Author Topic: Recent Grad. Looking for a review of my plan.  (Read 2592 times)

GiantTaco

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Recent Grad. Looking for a review of my plan.
« on: February 22, 2015, 12:04:14 AM »
Hello everyone. I'm 22, and I graduated last fall with a B.S. in Computer Science. I'm starting a job on Monday. I'm going to break down my current situation and post my short and long term plans. Hopefully you nice, smart people will have some criticisms or feedback. Thank you in advance. :)

Job
  • Salary: $95k
  • Bonuses: $22k first paycheck, $17k over 2nd year
  • Relocation Lump Sum: $10k ($5k received, rest being held until taxed)

Debts
  • Parent PLUS Loan: $26k at 7.9%, grace ends 6/18 [over $6k of this is interest :( ]
  • Subsidized Stafford Loans: $17k at 3.4-4.66%, grace ends 6/18
  • Perkins Loan: $4.5k at 5.00%, grace ends 10/1

Situation
  • No car
  • 2015 expenses should be around $18-22k, all inclusive. It's a large range because I moved out (to Seattle!) for the first time and things have yet to settle. I'll know in a month or two.
  • Discounting current credit card statement, I have a little under $4k in the bank. No investments or contributions.
  • Carry no balances anywhere. My credit score is well above 700, and I have a ridiculously long (10+ years), clean credit history for my age thanks to being on my parents' credit cards.

Short Term Plan
  • Contribute to 401k up to employer match.
  • Dump money into PLUS loan and pay it off before grace period ends.
  • Aggressively contribute towards Stafford loans, save enough to pay off Perkins before grace period, then back to Stafford.
  • If all goes well, I'll be debt free before April 15th, 2016, so I can start a Traditional IRA and max it out for 2015 tax benefits.

If I contribute to an IRA in say, February 2016, I can claim that on my 2015 return. Can I also contribute another 5500 during 2016?

I'll have 3-months or so emergency fund during the short term, 6 months after becoming debt-free. Assuming I get paid bimonthly, I don't need to keep a whole lot in my checking account, maybe $4-5k. I'd like to have the emergency fund continue to work for me, but I'm not sure what I'd do with it; maybe a money market fund (VMMXX)?

Long Term Plan
  • Start really investing:
  • Max out 401k contributions.
  • Max Traditional IRA contributions.
  • Max out HSA for that sweet tax-free in-and-out.
  • Dump into a simple portfolio with index funds. VTSAX
  • When FI, convert 401k to Traditional IRA and start converting to Roth. Pull money after the 5 year delay.
  • Start pulling out HSA when old age is reached, whatever it is.

There's also the option of going full-bore on my 401k, Traditional IRA, and HSA right away, although that'll take off a significant amount of money that might be better spent killing the debt sooner. Not sure, maybe you all can convince me to go one way or another.

Of course this is all nice and clean and idealistic, but it at least works as a guideline. Am I missing anything?

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Aside: I saw, elsewhere, the following quote recently:

Quote
Maxing out 401k/IRAs is a good thing if you can afford it, but doing so may set you up for a later retirement than investing post-tax cash unless you're willing to pay early withdrawal penalties.

I don't understand this. An IRA can be funded through stocks, funds, whatever. What benefit would I get by investing post-tax cash instead of pre-tax contributions into from my IRA(s)?
« Last Edit: February 22, 2015, 01:36:06 AM by GiantTaco »

JetsettingWelfareMom

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Re: Recent Grad. Looking for a review of my plan.
« Reply #1 on: February 22, 2015, 12:46:28 AM »
Unbelievable. Wow. $95k at 22 fresh out of college? Awesome congrats!
Since you're already waay ahead of the game I have no career advice...just avoid the normal pitfalls of thinking you deserve this that and the other thing for selling your soul if it's something you don't really want to do long term. Get out of debt I never think it's a bad thing if you can do it....Goodness!

MDM

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Re: Recent Grad. Looking for a review of my plan.
« Reply #2 on: February 22, 2015, 01:28:14 AM »
If I contribute to an IRA in say, February 2016, I can claim that on my 2015 return. Can I also contribute another 5500 during 2016?
Yes

Quote
I'll have 3-months or so emergency fund during the short term, 6 months after becoming debt-free. Assuming I get paid bimonthly, I don't need to keep a whole lot in my checking account, maybe $4-5k. I'd like to have the emergency fund continue to work for me, but I'm not sure what I'd do with it; maybe a money market fund (VMMXX)?
Money market funds pay practically 0% these days.  You could put it in an online bank (GE Capital et al.) and get ~1%.  Not a big deal either way.

