Author Topic: First career field job out of college-how to allocate 62k (no 401k/etc).  (Read 348 times)

zoochadookdook

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Hey all, trying to figure out  my best investment action as of right now. I finally got a real first career job and make 22/hr (around 2820/month after taxes).

Assets:
House (appraisal was 190k so 74k equity)
roth ira 27k, still need 3200 in to max this year
Cash/HYSA/business assets still need to be sold: $62k

Debts:
13200 Student loans. 0 interest until july.

Base Expenses
Just refinanced my house: owe 116k 30 year @4.25%
Tax insurance/mortgage $900
$220/utilities (40 water, 120 gas/electric, 55 internet)
150/groceries (i eat cheap)
$125 gas.
100 assorted
Total after expenses/month $1200


I'm trying to see where to invest/allocate funds. I followed the list below but i'm not sure on a few things. The only thing I know from that is max my roth, possibly ignore my debt at the rates it's at, potentially fund a 401k, and fund taxable funds? Sorry I'm new to this and have been stashing money/paying most of college out of pocket for a while.



WHAT           
0. Establish an emergency fund to your satisfaction   
Yes
       
1. Contribute to your 401k up to any company match           

No company match, skip?

2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.   

No debts at 8% or higher
         
3. Max Health Savings Account (HSA) if eligible.

Not sure if eligible. I currently get no healthcare from my employer. Was self employed prior.

4. Max Traditional IRA or Roth (or backdoor Roth) based on income level   

Will max this.
       
5. Max 401k (if
    - 401k fees are lower than available in an IRA, or
    - you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or
    - your earn too much for an IRA deduction and prefer traditional to Roth, then
    swap #4 and #5) 

This is where I get confused. I gross like 37k/year so anything income capped i'm sure I won't need.
         
6. Fund a mega backdoor Roth if applicable. 

Don't believe applicable
     
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield. 

Mortgage and student loans are under 6% apr so ignore?
         
8. Invest in a taxable account and/or fund a 529 with any ext

I guess this is it? I don't know if I ever want kids so skip the 529. Any particular taxable accounts to invest in?

Watchmaker

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It sounds like you do have a 401k, just no company match, is that correct? What options do you have to invest in inside the 401k? Unless it's a particularly bad plan, it will still be worth investing in, whatever you can afford beyond the IRA.

What is the student loan debt going to be after July?

You are correct that you don't need to worry about the backdoor Roth. If you do want to open a taxable account for the proceeds of the business sale, do it at Vanguard, Fidelity, Schwab, or whoever you prefer and buy index funds that track the stock market. At Vanguard that would be VTSMX. Worry about bonds down the road. But, alternatively, you can keep the business sale proceeds in a MM or high yield savings account and use it to max out your IRA and 401k each year.

*Edited once I noticed the 62k you'll have.*
« Last Edit: May 10, 2019, 03:42:22 PM by Watchmaker »

dandarc

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A few questions to help clarify your situation:

1. What are you doing for health insurance? Car insurance?

2. Am I understanding this right that your new job does provide a 401K, but there is no match? Do you have any details of the plan? Contribution limits that may be less than federal maximum, the list of investment options, etc.?

3. And it looks like you'll have $62K in your checking account once all of the business assets have sold, so the question is basically, "what do I do with this large amount of cash I have?" and then "what about the $1200 / month surplus?"

zoochadookdook

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A few questions to help clarify your situation:

1. What are you doing for health insurance? Car insurance?

2. Am I understanding this right that your new job does provide a 401K, but there is no match? Do you have any details of the plan? Contribution limits that may be less than federal maximum, the list of investment options, etc.?

3. And it looks like you'll have $62K in your checking account once all of the business assets have sold, so the question is basically, "what do I do with this large amount of cash I have?" and then "what about the $1200 / month surplus?"

Health insurance I'm on my fathers until the end of this month, car is super cheap (like 30 bucks a month plpd rolled in with my homeowners)

It DOES if they hire me salary. Currently no 401k/match/healthcare for me. I'm just hourly w2. They said they'd consider direct hire in 6 months and I started march 25.

I have around 6500k left in assets to sell but yep pretty much! I don't really want to lock it up in a totally unliquitable account for 50 years as I may need it availble should I go back to self employment (gross 30-35k working 5 hours a week) while pursing some other entrepreneur projects.

zoochadookdook

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It sounds like you do have a 401k, just no company match, is that correct? What options do you have to invest in inside the 401k? Unless it's a particularly bad plan, it will still be worth investing in, whatever you can afford beyond the IRA.

