Gyroscopic Investing

Hello all,

Newcomer, did not see an introduce yourself thread so hi. That's my introduction out of the way. I'm a recent reader of Mr. Rowling and Mr. Lawson's book and found it persuasive. I don't think I'm necessarily going to jump in both feet first, but every time I gain a little knowledge I look for ways to implement it going forward.

Background about how I too have a lousy 401k like everyone else:

Actually it's not that bad, it's just bad for the Permanent Portfolio.

So here's my quandry. My 401k option at my job presents several challenges, one of which is I have no option for Long Term Treasuries or anything remotely acceptable as a substitute (I have a bond "closet index fund", which is what I call an active fund that more or less just holds the index so the fund managers don't look bad in comparison, and a short term bond fund that is actively picked and a third bond fund that is an active picker like the PIMCO fund, or at least how PIMCO used to be not sure if it's still that way now). I did compare them and the first one is both the least expensive and seems to be the best managed of my choices, but the average maturity of its holdings is around 7 years, and really the other two aren't any longer.

Also the "stable value fund" I have is kind of awful. The expense ratio is lousy.

There's no brokerage window option, though there might be in the future, I was told, but I am not holding my breath.

So one thing I took away from the book is don't get caught up in being perfect and instead do what makes sense. What I think makes sense is use the tools I have to build a Larimore Three Fund style portfolio and just let it be. That's how it is now and I'll probably just leave it that way until such time I have better options.

Now, I told you that story to tell you this story:

The Tax Situation

So I am statistically average earner, which means part of what I earn is in the 25% tax bracket.

I'm at a point in my life where my mental calculus tells me that there is only so much tax as I can stand paying. The thought of every dollar past a certain amount being truncated 25 cents when I'm really not that high earning compared to so many others strikes me as unjust for obviously biased reasons. It just drives me crazy to think I'm "throwing away" a quarter on the dollar when there's a nice legal option our benevolent overlords have seen fit to bequeath peasants such as I to defer tax on that income a few decades, and paying 25%, well it is my own personal nails on a chalkboard. It's a bit neurotic but at least it's a neuroticism which leads to beneficial behavior.

So this puts me in a bit of a pickle. On the one hand, I'd like to implement the Permanent Portfolio at least outside of my 401k and just accept my tax deferred investments as the "variable portfolio". On the other hand, I seem to save a lot of money up front just letting all raises go into the 401k, at least until I ran out of tax deferral space (which won't happen for a very long time if ever; my current salary would have to jump about 150% from its current levels which realistically couldn't happen for many years after which time the raising contribution limits and catch up contribution provision for those over the age threshold would create so much space I could never exhaust it unless I became the top executive at my current employer).

I did look into having a 401k and a traditional IRA with a broker at the same time, but I am right at the cusp where I don't get the full deduction for doing that and that bothers me. I'm not one to make class warfare arguments, but it does seem our Byzantine tax system helps either the very low income and the FI but doesn't do much for the statistical middle of the range FI seeking accumulators such as myself sometimes. Well that's not fair, the real problem here is 401ks are universally mediocre to bad, but I digress.

Now rest assured, at some point I would be implementing the Permanent Portfolio Strategy. After all I won't be at my current job forever (one way or the other I will eventually be fired, quit, or retire) and when I roll over that 401k somewhere I can invest it in anything I want at that point. And in a few years after I expand my cash cushion to 6 months of expenses and enough cash to buy my next car out of pocket, I'm going to use it as a long term savings allocation for some major purchases I think I'll make when I'm 55+ (I'm 36 now). Since I don't really have a time frame for those purchases that's definite I think I should be more aggressive than just saving cash.

TL;DR

So given that tax deferral investment vehicles may not allow for the implementation of the Permanent Portfolio, is it better to take the very large tax savings and just build your standard Bogle-esque portfolio with what you have and bide your time until you have better choices, or hold your nose, pay the tax and then be free to invest it however you choose?

