What should my financial plan be for next 10 years.

Question

Hello,

I need help with long-term financial strategy questions for me and my family and hope the folks on this forum can help. Here is my financial summary:

* Both me and my wife have W2 incomes (AGI > 400K). Most of the income is from base + cash bonus. There isn't a significant stock component to it.

* 2 kids in elementary school who will be going to college in ~10 years

* We stay in an extremely high-cost-of-living area (think NYC or San Francisco). Current jobs can not be remote. But relocating to another area while maintaining similar incomes might be possible in ~1-2 years. This is something we are working towards.

* Investment strategy so far has been Max out 401Ks ($20,500 each), backdoor ROTHs, diversified index funds/some stocks, and 4%+ CDs or Treasury bonds.

* We have 3 rental properties (2SFR and 1 triplex). Total cashflow from these is ~$1500/month. All of them are on a fixed rate mortgage with 10-20 years remaining.

We are blessed to be in a position of being financially comfortable and have an opportunity to plan for the future.

We need help answering the following questions:

1. Where can we invest to reduce our income tax bill today and have steadier income 5-10 years in the future? Someone suggested looking into multifamily syndication. Is there any other investment or business endeavor that can us achieve our goals?

2. There might be a one-time financial windfall from either of our employers due to an acquisition/IPO. How should we plan for this windfall?

We want to invest today so that today's earnings/savings translate into income when kids are finishing high school or entering college.

I have talked to a couple of CPAs about this and they are only interested in entering my financial information into a software and bill me for filing taxes. The Financial Planners I talk to only want to sell me financial products, which I dont trust.

Both I and my wife figured out rental property investment, house hacking through BP and are looking forward to learning more.

Randall Alan · Answer

@Asim G.

I think real estate would perform better than a stock return, so I would quit max funding your 401k and just put in what your company will match. Then take the money you didn’t put into the 401k and put it toward more passive income investments… for me that is rentals… but there are obviously other options. Since you are familiar and comfortable with rentals I would stick to that plan. Syndication likely won’t make you more money than a self managed rental, but is more passive than self managing your own units.

You don’t mention college funds for your kids.  You might think about how you plan on funding that and put that plan in motion.

Your 401k won’t turn into income when the kids are hitting college unless you will be hitting retirement age then.  So that is another reason to not max-fund your 401k.

Rentals will provide you additional income each month and hopefully with 10 years appreciation you would see a significant gain on your property that you could use the remainder after taxes to fund some of your education expenses by either selling it, or cash-out refinancing it. Or you could sell your primary home and pocket up to $500,000 in gain with no tax consequence.

Randy

Chris Davidson · Answer

@Asim G. you are asking on a REI forum so guessing you have interest and desire in REI and looking for the path you want. But what are your goals. Are you wanting to leave your job in 10 years, or do you plan on building the most wealth possible?

Budgeting is the most important as with that kind of income it is easy to not notice small things. In my opinion cashflow will likely do little for your life right now as the cashflow from your rentals are less than 5% of you monthly income now. I would focus on growth areas and more passive investments to free up time for kids and work. Syndications can be great, but I like to have more say over my investments. House Hack in your market will likely be the biggest impact. It doesn't even have to be a multi family it could just be a live in flip type property that you turn to a rental or sell off once you move on. If you have funds left over I would look at grabbing more rentals that are in A - B markets that will cashflow heavy in year 5-10 and have more upside than cashflow strong markets year 1 since it likely won't make any impact on your life style.Way to crush it!

Brock Mogensen · Answer

Double down on real estate.  Seems you already have a conservative portfolio built out with retirements accounts and bonds.  I would continue to buy more real estate.  Figure out what your long term goal is in real estate. Are you looking to build an active portfolio? Or passive portfolio?  If active - continue to buy what you know.  If passive - look into investing in syndications.

Daniel Murphy · Answer

A few questions. When you say back door roths, do you mean contributing to a non deductible IRA? Are you converting them now, or plan to do so in the future? If you're converting them now, you may want to consider waiting until retirement or lower taxable years to do this.

Like others have said, real estate is likely going to be your best bet for tax deductions.  You could start a business & use that for tax writeoffs, but why not focus on what you already know? You could consider going the short term rental > material participate > STR loophole route. But chances are you may be too busy to do all of that.

Syndications can definitely improve your taxes. Many syndications seem to do cost seg studies & pass on the bonus deprecation to investors. This will provide you with more tax deductions, but it comes at a cost later.

A good friend ran into one of these IPO windfall events & the best option he found was real estate.

CPA's can tend to think about your current tax filing status, less so on the long term status. The financial planners you're talking to sound like dually registered planners, they offer fee for advice plus commissions. You may want to consider a fee only planner.  We don't have any products nor get paid any commissions.  We get paid either by consulting contracts, or assets under management & have no products to offer.

All in all, it's hard to beat real estate for all you're asking for. Tax deductions, future cash flow etc.  You may want to look into building, developing or something with relatively high up front costs. Something that would offer a fair amount of up front write offs.

What should my financial plan be for next 10 years.

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