Author Topic: 24 years old, finally have a steady income, 401k and Roth Questions  (Read 3343 times)

Cotton Balls

  • 5 O'Clock Shadow
  • *
  • Posts: 3
I recently acquired a full time position after having contracted for a few years. The contracting wasn't bad, but the income was sporadic. It was enough for me to put some money away and try my hand at running a small design studio for a few months. I learned a lot running the studio, but unfortunately my partner and I were not pulling in the income required to stay afloat, and decided to go back to the working world.

I now hold a full time position within a gaming company, making roughly 64k a year before taxes. My partner is working half time, making roughly 32k a year, but she is contracting so the numbers tend to get wiggly.

I can contribute to a 401k and a Roth IRA through work. They use Putnam Investments. Putnam allows you to choose your investment allocation, but I am unsure of which is best in my situation.
I would like to be "retired" by age 40. By retired I mean no longer required to do the 9-5 for my living wage. I will still likely be working as a designer, probably trying my hand at my own studio again.

The bulk of my income goes to rent and food (if I was paying all of rent + food without partner, roughly 2k a month), I have no debt and a fairly frugal lifestyle. I would feel pretty comfortable putting a lot into a 401k and IRA.

The company I work for will match 50% of a maximum of 6% of what you contribute (so 3% max from them). Anything after that is not matched. Listed below are the various funds I can invest in. I don't have to invest 100% in any one specifically, and it can be split.

T. Rowe Price Retirement Income Fund
T. Rowe Price Retirement 2050 Fund   
T. Rowe Price Retirement 2055 Fund      
American Funds EuroPacific Gr R5   
BlackRock Global Allocation Instl      
Oppenheimer Global Y   
Oppenheimer Developing Markets Y
Vanguard Developed Markets Index Inv   
Vanguard International Value Fund   
Vanguard Small Cap Index Signal   
Putnam Capital Opportunities Y
Vanguard Small Cap Value Index
Victory Small Company Opportunity R   
Vanguard Mid Cap Index Signal
Franklin Growth Adv   
T. Rowe Price Retirement 2030 Fund
T. Rowe Price Retirement 2040 Fund
Vanguard Value Index   
T. Rowe Price Retirement 2020 Fund
Fidelity Strategic Income   
PIMCO Total Return Instl   
Fidelity Select Software & Computer Serv
Oppenheimer Real Estate Y
Putnam Stable Value Fund
Vanguard 500 Index Signal
Invesco Comstock R5

I have no idea which of these is best for my situation, and research has only left me more confused. I do know Vanguard tends to be the least evil of these from what I have heard.

Last question, should I be maxing out my Roth IRA every year?

Apologies for the long post, I love this forum and you have all already helped me quite a bit.

Joel

  • Pencil Stache
  • ****
  • Posts: 775
  • Location: California
Re: 24 years old, finally have a steady income, 401k and Roth Questions
« Reply #1 on: March 28, 2014, 10:36:54 PM »
If you are in the 25% tax bracket, you should probably do a traditional IRA or increase your 401k before contributing to a Roth IRA. (If you are not married, you are likely on the bottom edge of the 25% marginal tax bracket.)

ender

  • Magnum Stache
  • ******
  • Posts: 4882
Re: 24 years old, finally have a steady income, 401k and Roth Questions
« Reply #2 on: March 28, 2014, 10:45:43 PM »
Quote
The bulk of my income goes to rent and food (if I was paying all of rent + food without partner, roughly 2k a month), I have no debt and a fairly frugal lifestyle. I would feel pretty comfortable putting a lot into a 401k and IRA.

This doesn't make sense to me, if the bulk of your income goes to food/rent but is less than $2k, that leaves a big missing portion somewhere?

You probably would do well to spend some time detailing out what your income goes to, so you have a budget (even rough, your post gives me no indication to what your overall lifestyle/spending is - hard to know what you should do as a result).

Quote
I have no idea which of these is best for my situation, and research has only left me more confused. I do know Vanguard tends to be the least evil of these from what I have heard.