At the 15% marginal tax rate, I'm indifferent to tax deferred or Roth style investments or even just throwing it in a taxable account if that suits my goals, but at the 25% I want to avoid paying that kind of tax rate ever (which is easily done for me).

You might want to post this over on Bogleheads. It sounds like the kind of question that would be better answered over there.

But generally speaking I always try to pay as little tax as I can in whatever situation I'm in because you don't know what the future holds. Taxes could be more or less. You only know what they are now.

Is that the best advice on the subject? How the hell do I know? Just the way I see things.

farjean2 wrote:You might want to post this over on Bogleheads. It sounds like the kind of question that would be better answered over there.

But generally speaking I always try to pay as little tax as I can in whatever situation I'm in because you don't know what the future holds. Taxes could be more or less. You only know what they are now.

Is that the best advice on the subject? How the hell do I know? Just the way I see things.

Good advice.

I'm in a very similar situation. My worry is the required minimum distributions when I hit age 70 or whatever the age is. How can I make a reasonable guess on whether it's better to pay the 25% tax now, rather than having the RMDs push me into a higher than 25% bracket later? Obviously, we don't know what tax brackets will be like in 20 years, so I'd have to make some assumptions, but still are there any reasonable rules of thumb available? Currently, I'm basically maxing out my 401k space, but sometimes I wonder if I'm making a mistake.

stuper1 wrote:I'm in a very similar situation. My worry is the required minimum distributions when I hit age 70 or whatever the age is. How can I make a reasonable guess on whether it's better to pay the 25% tax now, rather than having the RMDs push me into a higher than 25% bracket later? Obviously, we don't know what tax brackets will be like in 20 years, so I'd have to make some assumptions, but still are there any reasonable rules of thumb available? Currently, I'm basically maxing out my 401k space, but sometimes I wonder if I'm making a mistake.

Yeah, I had the same concerns. I am now in the take RMDs stage. I think the best advice is to aim for balance - try to save all you can so you can enjoy life when you retire, and enjoy life all you can in the present while you are healthy and young, all at the same time. The concept of "enough" is also good to mull over. You may find out in retrospect that you could have done better, but, if you have "enough" it really does not matter. Bottom line: study, learn, investigate, make your decisions, invest to the best of your ability and then let the chips fall as they may. Control what you can and don't worry about what you can't. Sounds like you are well on your way to doing that. Best wishes.

Mountaineer,

If these questions are too invasive, I apologize and will certainly understand if you prefer not to answer or want to generalize. What was your tax bracket before retirement? Did you save most everything into tax-deferred space, or did you save a lot as after-tax savings also? What is your tax bracket now with your RMDs?

Welcome, Knot!

I'm not sure precisely what you're asking, but here's my answers to a few of your questions:

- Tax deferral now, especially if you have a lot of years between now and withdrawal time, is almost always a win. Play around with a spreadsheet and you'll see. The magic of tax-free compounding is unbeatable. Also, remember that you are saving taxes at your marginal rate now, but the withdrawals at the other end will be at your *average* tax rate.

- Completely agree with what Tenn said about the PP-unfriendly 401K. I did exactly the same thing. Slight nitpick: this is a core investment, not a variable portfolio. An indexed stock/bond mix is a perfectly valid investment strategy. We here at the PP forum just think we can do better :-).

- There are lots of posts at Bogleheads about the order of accounts to save into. I believe it's 401K up to company match, then HSA, then 401K until maxed out, then Roth IRA, then taxable savings. HOWEVER - save for cash needs before maxing out the 401K. This includes emergency fund and savings for big ticket items like house purchase. The EF eventually can be absorbed into the PP, but that won't be possible early on.

Taxable liquidity is always an issue. It sounds like you could well end up in a situation where 100% of your savings are tax-advantaged, which is a bit uncomfortable. That's why piling up a cash cushion should be a high priority.

WiseOne wrote:remember that you are saving taxes at your marginal rate now, but the withdrawals at the other end will be at your *average* tax rate.

