Author Topic: Got my savings build up, now where do I put my money? - basic newbie stuff  (Read 3667 times)

neophyte

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I've finally built up my savings account to a point that I'm comfortable with.  It's probably overly conservative, but I'm looking for a new job, so I want a big buffer for everything involved in that.  Now that that's built up, I'll have about another $115/week to invest.

Currently I contribute to the company match (not vested) +$75/week to my 403(b). I have enough in my savings account that I could fully fund my IRA for the year and still have a couple months living expenses, I'm just waiting to see what happens with the job situation.  Both my IRA and my 403(b) are through Vanguard and I think I have access to all the same funds for both. My YTD HSA contributions are about $1700 +$500 from my employer, but the balance is only around $100-200. Right now I'm only contributing $2/week to that. I don't know how much longer I'll have this insurance. I'm hoping to find a job in Europe so my HSA might not be very useful.

So, what should I do with my $115?  Traditional 403(b)? Roth 403(b)? IRA? Taxable account? HSA? Is there an income level below which the advice changes?  I only gross $30k so I could potentially push my income pretty low.




Terrestrial

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Is your income level a shorter term situation, i.e. you are fairly young and expect to escalate to higher tax brackets relatively quickly?  Or are you in a profession where you will more or less always make around 30k?

If you anticipate making alot more money in the future I would probably go to a Roth.  15% bracket is decent to pay taxes on now, and if you are going to be in the 25-28% tax brackets later you can do alot more of your pre-tax savings at that point.

If you are always going to be around this income level.  I don't know if it matters much between a traditional deductible IRA or a Roth.  I'd definitely do either of those before you did taxable acct, unless you need to be saving for another goal like house, etc (something not retirement/FI related).  I'd say probably do the traditional deductible.  Bird in the hand all, for the tax benefit, and at very low income levels you can find ways to pay 0 tax during retirement.  If you do decide to do a taxable at least at your income level your long term cap gains will be tax-free, so that's a nice perk.

Since your income qualifies you for a traditional deductible IRA, I would only put enough into the 403b to get your full match, though this depends on the specific plan and the choices in that plan.  I don't know a ton about the offerings in 403b's so maybe they are good?  Others probably have better insight.   

I know for my 401k the choices aren't terrible but they aren't great...by investment choice I would be better off in an IRA from vanguard or similar, but as I cannot do a traditional deductible IRA I am stuck with it.
« Last Edit: October 02, 2014, 01:34:14 PM by Terrestrial »

Dezrah

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For starters, congratulations on reaching your savings comfort level.  Don't forget to give yourself permission to tap into it if a real emergency comes along (this is something I struggle with).

For your savings now, I'm personally a big fan of maxing out the HSA.  They have a triple-tax advantage (no tax on deposits, no tax on earnings, no tax on withdrawls) as long as they're used for a qualified medical expense.  If you never use the money, you're allowed to draw down at your income tax rate at retirement level just like a traditional retirement account.  The way I see it though, if you're young enough, you will have one or many medical expenses in your lifetime that will exhaust it, whether itís a pregnancy (yours or partnerís), ER visit, cancer, heart medication, joint surgery, etc.

If you max that out, I personally like maxing the Roth accounts next because I like the flexibility they give in allowing me to withdraw penalty free if I really wanted to.  This may or may not be the next best tax-advantaged account, but that strongly depends on your specific plans and lots of assumptions about what the laws will be in the future.

Bottom line, all of these are good choices, they just have different sets of pros and cons.

Bob W

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Generally don't like "savings accounts"  for emergency or even planned spending.

Here's why --

Savings accounts pay zero while the average s and p return is closer to 9%.   

Yes,  we know it could go down over any given time, but it is much more likely to go up.   Let's say you have 10K in a zero account.   Over 35 years (you do plan to live that long right?)  at 9% that would compound to around 175K.  Which do you want?  10 K or 175K.  The choice is yours.

Here's how to structure it so you feel safe.  Simply put an extra 20% into the investment account and name it emergency fund.  Bam, call it good. 

Hell,  I wouldn't even keep a dime in a checking account.  Float everything on your credit cards and then pay it with a check from the funds you transferred from your investment account to the  money market. 

Second,  get you some nice high lines of credit cards.  (these will help you build an awesome credit score while scamming on frequent flier miles).

The cards will be your emergency back stop.   Be sure to not use them except for something you would spend on anyhow.

So the question was were to put the money?   I think the crowd here likes the Vanguard Index fund for the S and P 500.  Usually under an IRA,  HSA or 401K structure.


neophyte

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Adding up the advice so far I guess I get this:

Don't keep so much in savings.  Take $5,000 and max my IRA for the year right now.  Probably a Roth IRA.  I'll still have another $5000 or so in my savings account, so I shouldn't try to build that up anymore.  I can do that.

Then, after that it's more confusing. I'm interested in maximizing things tax wise, but maybe it doesn't make too big a difference as long as I'm stashing the money somewhere?

Is your income level a shorter term situation, i.e. you are fairly young and expect to escalate to higher tax brackets relatively quickly?  Or are you in a profession where you will more or less always make around 30k?

God, I hope so. But I'm in life sciences so I'll never be really high income. I'm hoping to find something in the 50-60k range.

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Since your income qualifies you for a traditional deductible IRA, I would only put enough into the 403b to get your full match, though this depends on the specific plan and the choices in that plan.  I don't know a ton about the offerings in 403b's so maybe they are good?  Others probably have better insight.   

My 403(b) and IRA choices are essentially the same. It's basically anything with Vanguard. I guess my employer is unusually good in this regard.

Generally don't like "savings accounts"  for emergency or even planned spending.

Here's why --

Savings accounts pay zero while the average s and p return is closer to 9%.   

Even if I'm planning to use it within the next 6 months or so?

Quote
Second,  get you some nice high lines of credit cards.  (these will help you build an awesome credit score while scamming on frequent flier miles).

I am intrigued. I assumed my spending was too low to really take full advantage of rewards cards. Except for rent, which can't go on a card, my spending is usually only around $300 /month. I'll see if I can still get in on this.

thedayisbrave

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I'm leery of putting my cash cushion anywhere except a checking/savings account.  It gives me greater peace of mind to be able to pay something if it comes up rather than have to sell and/or transfer money from my investment account.  But to each his own.  I keep mine in a 2% high yield checking. 

Also, remember that the Roth IRA max contribution limit is $5,500 - not $5,000 ;)