Contribute to 401K or mortgage?

[cypher1]

Looking for feedback on either putting more money towards to my mortgage or 401K or some other savings. Right now my house is being rented (for at least another 12 months) allowing to me to put aside an extra 800 each month. I'm debating where I should be putting that extra money, even if its for a short period of time. I'm on the fence for extra payments on mortgage as I'm not sure how long I'll be in my house after my renter moves out.

Current mortgage balance is around 156K at 3.75% with just under 20 years left (age 39 in a few months).
Current contribution for 401K is 15%.
Other savings: Maxing Roth IRA and HSAs, along with EF and tuition for school part time.

[kork13]

Looks like you're generally in a good position. My questions:
1) What's driving you to consider leaving your current house?
2) What's your current 401k balance? Do you feel that you're on track with retirement, or concerned that you're not saving enough?
3) Are there any particular savings goals you have in the near term (next 1-5 years)?

I'm personally one to lean toward aggressive debt reduction. Pending your feelings on retirement balances, I'd say it looks like you're doing pretty good in that department. So I'd send at least a hefty portion of the excess against the mortgage. The nice thing about doing so is that even if you decide to sell/move in the next 1-2 years, you get that money back at the sale, and in the meantime reduce your debt load & interest payments. If you have other savings goals, you can take care of those as well. But if it were me, I'd focus on the mortgage.

[disneysteve]

If you are putting 15% in your 401k and maxing both a Roth and an HSA and have an adequate EF at 38 years old, you're probably on track for meeting retirement goals. I see nothing wrong with throwing some excess cash at the mortgage. It's a guaranteed 3.75% return (before the deduction is factored in) which isn't a bad return at all on your cash in today's low interest environment. If you end up keeping the house, it'll be paid off sooner. If you ever need cash, you can always borrow against your equity. Not really a downside to doing it aside from potentially missing out on larger gains in your other investments.

[Jluke]

401K max is $19000 for 2019. The more you put towards that the less you pay in taxes.

when I thought I had too much money leftover I started maxing my 401K and that solved that excess cash problem.

2020 the limit increases to 19,500

[cypher1]

Looks like you're generally in a good position. My questions:
1) What's driving you to consider leaving your current house?
2) What's your current 401k balance? Do you feel that you're on track with retirement, or concerned that you're not saving enough?
3) Are there any particular savings goals you have in the near term (next 1-5 years)?

I'm personally one to lean toward aggressive debt reduction. Pending your feelings on retirement balances, I'd say it looks like you're doing pretty good in that department. So I'd send at least a hefty portion of the excess against the mortgage. The nice thing about doing so is that even if you decide to sell/move in the next 1-2 years, you get that money back at the sale, and in the meantime reduce your debt load & interest payments. If you have other savings goals, you can take care of those as well. But if it were me, I'd focus on the mortgage.

1) I'm not in any hurry to sell, but in the last two years I've been torn with wanting to downgrade due to the size for one person (and yes, life situations can change at anytime). In the meantime I'd like to keep renting for the next 18 to 24 months while still in school, and save more money. My renter is a coworker friend, so I'm not actually making money off him, just saving more by lowering expenses each month. When he decides to move out, I wouldn't rent the house to complete strangers, so I'd move back in.
2) Most recently my totals were around 260K within 401K, traditional IRA, Roths, and taxables. And yes, I feel I'm on track with retirement savings, but always looking for tips or suggestions in case I'm off or behind.
3) EF currently around 1yr expenses. Savings goals for next 1-5 years is really just investing, and putting extra money aside for tuition and home repair/improvements.

i forgot to mention the only debt I have is the mortgage. Maxing 401K contribution would probably be about 20-21% which i'm not really too concerned with right now.

[cypher1]

401K max is $19000 for 2019. The more you put towards that the less you pay in taxes.

when I thought I had too much money leftover I started maxing my 401K and that solved that excess cash problem.

2020 the limit increases to 19,500

I agree Jluke, but wasn't sure if it made more sense to focus on my mortgage debt vs retirement/lowering taxes.

[corn18]

I use the boglehead priority for investing. While it doesn't speak to a mortgage, I would follow their list and max my 401k before prepaying a mortgage.

https://www.bogleheads.org/wiki/Prioritizing_investments

[jIM_Ohio]

Looking for feedback on either putting more money towards to my mortgage or 401K or some other savings. Right now my house is being rented (for at least another 12 months) allowing to me to put aside an extra 800 each month. I'm debating where I should be putting that extra money, even if its for a short period of time. I'm on the fence for extra payments on mortgage as I'm not sure how long I'll be in my house after my renter moves out.

Current mortgage balance is around 156K at 3.75% with just under 20 years left (age 39 in a few months).
Current contribution for 401K is 15%.
Other savings: Maxing Roth IRA and HSAs, along with EF and tuition for school part time.

Because it's a rental, the tax deductions will be higher if you keep the mortgage- ask your CPA/ tax preparer.

In general, if the pay down mortgage is short term, for example if extra payments frees up capital in 3 years or less, I could see paying down mortgage of house you live in.
If the pay down is longer term- meaning it would take 5-15 years to pay off the bank for a house you lived in, the ROI on the money will likely be higher maxing 401k (tax deductions, investment returns).

[srblanco7]

If you are putting 15% in your 401k and maxing both a Roth and an HSA and have an adequate EF at 38 years old, you're probably on track for meeting retirement goals. I see nothing wrong with throwing some excess cash at the mortgage. It's a guaranteed 3.75% return (before the deduction is factored in) which isn't a bad return at all on your cash in today's low interest environment. If you end up keeping the house, it'll be paid off sooner. If you ever need cash, you can always borrow against your equity. Not really a downside to doing it aside from potentially missing out on larger gains in your other investments.

Concur with DS response. Thankfully, you seem to be in great shape financially and there's not a "bad choice" between saving more and paying down the mortgage. With a focus on accumulating wealth in multiple asset classes, once you're saving at least 15% toward retirement, I'd focus on paying off the mortgage based on other considerations (for example, peace of mind, future free cash flow).

[cypher1]

Having reviewed my 2019 tax filing (owing 300 total), I just upped my 401K contribution rate to 18%, and decided to pay an extra 200 per month towards mortgage principle. I figure this is a decent compromise for both goals, while continuing to rent as long as I can.

[bjl584]

Dave Ramsey would tell you that once all other debt is clear to start investing again, then start putting extra to the mortgage.