Aren't traditional IRA (and similar) withdrawals taxed at the marginal rate at the time of withdrawal? It's as though you'd earned that income at the time of withdrawal instead of when you actually earned it. No?

stuper1 wrote:Mountaineer,

If these questions are too invasive, I apologize and will certainly understand if you prefer not to answer or want to generalize. What was your tax bracket before retirement? Did you save most everything into tax-deferred space, or did you save a lot as after-tax savings also? What is your tax bracket now with your RMDs?

Tax bracket before I retired - I really don't remember, probably 25% or similar - whatever the brackets were then. Last several years in retirement before taking RMDs was usually 15% with an occasional 25%. Bracket after taking RMD, 25%. I put most of my savings into a 401k when I was working (I worked for only one company during my career so had only one 401k). A few years after I retired I decided to put in a rollover IRA at Vanguard - better choices and lower expense ratios. Best wishes.

One small quibble with WiseOne"s list...ROTH then 401K max...but of course up to the match always first. With regard to taxes, even with equal tax rates now and when retired always defer because you will be able to compound better. You can find some internet simulations on the impact of taxes on final nest eggs and it ain't pretty. Lower tax rates now higher later gets tough...spreadsheet and lots of assumptions to make that call.

Don't bother with the PP in an unsuitable 401k; just do the best you can and try for a 60/40 portfolio, or whatever best matches your tolerance for stock market volatility.

If possible contribute enough to your 401K to lower your top tax bracket to 15%. Once that's your top bracket, your capital gains tax rate is 0%, so you can safely contribute the remaining investment funds to a taxable account.

I agree with your preferred implementation. I only have global stock holdings in my 401k's and traditional IRA. I implement the PP where it's not a hassle, meaning mostly the old Roth and taxable; it's pretty tax efficient. Cash and gold almost all taxable. Long bonds don't really kick out much cash anyways, so if you can't fit those in a Roth or something, no big deal. You'd only be shielding $7.50 a year for a $1,090 bond with a 3% coupon in the 25% bracket, vs $3.07 from $1,090 invested in VTSAX at current 1.88% yields. For the $18,000 you can put in a 401k, that's a difference of like $75.

What did you mean by

I did look into having a 401k and a traditional IRA with a broker at the same time, but I am right at the cusp where I don't get the full deduction for doing that

?

Kbg wrote:One small quibble with WiseOne"s list...ROTH then 401K max...but of course up to the match always first. With regard to taxes, even with equal tax rates now and when retired always defer because you will be able to compound better. You can find some internet simulations on the impact of taxes on final nest eggs and it ain't pretty. Lower tax rates now higher later gets tough...spreadsheet and lots of assumptions to make that call.

Kbg,

You statement above seems contradictory to me, but probably it's because I don't understand. You say that, after contributing to 401k up to company match and maxing HSA, contribute to Roth max and then 401k max. Then, you say that with regard to taxes, you should always defer taxes when possible. Isn't that a contradiction if you are maxing out the Roth and only later maxing out the 401k? The Roth is not tax deferred, because you pay the taxes up front.

A ROTH doesn't defer taxes, it eliminates them on the backside. (Unless Congress decides to change it's mind one day...)

A couple of good years in the market will more than make up the difference you have to pay in taxes upfront on a ROTH.

Note: There is an assumption here that you are youngish.

Kbg wrote:A ROTH doesn't defer taxes, it eliminates them on the backside. (Unless Congress decides to change it's mind one day...)

A couple of good years in the market will more than make up the difference you have to pay in taxes upfront on a ROTH.

Note: There is an assumption here that you are youngish.

Exactly, a Roth doesn't defer taxes. You said to "always defer", but you also said to max out the Roth before you max out the 401k. Isn't that a contradiction? If I want to defer, shouldn't I max out the 401k before I max out the Roth?

Spreadsheets are wonderful things. An HP12C works nicely as well. Check out the bottom line FV or PV.

Spreadsheets are wonderful things. An HP12C works nicely as well. Check out the bottom line FV or PV.

