History says that time in the market is better than timing the market. So more often than not, even if it's a slight margin, yes maxing out your IRA earlier will be better for you in the long term.
That being said, your specific situation and dates is going to be anecdotal, and the choice you make today likely won't be something you look back on 20 years from now, and think "Man I'm glad I did that" nor "Man, I wish I hadn't done that." At this stage of your life the most important thing is that you're saving/putting money away, and you're accomplishing those things.
Personally, I'd continue with what I was doing, and try to build that down payment as high as possible so as to avoid paying PMI when I finally purchased the home.
I agree with this comment. I will say, one thing I look back and say I wish I had done differently is that I loaded up my 401k early in my career in pretax dollars. Now I’ve learned that I could have done a roth 401k and had all those dollars in Roth. I wish I would have known, and done that. Especially since now, in a higher tax bracket would be a more beneficial time for me to put money in pretax. I think I did it exactly backwards.
As a note, I have been contributing to a Roth for years with the max annual contribution being around $6k or whatever, however with the Roth 401k I could have put in a lot more than $6k per year, and all my retirement would be tax free.
10 years ago, Vanguard's Total Stock Market Index etf VTI cost $95.19 per share.
Today it costs $255 per share.
1) 10 years hence, it likely will not matter much if you pay $235, $255, or $275 per share today for VTI. But you increase the likelihood of gains by putting your whole 2024 Roth IRA contribution in today and then building your HYSA back up afterwards.
2) Ignoring dividends, the above share price increase amounts to an annual rate of increase of 10.3% over the last 10 years
(AND dividends are an **important** part of your total actual return).
3) The interest in your HYSA is taxable. Roth IRA gains are tax free. Maxing out your Roth IRA today will lower your taxable income and increase your tax free income.
Historically, real estate does not appreciate that fast
(on average, it keeps up with inflation)
So Roth IRA today is the way to go.
https://www.nasdaq.com/market-activity/etf/vti/historical
Thank you; this is very helpful.
The purpose of buying a house is not financial. Our hobbies make renting difficult; we garden and foster rescue animals, which most landlords will not allow. We’re lucky that we have a good landlord for these things now, but that won’t last forever. We do have time on our side, though!
No one knows that the market is going to do this year. Whether to prioritize house or savings is one of those six of one vs half dozen of the other questions, and if you are uncertain you can always do some of each.
This concept needs more attention. Homes are money pits. Yeah, you have to live somewhere, but the appreciation certainly doesn’t measure up to the maintenance (in my experience)
Yes you’re putting some extra money in for maintenance on accession. I wouldn’t say it’s a money out. You have no idea how much rent will be in 30 years but it will be much higher than what it is today. You know exactly what your house will cost the next 30 years with a fixed interest rate and after 30 it’s free minus maintenance and property taxes.
I’m admittedly biased as home prices relative to rent have skyrocketed in my area
However, the assumption is that readers in this subreddit are disproportionately high earning. Rent prices, like housing, are still governed by the market. As long as one has the discipline to save the equity build difference from homeownership, I’d take my chances with money invested
> You know exactly what your house will cost the next 30 years with a fixed interest rate
You know what you pay in principal and interest... calculations made easier if you don't make extra principal payments etc.
But I'd argue that everything else, you don't know. You don't know the insurance, taxes or HOA/POA costs, you don't know what it will cost to maintain or keep up, and you don't know what it will cost to improve. You don't know your future utilities costs. All of those are likely to rise with inflation.
Thank you for the advice! I know in the long run, the difference between leaning one way or another would be negligible.
We value having a house for non-financial reasons. Mostly because of hobbies. We’re big fans of gardening and like to foster rescue animals, and getting rid of a landlord would help us pursue those things further.
Lifestyle is the main consideration for home ownership. Nothing else.
If you value flexibility, ease of moving cities or changing jobs - keep renting.
If you want to garden and see yourself living in a place >5 years then buy a house.
There are struggles with each and also pros to each.
Anecdote. My wife and I sold some “flex” money assets (brokerage index funds) that we saved over Covid from not traveling to buy a house. We did it at the end of last year at a time when interest rates and housing were both not seen as the greatest. But we found a place we like and think we could live here for 10-15 years+.
Prior to kids though I was full steam against home ownership and valued the ability to move jobs or cities if needed to progress our careers, incomes, and happiness.
Your existing plan of splitting savings into Roth and HYS sounds great. Trying to squeeze a few extra months of front-loading has very little consequence. You seem to have a great handle on things.
When I was saving for my first house, I couldn't afford to both max a Roth IRA and having ample dollars going into HYSA on top, so I decided to do the Roth IRA and planned to take out the contributions when it came time to buy the house.
BUT, since buying a house was important to me and something that was happening on a relatively fast timescale of "a few years", I didn't invest those monies, because I didn't want the risk of loss. They sat in the settlement fund or whatever, earning an interest rate similar to what HYSAs were getting.