What is the student loan debt going to be after July?

You are correct that you don't need to worry about the backdoor Roth. If you do want to open a taxable account for the proceeds of the business sale, do it at Vanguard, Fidelity, Schwab, or whoever you prefer and buy index funds that track the stock market. At Vanguard that would be VTSMX. Worry about bonds down the road. But, alternatively, you can keep the business sale proceeds in a MM or high yield savings account and use it to max out your IRA and 401k each year.

*Edited once I noticed the 62k you'll have.*

Sorry, should have clarified-they don't offer me one or a match currently. I do still have my llc though. If they hire me directly in 4 months (we'll see-main motivation was to get the income for a refinance/try it out)-I believe that will be a 3% 401k match and healthcare.

Student loans will combine after then but is currently at 5200 4.125/ 5200 at 4.5 and the rest at 5%. It'll just combine and average out after that.

I'm confused about the pros of a 401k vs buying indexed funds. They're both taxed accounts, right? I'm trying to not commit to anything that locks up too much liquid outside the Roth as I've got a bit of entrepreneurship I'm looking to pursue this fall and may need the start up-but shouldn't need over 10-15 operating. Option to draw later would be great too depending on how the plans scale and such. 

TomTX

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I have around 6500k left in assets to sell but yep pretty much! I don't really want to lock it up in a totally unliquitable account for 50 years as I may need it availble should I go back to self employment (gross 30-35k working 5 hours a week) while pursing some other entrepreneur projects.

If it's 5 hours a week for $30k+, that sounds like you have a great side gig to do in addition to your primary job.

zoochadookdook

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I have around 6500k left in assets to sell but yep pretty much! I don't really want to lock it up in a totally unliquitable account for 50 years as I may need it availble should I go back to self employment (gross 30-35k working 5 hours a week) while pursing some other entrepreneur projects.

If it's 5 hours a week for $30k+, that sounds like you have a great side gig to do in addition to your primary job.

It was fantastic and how I paid through college HOWEVER

I had to scan media a lot. So travel/sale time was 5 hours. Spent probably 10-15 just emailing/notifications on my phone and comp.
It required flexibility-like when something popped up I had to go get it then or someone else would.
It wasn't always great-some months I could make 1k/some 5K.
I wasn't sure how to scale it-It was direct sales (buying and selling craigslist/fb marketplace gym equipment and high end apple computers). There is a ton of competition and they have teams of people/who storefronts set up.

Ideally, if I went back to that it would be to pursue bigger business ideas (marketing consulting for companies branding/design, womens self-defense structured seminars for large scale companies, PM on house flipping/rentals etc). My goal is to find something that is scalable, consistent, more flexible than an office job. I expect to work but I love the idea and feeling behind being in charge of how much you make directly from sweat equity vs the office grind.

Currently being at the office 8-5 m-fri doesn't allow for the flexibility. Maybe could pull in a few hundred a weekend if I get lucky. Ideally looking to side hustle that

dandarc

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How sure is the "hired on permanently in 6 months thing?" if it is looking reasonably sure, then that might influence various decisions.

Health insurance is very important - figure that out first. It is easy to say "eh I'm young and health - why do I need this?" See some of the stories in this thread for why you need something to cover at least catastrophic health problems: https://forum.mrmoneymustache.com/post-fire/in-case-aca-is-overturned-then-what/

You may want to consider an HSA-eligible policy since you could use more tax-advantaged space at least in the short term, particularly if the position with benefits is not so certain.

You might also consider a long-term disability policy.

OK, so no 401K right now - that simplifies things a bit. Max out an IRA for sure. Find out what your interest rate is on the student loan once it starts in July - might make sense to pay that off, might make sense to keep it as long as you can. Then anything left, less your desired emergency fund and whatever you need for impending business, you put into taxable investments.

Then you put your excess income for the rest of this year into those same taxable investments.

I'd suggest reading the stock series https://jlcollinsnh.com/stock-series/ - if you stick to a simple portfolio from the start, you'll do better than most.

And that thing you said was confusing is just saying "there are situations where you might prioritize maxing the 401K (normally 5) before maxing the IRA (normally 4). As you learn more about taxes and such, you'll probably have a pretty good idea if you're getting close to needing to do that. Hopefully by then, you're making so much that maxing both the 401K and the IRA is easy and it is a pure hypothetical as to which to do first.