Yes always defer unless avoidance is possible, don't you think?

Xan wrote:

WiseOne wrote:remember that you are saving taxes at your marginal rate now, but the withdrawals at the other end will be at your *average* tax rate.

Aren't traditional IRA (and similar) withdrawals taxed at the marginal rate at the time of withdrawal? It's as though you'd earned that income at the time of withdrawal instead of when you actually earned it. No?

Unless you've got a large source of regular income in retirement, not all the RMD will be taxed at the marginal rate. I'm assuming no pension since the OP didn't mention this. SS by itself would be unlikely to get you all the way up to 25% in one shot.

The relative order in which one should save into a Roth is interesting. Dualstow should weigh in here as he does mainly Roth for retirement contributions because of his tax bracket, and he argued rather persuasively that this was the right move. If you are only just above the 15% bracket, perhaps the priority should be 401K for any money that would otherwise be taxed at 25%, then Roth (as PS suggested). If you're well above 15%, then tax deferral is a higher priority. If you're entirely in 15%, then there's little advantage to tax deferral and you might as well not bother with the 401K above company match - everything else should go into the Roth or taxable.

It's kind of weird that there's such a big leap from 15% to the 25% bracket, whereas above 25% there are only small rate increases (28% etc) until you get to AMT land. If the "flat tax" change is made I imagine there will be a big rethinking of investment structures.

Some really good info on this thread.

Whenever I see WiseOne and Kbg and Tenn argue in favor of a point that I don't follow myself, I have to assume that I am missing something.

For what it is worth, here is my simplified view of taxes.

I view all tax loophole/savings opportunities the same way that I view coupons and loyalty programs. Those savings are never “free”. Someone is hoping to benefit and dollars to donuts that person isn’t necessarily thinking of my best interests.

IRA's, Roths, Health Savings Accounts. Those are "Good Things". Good People would save money in them and "By God" we'll give you a tax break if you "Do the Right Thing".

Well... I'm not necessarily one of those good citizens and my spreadsheet shows a few different options...

(Note - I attribute a very high value to opportunity cost)

Not that I won't try and exploit a few tax loopholes now and then when I find them, but... if my spreadsheet says "More options with cash in the bank" vs. "Better Tax treatment with 401K", then I sit up a few nights and figure out which is better for *ME* - assuming that whatever legislation that is currently active is temporal.

Taxes and Legislation try to make the world better on average, based on the majority morality. That may or may not fit your life goals. Don't make all of your decisions strictly on tax savings or you will be subscribing to the generally accepted "good behavior".

Thanks for all the thoughts everyone. Sorry I had to be gone for a family emergency.

I will try to clarify a few details soon about my exact situation. I did ramble a bit, I get diarrhea of the keyboard sometimes.

Mark Leavy wrote: IRA's, Roths, Health Savings Accounts. Those are "Good Things". Good People would save money in them and "By God" we'll give you a tax break if you "Do the Right Thing".

Well... I'm not necessarily one of those good citizens and my spreadsheet shows a few different options...

(Note - I attribute a very high value to opportunity cost)

Not that I won't try and exploit a few tax loopholes now and then when I find them, but... if my spreadsheet says "More options with cash in the bank" vs. "Better Tax treatment with 401K", then I sit up a few nights and figure out which is better for *ME* - assuming that whatever legislation that is currently active is temporal.

While Knot Theory is gathering data, I'd be interested to hear more of what your spreadsheet is telling you.

I've been debating setting a cap on the amount of tax-deferred retirement savings, which will mean throttling back 401K contributions. Something like no more than 60% of total savings. There are real disadvantages to being over-stuffed with tax-deferred savings, and ending up with income in the 25% tax bracket as a result during retirement. Like, losing property tax rebates, getting hit with taxes on Social Security income, and having to pay capital gains taxes.

WiseOne wrote: While Knot Theory is gathering data, I'd be interested to hear more of what your spreadsheet is telling you.

