Just Keep Saving

Michael and his wife are 27 and grossing $127,000 a year. They're renting and haven't bought a home yet. Should they contribute to a Roth IRA or put the money toward a down payment on a home?

QUESTION: Michael in Mobile and his wife are 27 and grossing $127,000 a year. They save 15% of their income for retirement, and they have $100,000 in liquid assets. They’re renting and haven’t bought a home yet. Should they contribute to a Roth IRA or put the money toward a down payment on a home? Dave recommends saving for a house.

ANSWER: I think you’re doing fine without doing the Roth IRA. I would try to build up my down payment on the house as large as it can possibly be so that we can move toward even the house being paid off. It’s that easy.

I’m going to really pile on this thing because you guys are doing so well. At the rate you’re going, by the time you’re 30, you’re going to have a huge pile of cash. I think you’re already on track for your retirement. If you wanted to back down your 401(k) by $10,000 so that you could do your Roth IRAs, that would be advisable. I would probably do that because a Roth is growing tax free, and that’s better than tax deferred. I would do that as long as that doesn’t get you down below the match.

This goal of having a huge down payment or even 100% down on a house is a great goal. There’s no reason for you to slow down. I think you’re doing beautifully.