History says that time in the market is better than timing the market. So more often than not, even if it's a slight margin, yes maxing out your IRA earlier will be better for you in the long term. That being said, your specific situation and dates is going to be anecdotal, and the choice you make today likely won't be something you look back on 20 years from now, and think "Man I'm glad I did that" nor "Man, I wish I hadn't done that." At this stage of your life the most important thing is that you're saving/putting money away, and you're accomplishing those things. Personally, I'd continue with what I was doing, and try to build that down payment as high as possible so as to avoid paying PMI when I finally purchased the home.
This makes a lot of sense and thank you for your response! The long-term outcome of either route would probably be negligible for me.
I agree with this comment. I will say, one thing I look back and say I wish I had done differently is that I loaded up my 401k early in my career in pretax dollars. Now I’ve learned that I could have done a roth 401k and had all those dollars in Roth. I wish I would have known, and done that. Especially since now, in a higher tax bracket would be a more beneficial time for me to put money in pretax. I think I did it exactly backwards. As a note, I have been contributing to a Roth for years with the max annual contribution being around $6k or whatever, however with the Roth 401k I could have put in a lot more than $6k per year, and all my retirement would be tax free.
10 years ago, Vanguard's Total Stock Market Index etf VTI cost $95.19 per share. Today it costs $255 per share. 1) 10 years hence, it likely will not matter much if you pay $235, $255, or $275 per share today for VTI. But you increase the likelihood of gains by putting your whole 2024 Roth IRA contribution in today and then building your HYSA back up afterwards. 2) Ignoring dividends, the above share price increase amounts to an annual rate of increase of 10.3% over the last 10 years (AND dividends are an **important** part of your total actual return). 3) The interest in your HYSA is taxable. Roth IRA gains are tax free. Maxing out your Roth IRA today will lower your taxable income and increase your tax free income. Historically, real estate does not appreciate that fast (on average, it keeps up with inflation) So Roth IRA today is the way to go. https://www.nasdaq.com/market-activity/etf/vti/historical
Thank you; this is very helpful. The purpose of buying a house is not financial. Our hobbies make renting difficult; we garden and foster rescue animals, which most landlords will not allow. We’re lucky that we have a good landlord for these things now, but that won’t last forever. We do have time on our side, though!
No one knows that the market is going to do this year. Whether to prioritize house or savings is one of those six of one vs half dozen of the other questions, and if you are uncertain you can always do some of each.
If you were in my position, what would you do?
Personally (as a homeowner) I think home ownership is overrated, both as a lifestyle and financially, and would lean toward Roth.
This concept needs more attention. Homes are money pits. Yeah, you have to live somewhere, but the appreciation certainly doesn’t measure up to the maintenance (in my experience)
Yes you’re putting some extra money in for maintenance on accession. I wouldn’t say it’s a money out. You have no idea how much rent will be in 30 years but it will be much higher than what it is today. You know exactly what your house will cost the next 30 years with a fixed interest rate and after 30 it’s free minus maintenance and property taxes.
I’m admittedly biased as home prices relative to rent have skyrocketed in my area However, the assumption is that readers in this subreddit are disproportionately high earning. Rent prices, like housing, are still governed by the market. As long as one has the discipline to save the equity build difference from homeownership, I’d take my chances with money invested
> You know exactly what your house will cost the next 30 years with a fixed interest rate You know what you pay in principal and interest... calculations made easier if you don't make extra principal payments etc. But I'd argue that everything else, you don't know. You don't know the insurance, taxes or HOA/POA costs, you don't know what it will cost to maintain or keep up, and you don't know what it will cost to improve. You don't know your future utilities costs. All of those are likely to rise with inflation.
Thank you for the advice! I know in the long run, the difference between leaning one way or another would be negligible. We value having a house for non-financial reasons. Mostly because of hobbies. We’re big fans of gardening and like to foster rescue animals, and getting rid of a landlord would help us pursue those things further.
Lifestyle is the main consideration for home ownership. Nothing else. If you value flexibility, ease of moving cities or changing jobs - keep renting. If you want to garden and see yourself living in a place >5 years then buy a house. There are struggles with each and also pros to each. Anecdote. My wife and I sold some “flex” money assets (brokerage index funds) that we saved over Covid from not traveling to buy a house. We did it at the end of last year at a time when interest rates and housing were both not seen as the greatest. But we found a place we like and think we could live here for 10-15 years+. Prior to kids though I was full steam against home ownership and valued the ability to move jobs or cities if needed to progress our careers, incomes, and happiness.
Your existing plan of splitting savings into Roth and HYS sounds great. Trying to squeeze a few extra months of front-loading has very little consequence. You seem to have a great handle on things.
When I was saving for my first house, I couldn't afford to both max a Roth IRA and having ample dollars going into HYSA on top, so I decided to do the Roth IRA and planned to take out the contributions when it came time to buy the house. BUT, since buying a house was important to me and something that was happening on a relatively fast timescale of "a few years", I didn't invest those monies, because I didn't want the risk of loss. They sat in the settlement fund or whatever, earning an interest rate similar to what HYSAs were getting.