST, which is $18k annually. We’d need $450k stash to sustain that, of which I already have ~$210k in index funds. With my current setup, I’m adding $500-$1k to that account per month, depending on what’s left**. I’ll ideally get to $500k in the taxable account and completely get out of corporate America and just rely on my side hustle.
DW will probably work in some capacity much longer than I will — she likes her job
Has anyone else done this, or do you have any advice? As it stands I’m still scheduled to max my 401k for 2021, but am really open to dropping it down to just get the company match if you guys think the money could be better utilized elsewhere?
Last point, given my balances are large enough to where the gains are starting to match/beat the level of contributions, I am optimistic. If the balances and performance were poorer, I probably wouldn’t even be considering it. I’m also open to the suggestion that I should hit $x amount in the 401k then just let compounding take over, but I feel like I’m pretty much there given the balance and timeline until I can access it as an Old Person.
Thanks, as always for the face punches and words of wisdom 🙂
* I’ll still hustle part-time, working as a tennis instructor and racket stringer so my income will not be entirely $0, and have the option of scaling up/down as needed.
** our spending is a little higher than normal given the move (to a larger place) and one-off home projects.
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