I've been debating setting a cap on the amount of tax-deferred retirement savings, which will mean throttling back 401K contributions. Something like no more than 60% of total savings. There are real disadvantages to being over-stuffed with tax-deferred savings, and ending up with income in the 25% tax bracket as a result during retirement. Like, losing property tax rebates, getting hit with taxes on Social Security income, and having to pay capital gains taxes.

It's really quite the individual thing, isn't it?

I have been living off of my investments for about 5 years now - and am still a decade younger than a traditional retirement age.

Even so... about 5 years before I stopped having "earned wages", I realized that my future was opportunistic - and uncharted. So I stopped putting money into any 401K plans. I had no idea what the future would bring, and had had some ups and downs in the past. So, for me, I realized that a ready pool of super liquid cash with no strings attached was extremely valuable to me as a safety valve.

I definitely lost some money due to not taking advantage of deferred taxes, but having that cash in a savings account helped me ride a few ups and downs when starting a business - and that worked out favorably in the long run.

I have another startup now that is doing fine (a few years old). But also has the occasional hiccup and so it is nice if I can offer a short term bridge loan now and then. Thus, I still don't put any cash in IRA's or 401k's. It is just too handy to have it liquid.

That is just my situation and I really believe that everyone's life, opportunities and temperament are different. There is no right or wrong. My only caution is to take a critical look at any incentives - and see if they are working in your best interests.

farjean2 wrote:You might want to post this over on Bogleheads. It sounds like the kind of question that would be better answered over there.

I love bogleheads. I made an account but never really posted there, mostly because it's so information dense, anything you want to know has been discussed 20 times already, haha.

My very first asset allocation was in an actively managed aggressive growth stock mutual fund. A "Dave Ramsay" fund, because I young and ignorant and had no idea who Jack Bogle even was. Oh to think how ignorant I was! I adopted the Bogle-esque 3-fund portfolio some years ago however and have been very pleased with it:

https://www.bogleheads.org/wiki/Three-fund_portfolio

Though I have recently tweaked my allocation to 45 US index/15 Ex- US index/ 40 Bond Index, which isn't that drastically different I just have been thinking about being a little more conservative with the allocation for the last two years and finally decided to do this going forward.

Anyway I think bogleheads is great, but one thing that's always bothered me about the Boglehead approach is that it doesn't do a great job of trying to address "off spreadsheet" risks or the fact that asset "classes" (a la The Coffehouse Investor) often aren't actually that distinctive from one another to merit all the fuss.

I got my hands on Harry Browne's original book some time ago, and well, here I am now. This is honestly the first attempt I've ever seen to really try to navigate between assuming society is going to chug along like it has and assuming everything is going to hell . I joke, but it's such an elegant approach it's made me question what I've been doing this whole time, if I'm not just as ignorant after reading Mr. Bogle's books as I was when I opened my first IRA.

TennPaGa wrote:Yours is a common story. When I was in a similar situation, I decided to not worry about trying to shoe-horn a PP asset mix into a 401k. Instead, I simply chose a decently conservative stock/bond allocation and maxed out the 401k. As you said, you'll eventually change jobs, so once you roll over this 401k into an IRA, you can easily put that money in a PP allocation.

That's fortunate in its own way. I have learned many problems in life that seem novel and unique to me, because they're happening to me, actually aren't unique at all.

I do wish there was a better answer than do the best you can, but I guess that's the only answer we have in life anyway.

WiseOne wrote:Welcome, Knot!

I'm not sure precisely what you're asking, but here's my answers to a few of your questions:

- Tax deferral now, especially if you have a lot of years between now and withdrawal time, is almost always a win. Play around with a spreadsheet and you'll see. The magic of tax-free compounding is unbeatable. Also, remember that you are saving taxes at your marginal rate now, but the withdrawals at the other end will be at your *average* tax rate.

