[USER]

Married couple, both around age 40. We have 3 kids, age 12 and under.

We live on one income right now (100k gross) and don’t live in a HCOL area.

Just rolled $300k over to Vanguard from a 401k / Roth 401k (it was split between the 2). We need to reinvest it, but I have a few questions.

Assets:
$690k retirement accounts (includes $300k mentioned above)
$94k brokerage and stocks
$25k hysa
Our home

2 single family home rental properties
We plan to have our house paid off in 2-3 years and have 2 single family rental homes that will be paid off in 11.5 and 16.5 years.

Those should net $2k / month, combined, once paid off.

We have 529s for our kids (not sure how far they’ll get us these days), but may choose to use the rentals to help pay for college. We could refinance them, depending on interest rates at that time.

Wondering about:
1) converting IRA to Roth…now feels like a good time because of our current tax situation. How do we do this? How much do we convert?

65% of our retirement account money is currently already in our Roth IRAs.

2) retirement accounts current allocations:
44% – to be reinvested
44% – vtsax
8% – vfwax
5% – vbtlx

Thoughts on diversifications / rebalancing? What to invest the 44

3. We would like to plan to live on $120k / year in 20 years and plan to not touch retirement or brokerage anccount money until that time.

Would you feel comfortable being “coast fi” from now to that point, pending the unforeseen.

We Want to enjoy trips and experiences with our kids now and give them opportunities to do sports, etc.

we also want the career flexibility we’ve had the last few years with only one of us working and/or us both working part time down the road.

so while we likely will continue putting away a small amount between now and then, it won’t be nearly what we have been putting away.

Note: Rental properties are just considered to be paying for themselves and paying down their mortgages until paid off.

Thank you!

[Amy]

If your plan is to take cash out of the rental properties when you refinance, keep in mind that unless you spend the additional cash on that property, the interest charged on the cash you took out will not be deductible.

So, you will not be able to just claim all of the interest documented on the 1098 form you get as an expense for your rental.

You will have to subtract off any interest that was paid on the cash you took out, and only claim the remaining interest as a rental expense.

[Sarah]

Hi there I just wanted to say that my husband and I are in a similar situation (42 and 46 with three kids 13,11,6 and the math says we’re CoastFi) and a few months ago decided to at least pause retirement contributions for the first time ever in order to have more
disposable income for travel, etc while our kids are still at home.

It’s scary but the math works for us and it does for you too…taking into account only the designated retirement funds you’ll have around $2.7 million in 20 years.

At 4% withdrawal (and isn’t 5% the new 4%?!) that gets you to a little over $100k/yr, add in the rental properties and you’re good to go.

With social security (which I never add into my calculations but will almost certainly be there in some form) you’ll be even better off.

Enjoy your kids while you have them at home! We just took a 12 day trip to Europe over Thanksgiving and it was the best money we ever spent

[Catie]

We are similar ages, also one income around the same as yours for awhile, a little more now, also have 3 kids under 12, and similar savings.

We just don’t have any real estate, but have an HSA that we plan to allow to grow and use for retirement.

I’m just sharing what we do/how we feel so that you have some opinions to think about, and this is just that, an opinion.

We max our Roth IRAs for now and contribute a small amount into a Roth 401k because we feel similar to you (our current tax liability is typically 7% or less so what we consider a good time to invest in those).

I *think we are coastFI, and based on your numbers, you seem to be as well (if that 120k is in future dollars).

We also have less than 4 years left on our home, and will likely pay it off a little early (I’m not too concerned about that, but hubby wants to pay it off yesterday).

I can’t say much about what to invest in (we are mostly VTSAX/VTI and feel like we are diversified), but in my opinion, with what you have listed and your rental properties, you seem diversified enough to me.

I say go ahead and start enjoying things a little more now. Take the trips, do the activities, spend time with your family.

Personally, I would meet the company match (if you have one, if not, maybe continue to invest in Roth IRAs), and do all the things you value, and then if at the end of the year there is any extra, invest it.

Reevaluate on a yearly basis.

[Rick]

1. Do you feel your time with closer to zero income, both of you in RE, will be insufficient to Roth convert? If yes, than now seems like a good time.

Fill up your existing tax bracket at a minimum and if the market gives you a decent dip in 2025, like a 10%+ drop, make sure to use that timing to do most of your planned 2025 conversion as you will convert more “net” dollars.

If no, to the question above, ehh I would skip doing conversions now.

2. Vfwax is ex US large/mega blend – fyi so others don’t need to look it up.

Consider “converting” these to etf versions if vanguard allows that. And move to buying etf versions in the future for a variety of benefits.

3. Is that $120k today’s dollars or 20 years from now?

[Jenny]

The numbers look like you are coast FI. I would consider contributing to 401 k up to the employer match and contribute to Roth IRA if you can.

Also, consider exchanging the rental properties to multi family properties- duplex, triplex or 4 flex. They cashflow better.

The rental income can support you and speed up the FI journey.

[Scott]

1) Since you plan to retire early it seems there is not much value in paying 12% taxes on conversions today you will have a window of low income years if you stop working at 60 and until you claim SS/RMD.

That said contributing to a Roth vs pre tax likely makes sense at your current income level and that you still have a fair bit in your tIRA.

2) Given time frame likely all stocks (less whatever you may be allocating for kids college with a 12 year old de risking likely makes sense…

look at the allocations by age/enrolment year at Fidelity or Vanguard for ideas there on allocations they use for 529 at least as a starting point).

VTI and chill or the VOO/VUG paired with AVUV/DFSV Small Cap Value are two common approaches, pick what you are comfortable with and will stick with in good and bad times.

3) First you have to decide if you want to be in the property biz long term..

pros and cons. That said if you stay I’d think of the $2k rental as lowering your monthly need from $10k to $8k so the $96k is the number you need 25x (you could lower that somewhat if you factor in any SS/Pensions).

Assuming high digit/historical equity returns you are probably on track to hit that, but no one can guarantee Mr.

Market will remain cooperative, so it’s just something you need to monitor.

[Joel]

Personally, I like the concept of a Balance between living today and saving tomorrow.

I can see cutting back some on savings but not eliminating it altogether.

Everyone gets to define how they implement “Coast FI” but I think the habit and structure of savings is too valuable to simply turn it off.

[Author]

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