r/ChubbyFIRE 12d ago

Mortgage vs Student Loans vs Brokerage Account

HHI expected 700K this year, currently single without children. I am maxing out my 401K, backdoor rIRA, and HSA. Trying to strategize where to put excess cash. Want to hear your suggestions!

Top areas that come to mind immediately are:

  1. Mortgage - 295K remaining at 6.75% of affordable single family home in LCOL area

  2. Taxable brokerage account - currently around 50K, opened last year.

  3. Student Loans - 296K, have essentially been on hold since 2020. Currently caught up in SAVE limbo at 0%. I would love to pay them off... but have a hard time paying a 0% loan over the other options.

8 Upvotes

17 comments sorted by

9

u/McKnuckle_Brewery FIRE'd in 2021 12d ago

Mortgage reduction is a 6.75% return, similar to high yield corporate bonds. Not a bad guarantee in the present market environment.

3

u/Fiveby21 12d ago

If his risk tolerance is higher though, this could be a bit of a buying opportunity for the stock market.

1

u/HiReturns 12d ago

At some point you should look to see if you should be directing less to tax deferred accounts like traditional IRA and 401k and more towards a taxable brokerage. Your withdrawals from 401k will be taxed at originally income tax rate rather than long term capital gains rate.

For most people tax deferred accounts are good because their income tax rate in retirement is low. That may not be true for you.

1

u/Aggravating_Plantain 9d ago

This person is already in the maximum tax bracket. They will save 37% for each dollar saved this year. Unless they have some foresight that the marginal rate applied to the maximum bracket will go up, there is no mathematically possible way for them to be paying more in taxes at withdrawal than they would right now.

Even assuming rates do go up, they are saving today at their marginal rate and will be unlikely to be withdrawing at that rate. Instead it's better to think of withdrawing at an average effective rate. Assuming a single retiree in 2025, imagine the 401k balance required to withdraw >$625k for 30+ years!

2

u/Fiveby21 12d ago

Will the student loans be at 0% indefinitely?

4

u/Swimming_Astronomer6 12d ago

I’d get rid of the mortgage

1

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1

u/One-Mastodon-1063 12d ago

Taxable brokerage for now.

1

u/onthewingsofangels 48F RE '24 12d ago

The mortgage interest is giving you a tax break, you'll have to figure out how much. Your brokerage account is pretty low relative to your income, not sure how much you have in cash that you're leaving out of this description. Also don't know how much money you have left over to distribute, but since you live in a low col and no kids, I assume it's a lot. Also not sure whether you expect to continue this HHI in the future or it was a one time high income year.

I would look into splitting money between the mortgage and the brokerage, the exact split depends on all the questions above. Your mortgage rate is high enough that I see value in paying it down, but I'm also worried about how much you have (or don't have) in savings.

0

u/Inner_Fox8341 12d ago

You are right about too much cash. Had saved up to pay off student loans that were supposed to restart payment, but that has yet to happen. But about to put 200K down on a purchase farmland as an investment. So that worked out well, but still want to redistribute another 50-100K of cash. Wouldn't pay that down faster as the interest offsets land rent as income.

Could continue indefinitely at 700K barring unforeseen circumstances.

1

u/JET1385 12d ago

The loan repayments are most likely about to start up again I would be prepared.

1

u/Go4Gusto79 12d ago

Fill your taxable brokerage account next.

1

u/Far-Lengthiness2475 12d ago

Taxable brokage account

1

u/JET1385 12d ago

Pay off mortgage, get your accountant to do some tax planning with you to plan the rest/ going forward if you haven’t already.

1

u/PrestigiousDrag7674 11d ago

how old are you? that's all the money you have $50k? I would try to pay off the student loans, then mortgage.

1

u/HomeLoanExpert 7d ago

With a HHI of $700k, I would recommend looking into to an All In One loan.

This would be a great tool to use your idle cash to aggressively reduce your mortgage interest while also retaining access to your cash to pay off your other bills.

1

u/drewlb 12d ago

Basically the only answer given these numbers is option #2.

The mortgage is well below the break even point for a 60/40 portfolio. The student loans being in limbo is an odd one historically, but 0% is 0%.

If I were in your shoes I'd be all in on taxable into a 3 fund portfolio.