Right, I'm completely on board there, but I'll try to clarify what I was getting at:

The Bogle-esque indexing of stocks and bonds (or as close to indexing as I can come) I've been doing is unquestionably not the worst thing in the world, but the problem is, it assumes that the United States dollar doesn't collapse, it assumes that the country is overall prosperous in the future with the booms outweighing the busts, deflation doesn't occur ever again, etc.

The truth is, I've come to the opinion that while buying a 60/40 stock/bond index portfolio makes a lot of sense, it involves a lot of childlike naivete to assume that portfolio is going to perform. Didn't Mr. Bogle himself recently say the return on stocks in the next ten years is only going to be 2% or so and the bonds less than that? Granted, he could easily be wrong.

The real point is, now that I've seen the flaws in this approach, it seems to me that it's a question of judgment whether it's wise to do what makes sense on paper because we just don't know what's going to happen, or whether it would be wise to implement this knowledge now despite the opportunity costs for the same reason.

WiseOne wrote:- There are lots of posts at Bogleheads about the order of accounts to save into. I believe it's 401K up to company match, then HSA, then 401K until maxed out, then Roth IRA, then taxable savings. HOWEVER - save for cash needs before maxing out the 401K. This includes emergency fund and savings for big ticket items like house purchase. The EF eventually can be absorbed into the PP, but that won't be possible early on.

Taxable liquidity is always an issue. It sounds like you could well end up in a situation where 100% of your savings are tax-advantaged, which is a bit uncomfortable. That's why piling up a cash cushion should be a high priority.

Well I have a weird situation.

I am the worst of all things, a government employee. That means in my state I'm among the few workers who pays a special income tax known as a pension contribution that gives me a 9.5% haircut off my government salary. Really, I'm losing 19% of my pay because my agency has to match my contribution to the pension, but I digress.

This is good and bad, but the "good" part includes that 9.5% is tax deferred (the state holds my personal contributions in an account I would receive if I quit the state and requested a payout, I earn 5% interest on this).

Then because I'm a gubbamint stooge, I have both a 401k and a 457 plan. So ~10% of my gross going into the pension and two plans (and from what I can tell, the contributions to one don't count toward capping the other) worth of space means I can defer a lot more taxes than a lot of people can. So this is very good, but it makes trying to decide what the hell I'm going to do difficult sometimes, not because I don't understand what's mathematically good but because it involves a lot of "what kind of life am I going to have" decisions (for example, in some spreadsheets I think I could be FI at age 52, but to avoid a 15% penalty on pension payments I'd have to lose 3 more years of my life going to work).

Basically, if I didn't have to pay for the pension and instead got a 9.5% match on 401k contributions, it would shave many years off my working career. But, theoretically, retiring this way should be rather robust as I would have my personal savings, the pension, and Social Security (though the stewardship of the latter two leaves much to be desired and I doubt I'll ever see a penny from either).

Pointedstick wrote:Don't bother with the PP in an unsuitable 401k; just do the best you can and try for a 60/40 portfolio, or whatever best matches your tolerance for stock market volatility.

If possible contribute enough to your 401K to lower your top tax bracket to 15%. Once that's your top bracket, your capital gains tax rate is 0%, so you can safely contribute the remaining investment funds to a taxable account.

A very good point. Doesn't really effect me much right now but I'll have to keep it in mind going forward.

Kriegsspiel wrote:I agree with your preferred implementation. I only have global stock holdings in my 401k's and traditional IRA. I implement the PP where it's not a hassle, meaning mostly the old Roth and taxable; it's pretty tax efficient. Cash and gold almost all taxable. Long bonds don't really kick out much cash anyways, so if you can't fit those in a Roth or something, no big deal. You'd only be shielding $7.50 a year for a $1,090 bond with a 3% coupon in the 25% bracket, vs $3.07 from $1,090 invested in VTSAX at current 1.88% yields. For the $18,000 you can put in a 401k, that's a difference of like $75.

What did you mean by

I did look into having a 401k and a traditional IRA with a broker at the same time, but I am right at the cusp where I don't get the full deduction for doing that

?