If you want better advice, you're going to want to post the expense ratios of those funds.

MDM

  • Walrus Stache
  • *******
  • Posts: 9618
Re: 24 years old, finally have a steady income, 401k and Roth Questions
« Reply #3 on: March 28, 2014, 10:46:36 PM »
See http://www.mrmoneymustache.com/forum/investor-alley/differing-schools-of-thought-invest-up-to-match-or-max-out/ for more details on the 401k/Roth question.

As for which fund(s) will be best - you pays your money and you takes your chances.  As you are looking at least 16 years out, you'll probably want to avoid the "income" funds and lean more toward stocks.  You'll need to study the fund fees yourself, but I could hazard a guess that the TRP 2050 Fund could be a fit for you.

Cotton Balls

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: 24 years old, finally have a steady income, 401k and Roth Questions
« Reply #4 on: March 29, 2014, 12:42:23 AM »

This doesn't make sense to me, if the bulk of your income goes to food/rent but is less than $2k, that leaves a big missing portion somewhere?

You probably would do well to spend some time detailing out what your income goes to, so you have a budget (even rough, your post gives me no indication to what your overall lifestyle/spending is - hard to know what you should do as a result).

If you want better advice, you're going to want to post the expense ratios of those funds.

Sorry, I should have specified more. My total monthly expenses are roughly 2k, (1200 for rent, about 400 for food), not the overall bulk of my income. Rent is higher than I would like, but it allows me to live less than 15 minutes by bus (free bus pass from work) and walk to everything else I need. I do have a car (paid in full in cash) that I drive maybe once a week. The food expense is slightly higher than I would like, but it allows us to take part of a CSA and enjoy the occasional meal out with friends. I am working on bringing that down. The other 400 is utilities, odds and ends like compost for the garden or investments into smaller businesses my friend and I run.

My partner does cover her half of that often, but since she contracts, there are occasional periods where I am covering it in full.

As for the expense ratios, I will have to do some digging on those. They didn't actually provide any information on these funds outside of their names.

If you are in the 25% tax bracket, you should probably do a traditional IRA or increase your 401k before contributing to a Roth IRA. (If you are not married, you are likely on the bottom edge of the 25% marginal tax bracket.)

Even if the traditional IRA isn't through work?

See http://www.mrmoneymustache.com/forum/investor-alley/differing-schools-of-thought-invest-up-to-match-or-max-out/ for more details on the 401k/Roth question.

As for which fund(s) will be best - you pays your money and you takes your chances.  As you are looking at least 16 years out, you'll probably want to avoid the "income" funds and lean more toward stocks.  You'll need to study the fund fees yourself, but I could hazard a guess that the TRP 2050 Fund could be a fit for you.

Thanks, I will give that another read and do some more research into the various funds. I didn't know if these were standard or if there were some that people just preferred over others.

Joel

  • Pencil Stache
  • ****
  • Posts: 775
  • Location: California
Re: 24 years old, finally have a steady income, 401k and Roth Questions
« Reply #5 on: March 29, 2014, 01:05:31 AM »
Traditional IRAs are usually better than 401ks because better funds are offering . But there are phaseouts to where not everyone can contribute to a deductible traditional IRA. You should not be in that situation.

nereo

  • Senior Mustachian
  • ********
  • Posts: 10813
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: 24 years old, finally have a steady income, 401k and Roth Questions
« Reply #6 on: March 31, 2014, 01:40:43 PM »
Quote
Even if the traditional IRA isn't through work?
Yes.  Open an IRA account yourself and max it out.  I'd recommend using Vanguard and choosing one of their low-cost index funds.  You can still contribute to 2013 up until April 15th (thus lowering your tax bill). You can contribute $5,500 per year into an IRA.  A very easy strategy going forward is to do automatic weekly contributions of $105.

at age 24 if you can max out your IRA and max out your 401(k) you will have no problem being financially independent ("FI" - where you can work if/when you want, and on your terms, like with your own studio) before you turn 40.