Quote
There's also the option of going full-bore on my 401k, Traditional IRA, and HSA right away, although that'll take off a significant amount of money that might be better spent killing the debt sooner. Not sure, maybe you all can convince me to go one way or another.
No bad options among all you have listed.  I might lean towards funding the 401k sooner to ensure you get your max 2015 contribution (deadline for 401k is 12/31; with IRA and HSA you have until 4/15 of the next year).

Quote
Aside: I saw, elsewhere, the following quote recently:
Quote
Maxing out 401k/IRAs is a good thing if you can afford it, but doing so may set you up for a later retirement than investing post-tax cash unless you're willing to pay early withdrawal penalties.
I don't understand this. An IRA can be funded through stocks, funds, whatever. What benefit would I get by investing post-tax cash instead of pre-tax contributions into my IRA(s)?
Your question differs from the quoted statement.  The quoted statement refers to investing some in taxable accounts instead of 401k/IRA so you have access before age 59 1/2.  Apparently the author has not heard of Roth conversion pipelines.

GiantTaco

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Re: Recent Grad. Looking for a review of my plan.
« Reply #3 on: February 22, 2015, 01:46:33 AM »
Unbelievable. Wow. $95k at 22 fresh out of college? Awesome congrats!
Since you're already waay ahead of the game I have no career advice...just avoid the normal pitfalls of thinking you deserve this that and the other thing for selling your soul if it's something you don't really want to do long term. Get out of debt I never think it's a bad thing if you can do it....Goodness!

Thank you! I received my degree in Minnesota, where I would have received $65k if I went into a full-time job from my internship. Even that is substantial, and of course the cost of living is significantly higher here than back home, but seeing that number when I was researching last year really threw me off. I don't think I've quite grasped it yet.

snip

Thank you as well. The deadline for 401k is naturally the end of the year, since it's from payroll deductions, but I hadn't specifically considered it. I have yet to decide whether I want to go that route, but after spending the last two days poring over FIRE, I think I want to have the strongest start I can.

Quote
Aside: I saw, elsewhere, the following quote recently:
Quote
Maxing out 401k/IRAs is a good thing if you can afford it, but doing so may set you up for a later retirement than investing post-tax cash unless you're willing to pay early withdrawal penalties.
I don't understand this. An IRA can be funded through stocks, funds, whatever. What benefit would I get by investing post-tax cash instead of pre-tax contributions into my IRA(s)?
Your question differs from the quoted statement.  The quoted statement refers to investing some in taxable accounts instead of 401k/IRA so you have access before age 59 1/2.  Apparently the author has not heard of Roth conversion pipelines.

Woops. I meant to write from, not into. I've corrected the post. However I think that answers my question.

chuckaluck

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Re: Recent Grad. Looking for a review of my plan.
« Reply #4 on: February 22, 2015, 02:28:53 AM »
Wow!  Congratulations on landing a high-paying job at such a young age and early point in your career.  I have no problems with your apparently well thought out plan.  I just want to strongly suggest that you pay off your loans even quicker than you currently plan to.  You are at a point in time where you have the least number of financial (and personal?) responsibilities that you will likely ever have.  Now is the time to do it.  You will never regret doing so.  Congratulations again. 

Retired To Win

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Re: Recent Grad. Looking for a review of my plan.
« Reply #5 on: February 22, 2015, 05:56:53 AM »
Giant Taco,

You've laid out some strong, solid tactics.  But have you specified your end goals?

Do you have a target FIRE date?  You can work backwards from that date to calculate what your savings rate should be to reach it.  Or work the calculation forwards from your projected savings rate and arrive at your projected FIRE date.

With those numbers in hand, you can then evaluate what you will incorporate into your end goals regarding housing, your endpoint location, etc.  Not to mention that you can then jiggle the numbers to make room for some optional discretionary spending in the here and now, depending on how you feel about moving your FIRE date into the future due to that spending.

Good luck.