Home / Personal Finance / Real Estate / #177: Ask Paula and Joe: Should I Buy a House or Catch Up on Retirement Savings?

#177: Ask Paula and Joe: Should I Buy a House or Catch Up on Retirement Savings?

Imagine that your job is extremely well-paying, but you don’t enjoy it.

You’d like to switch employers, even though this will probably require a paycut. But before you make the switch, you want to accomplish two goals: buy a home and catch up on retirement savings.

Should you pursue both goals? Or should you defer the home purchase, given the potential future paycut?

If you decide to pursue both goals, which one should come first?

This is one of the five questions that former financial planner Joe Saul-Sehy and I answer in this week’s podcast episode.

We also answer a question from a listener who’s self-employed and wants to contribute more to his retirement accounts. We talk to another listener who’s living on $600 monthly paychecks while maxing out his Mega Backdoor Roth contributions.

We talk to a 22-year-old with an $80,000 salary who’s debating between paying off her student loans vs. investing. And we answer a question from a listener who’s wondering what she should do with 401k accounts from previous employers.

Here are more juicy details:

Jane asks:
My husband and I want to save for a downpayment while also catching up on retirement savings. How can we best navigate this situation?

The downpayment situation: A modest 2-bedroom home will cost around $600,000-$675,000 in our city. Ideally we’d move in October, by which time we’ll have $120,000 saved, but we can probably wait another year.

The retirement savings situation: My husband has $25,000 in an old Roth 401(k) that he plans to roll over to a Roth IRA.

I have $23,000 split between a Traditional and Roth IRA, and $10,000 fully vested in a Traditional 401(k). I’ve started to contribute monthly what would amount to the maximum towards my traditional 401(k). Since my husband doesn’t have any work benefits, I think he should put a maximum of $5,500 towards a back-door Roth.

I don’t think I should do Roth as my future jobs may have lower salaries. However, contributing to retirement reduces our down payment and puts us in a position of paying PMI for longer.

How should we think about these competing priorities, and does a Roth IRA for my husband and Traditional IRA for me make sense?

Tri asks:
I am 30 years old and I live in Washington, DC. I’m self-employed, debt-free, and my net worth is $128,000. I max out my Roth IRA, Simple IRA, and HSA yearly, and my monthly expenses are $1,270. I have two questions:

I would love to contribute more than the $12,500 allowed in my Simple IRA. I’m thinking of opening a SEP IRA or an Individual 401(k) – which one would you recommend?
Can you give me a quick and dirty overview of taxable brokerage accounts, like how often I have to pay taxes on this account?

Ren asks:
This is the first year I’ve started contributing towards the after-tax portion of my 401(k) plan, and I plan to roll the extra money over to a Roth IRA.

However, contributing this much money has left me with around $300 in my paycheck, and I’m thinking ahead to when I might need to liquidate my existing funds in my brokerage account.

Should I sell the funds at about zero loss (so no capital gain, no loss)? Is this a sound plan to follow to fund my mega-backdoor conversion? (Assuming that I’m not incurring any penalties on short-term or long-term capital gains.)

My second question is this: my brother-in-law wants to transfer his house to his parents. What’s the cheapest option to do this? The home is worth around $200,000. Does it make sense to transfer it?

Hailey asks:
I’ve finally decided that I want to pursue FI, but I don’t know where to start.

I’m 22 and making $80,000/year before taxes, but I also have $54,000 in student loan debt. This debt is creating a psychological block for me.

Since I’m frugal, I have a lot of money left every month to improve my net worth, but I’m not sure if I should aggressively pay off my student loans (half are at 6% and 7%), save aggressively, or do both in moderation. With any of these options, I feel like I’m missing out on something, and I can’t shake the feeling I’m not doing enough. What should I do?

Julie asks:
What happens to the 401(k)s I still have at previous employers? What steps do I take to figure out what to do with them? Do I put them together? Where?

Former financial planner Joe Saul-Sehy and I answer these questions in today’s episode. Enjoy!

Resources Mentioned:

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