Topic Title: Hey everyone. I am pretty decent at limiting costs, drive a $2,200 Prius etc, but I am not so great at understanding Tax strategy and investment savings vehicles. I have been researching but feel I might be someone who at this point earns too much to qualify for deductions and such. Despite my previous cost savings boast, I also did the math via an attached excel on my expenses and even with a 50% savings ratio, the years to retirement figure turned out pretty bad so I am also open to advice there in addition to my tax situation.
Life Situation: Single, W-2 Earner, with very small low 5 figure side income last year, maybe nothing in side income this year. Mid 20s, 2 years out of grad school. Just moved back to the USA and living at home for probably another 18 months. My plan is to then identify a sub $1,000 month apartment for another 24 months, then think about a home buy based on the market/ life situation / cost benefit analysis after that. I live in the South with decent COL but properties are rising fast. In an ideal world I would try something like living in a duplex and renting out a side or buying a HUD home but the opportunity hasn't arisen yet. I am currently looking around to try to land a supplemental job as an English Tutor online. If you have another idea for a 20/hr+ side hustle let me know :)
Gross Salary/Wages: 130k base/ 10k in bonus, 140k total
Individual amounts of each Pre-tax deductions: This is the root of my problem. I have a 401k at work and currently put in 6% so I am at ~6k, but there is no company match. I am switching jobs next month and moving to a company with a 3.3% match on a 20% 5 year vesting schedule (bad I know, but everything else about the job is better).
I have a SEP IRA with 4k. Last year I made 105k gross and only took a 4k deduction from my SEP IRA
Other Ordinary Income: None
Qualified Dividends & Long Term Capital Gains: Not significant at this point
Rental Income, Actual Expenses, and Depreciation: None
Adjusted Gross Income: 140k right now for the coming year I believe last year it was 99k
Taxes: Federal, state/local, and FICA. Taxes last year were 16k, this year with the salary bump they could be much higher in the 23k+ range
Current expenses:
Student Loans: 20k/year My highest expense by far.
Other Expenses 30k/year
Total 50K.
- There is a lot of noise in the other expense figure such as one time purchases like a car, paying back a signing bonus, inventory for my business etc, but I think 50k is a decent high end steady state expense estimate for me right now. If I look at my spending since Jan 17 and I back out one time expenses (tax bill, business inventory) I am spending about 2,200 a month in total. This would put me on pace for 26k spend in 2017, but then I would need to kick in another 8k in loan payments.
Assets:
60k in Cash
4k in Sep IRA, 99% SPY and 1% XOM
16k in a brokerage account 96% SPY 1% CMG 3% AAPL
2.2K car
6K 401k
2K frozen in a Citi account i have struggled to get access too.
10K car, have been trying to sell it but I have had to loan it to my parents
Liabilities:
140K in student loans, blended total is roughly 6% interest rate. 15ish year term.
Level payments result in 20K of payments per year, but a shorter term. I am at month 1 of the start of year 3 of paying them back. I am currently doing graduated payments in order to lower my mandatory monthly payments so I pay now roughly 1k per month. This allows for mandatory payments of 12k per year. This creates more monthly cashflow for myself. I still make an effort to pay ahead and hit the 20k per year level payment target, but this method allows me to put 8k (20k-12k) on credit cards thereby allowing me to get 2% cashback. I do not throw all my cash at the loans because I want to keep money free to explore entrepreneurial and investment opportunities as they arise. My plan for the debt is next year I expect to have enough liquid cash to equal this outstanding liability. I will then solve for a more optimal monthly payment, then likely pay down a large balance and ReFi the remainder (they are all federal currently) with someone like SoFi provided the economy is still strong (as I would give up forbearance protections during the refi).
I carry no other debt.
Life Goals:
1) I would like to be financially independent within 7 years. However my retirement budget makes me think this may not be possible.
2) Get out of the 60 hr work week/ 1 hr daily commute in traffic lifestyle
3) An ideal for me would be working say 3-6 months out of the year as a contract consultant making between 30k-60k, then I have the rest of the year to write or work on my own companies (which don't currently exist), study things I think are cool, visit friends, do whatever.
Specific Question(s): I have a few questions:
1) Given my current situation, what is the optimal retirement account strategy investing strategy? I am not aware of any Pre-Tax deductions I am allowed to do based on my income now.
2) I am an absolute novice at HSA and healthcare savings plans, even after reading on here and elsewhere. How should these figure into my strategy?
3) Given that I am switching jobs in a month, I think I can rollover that 401k into a Roth or Trad IRA. Which should I pick? Since I believe I am ineligible for IRA deductions, I think I should just do the Roth, since I am still (barely) able to contribute to that.
4) Is there anything at all I can do at this point to lower my tax burdens? 130K is a super high salary in my opinion at least, but I am in the typical millennial situation of high loans high salary.
5) I do not think I have an issue with my savings rate now, But my retirement budget in the attached excel seems quite high, and I do not even factor in things like gifts or if I had children. Does this budget seem reasonable? Hopefully I have overlooked something major here. I recognize I can use a library for books, and my travel model assumes being gone for 50 days a year which results in lower daily costs, but my retirement annual budget I feel is still huge.