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:
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)?