Also good points.

To the latter: Apparently you can have a traditional IRA and an employer sponsored 401k type plan, but if your (gross?) income is at a certain level (and mine is just there right now), the tax benefit is phased out for the tIRA.

My thought was initially: Hey, why not just open a tIRA at some brokerage firm where I can invest in anything I want and set up a PP inside of it and reduce my 401k contributions by that amount, I'll still get my tax savings it'll just be a bit messy.

But if the benefit gets phased out, it's like... why bother? If I'm not going to get credit for the deferral I'll just put in my Roth IRA.

WiseOne wrote:It's kind of weird that there's such a big leap from 15% to the 25% bracket, whereas above 25% there are only small rate increases (28% etc) until you get to AMT land. If the "flat tax" change is made I imagine there will be a big rethinking of investment structures.

I know! It really changes your mental calculus. Like I said before, the system just seems to "squeeze" me.

WiseOne wrote:I've been debating setting a cap on the amount of tax-deferred retirement savings, which will mean throttling back 401K contributions. Something like no more than 60% of total savings. There are real disadvantages to being over-stuffed with tax-deferred savings, and ending up with income in the 25% tax bracket as a result during retirement. Like, losing property tax rebates, getting hit with taxes on Social Security income, and having to pay capital gains taxes.

I think this is a more advanced version of where I am. I am nowhere near being able to retire, but I have to find some point between tax d deferral and cash liquidity to achieve a certain piece of mind. In my case, I am trying to:

- Form a 6 month emergency cash cushion. A major decision will be made at my employer in May of 2019, I need to be ready in case it goes badly.
- Pay cash for my next car in 2028. I almost made it last time with a 75% down payment but I'm trying to never finance a car ever again unless it's done strategically to pump my credit score past 800 to get a lower mortgage rate.
- Get together a 20% down payment for a house. Rent increases 7 to 10 percent a year, it is killing me!
- Avoid 25% tax rates.

The first and the third goals are rather desperate ones, so it's just very hard right now to make decisions as these priorities compete.

Knot,

It sounds like cash, not long-term investments, is your top priority in taxable right now. I wouldn't dive into the PP just yet.

Perhaps you could continue to throw whatever income would be taxed at 25% into retirement savings, then put the rest into taxable cash to save toward those goals you mentioned.

A word about home-buying...why are rents going up 7-10%/year in your area? If it's because of property tax increases, then buying property won't save you from that. If it's because there's a shortage of available rentals, then buying may be a good idea unless that same squeeze is driving up home prices as well. The decision to buy, really, is about whether you plan to stick around for at least 5-7 years. The way you're talking about your job raises that question, for sure.

Mark Leavy wrote: Not that I won't try and exploit a few tax loopholes now and then when I find them, but... if my spreadsheet says "More options with cash in the bank" vs. "Better Tax treatment with 401K", then I sit up a few nights and figure out which is better for *ME* - assuming that whatever legislation that is currently active is temporal.

I'm in the same boat as you, Mark.

Tax-deferred retirement accounts are designed to benefit the very specific goal of saving money to retire on when you hit 60+. Sure you can access money before that if you jump through a few narrow hoops, but in general they're not designed with that purpose in mind. The primary goal is to help the average person 1) save more than zero for retirement, and 2) hopefully forget about that money so they don't touch it too soon.

A while back I decided that waiting until 60 to retire was a life assumption I was ready to challenge. I wanted to do it before 40 and met my goal with a few years to spare. Well, someone in my situation has a very different viewpoint of the benefits of tax-deferred savings versus liquid money I can spend today. I made a conscious decision as I was accumulating to not necessarily max out my tax-deferred savings, and instead focused on maintaining a set percentage of my net worth in taxable vs. tax-deferred. It's all about not putting all of your eggs into one basket with a lock on it.

Now I fully admit I'm an outlier. I just wanted to point out that tax savings is not necessarily the only thing you can optimize for and sometimes a bit of balance is helpful.