PDXTabs

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Sorry, should have clarified-they don't offer me one or a match currently. I do still have my llc though.

You could open a Solo 401k or SEP IRA with the LLC income/profit that you had this year.
« Last Edit: May 10, 2019, 05:31:23 PM by PDXTabs »

zoochadookdook

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How sure is the "hired on permanently in 6 months thing?" if it is looking reasonably sure, then that might influence various decisions.

Health insurance is very important - figure that out first. It is easy to say "eh I'm young and health - why do I need this?" See some of the stories in this thread for why you need something to cover at least catastrophic health problems: https://forum.mrmoneymustache.com/post-fire/in-case-aca-is-overturned-then-what/

You may want to consider an HSA-eligible policy since you could use more tax-advantaged space at least in the short term, particularly if the position with benefits is not so certain.

You might also consider a long-term disability policy.

OK, so no 401K right now - that simplifies things a bit. Max out an IRA for sure. Find out what your interest rate is on the student loan once it starts in July - might make sense to pay that off, might make sense to keep it as long as you can. Then anything left, less your desired emergency fund and whatever you need for impending business, you put into taxable investments.

Then you put your excess income for the rest of this year into those same taxable investments.

I'd suggest reading the stock series https://jlcollinsnh.com/stock-series/ - if you stick to a simple portfolio from the start, you'll do better than most.

And that thing you said was confusing is just saying "there are situations where you might prioritize maxing the 401K (normally 5) before maxing the IRA (normally 4). As you learn more about taxes and such, you'll probably have a pretty good idea if you're getting close to needing to do that. Hopefully by then, you're making so much that maxing both the 401K and the IRA is easy and it is a pure hypothetical as to which to do first.

Chances are they would hire me-however I know nothing is certain. I was told by my manager they ideally train me in this period and then keep me. It's a small department (not working on the help desk side on the building) with only like 10 people on the team

HOWEVER a lot rides on what I actually decide to pursue. I may commit to a year here (should probably ask hr what salary in this position would be ?) at least for the resume/constant income and use that to come up with launchable self employed plans.

So- A HSA basically just allows you to contribute tax free so long as you utilize it only for medical expenses through age 65? I'll have to look at plans this weekend and ask around. I see the benefit of it of course but have no idea what I should be contributing etc

Just mathed it out-student loan rates:
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior.

So basically-figure our healthcare, max the roth. Keep emergency fund/business fund in HYSA. Throw everything else in taxable.....funds? I'm assuming those aren't too hard to liquidate/just pay taxes on gains? Don't pay extra towards mortgage principal or anything else. Use all leftover for funding taxable funds?

sorry I'm pretty good at tracking my numbers, where everything goes-but i'm not great at allocating where it should go.


Full_Beard

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I'm confused about the pros of a 401k vs buying indexed funds. They're both taxed accounts, right? I'm trying to not commit to anything that locks up too much liquid outside the Roth as I've got a bit of entrepreneurship I'm looking to pursue this fall and may need the start up-but shouldn't need over 10-15 operating. Option to draw later would be great too depending on how the plans scale and such.
Like IRAs, 401ks can be traditional or Roth (not all employers, however, offer both), so it's either tax deferred or taxed now but growth is exempt.

As your income grows, you should max out both. If your income grows a lot, you may make too much for the Roth IRA.

You can buy index funds in either a taxable or IRA account. Again, your employer's particular 401k may have less flexibility than that, though many now offer an SP500 index option -- but not all, for sure.

Given your situation, max the Roth IRA and save in a taxable account for now.

Good luck.

dandarc

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The math says that investing in things like stocks and investment real estate, instead of paying extra on fixed rate, long term debt should work heavily in your favor over time.

I'd read the stock series or his book The Simple Path to Wealth - these should alleviate any concerns around investing, and hopefully convince you that a simple portfolio of 1 to 3 index funds is all you really need.

If you need to liquidate your investments for whatever reason, you log in to Vanguard (or whatever broker you choose), tell them how much you want to sell, and within a few days the money will be in your bank account, so access is not a significant issue. Do read the stock series before investing. The key to successful index fund investing is riding out the volatility, so the plan while in the accumulating phase should be that you don't expect to take your investment money out any time soon.