Author Topic: Seeking advice on back-loading 401k, IRA and/or just going for student loans.  (Read 1441 times)

ashleyalvarado

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Just recently found out about Mr. Money Mustache, Mad Fientist, Jim Collins and earlyretirementextreme, a bit less than 3 weeks ago.  And have been binge reading all there info, and hearing Pod casts and various books they recommend.

And I can't help but feel that I should have found out sooner, end of the year now with little time left to do anything with a 401k, except potentially back load right now.  So wondering if I can get some advice from all of you with more experience with this field of interest.   

So info currently 24.
Make 70k a year, should have gross 68k by end of year.
I currently have about 18k in bank.
But also have 27k in student debt (7k at 5.5-6.8 interes, and 20k at 4.4) and also 7k in a car loan at 3.7. About 1k student interest accumulated so far this year.
Have payed off about 30k in student loans in the past year and a half. 
Currently, also have not contributed anything for 401k, IRA and FSA.
401k also does not have any vanguard options unfortunately. 
401k has these as options PQNAX,YAFFX,CIGIX,CVSRX,GGOTX,JFMXX,JLGRX,JTTIX,JSMIX,SMTIX,JTSIX,JSIIX,JCPRX,OPMSX,PAUPX,PGAPX,PTTPX,PUCPX,TPINX,EMGAX.
(havent had time yet to look at these yet, still binging Mad's Podcasts but will soon)

So wondering if I should setup a vanguard IRA and just full fund it and throw in like 7k into the student loans to remove the worst of them.  Or should I go with the IRA and 401k and try and backload as much as I can, should have about 4 payment able to be entered by end of year and get fairly close to 10k in there at max contributions. 

Any advice would be appreciated, thank you.


FINate

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Take a deep breath - you're only 24 and learning this stuff much earlier than most.

The menu of options for your 401k isn't great. However, if your company provides a contribution match then I think it's worth going with the 401k. My advice is to pick a fund without front loads (a fee charged to enter) that is a broad index of stocks, and with a low expense ratio. Glancing through your options it looks JTSIX (JPMorgan SmartRetirement® 2050 Fund Institutional Class) is the closest thing, tough unfortunately the expense ratio is higher than what you'd be able to get through Vanguard. Don't take my word for it, you need to read through the details of each fund.

If your company does not provide a 401k match then you should open a IRA with Vanguard - don't forget to account for contributions to this when doing/having your taxes done.

Assuming you're single: At your income level the benefit of pre-tax contributions to a 401k/IRA make this worth prioritizing over the 4.4% student loan debt.

The 18k you have sitting in the bank is yielding much less than the 4-6.8% you're paying on your student loans. I would at least use 7k of your savings to immediately pay off the higher interest loan(s) and then save aggressively to pay off the remaining 20k. This should be fairly easy at your income level, doable in about a year if you're willing to really save and cut expenses.

ashleyalvarado

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Thank you for the comment.  So far I mostly felt a bit disappointed about not learning a bit sooner, but am overall pretty good.  Even, finished making my costume which I wore for halloween and earned 100 bucks from a at work costume contest. Included some images.

But yes, 401k has no company match and single and so I think I will go with your advice of knocking off the worst 7k and maxing out an IRA for the end of the year.

Thanks for the advice, and for confirming what I thought made most sense.

MDM

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Any advice would be appreciated, thank you.
ashleyalvarado, welcome to the forum.

See the 'Investment Order' tab in the case study spreadsheet - does that help you answer your question?

tawyer

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Bear in mind that you can make 2016 contributions to an IRA up to 04/17/2017. Point being that if in effecting the other elements of advice already given your cashflow becomes tighter, you have a few more months to take advantage of the IRA bucket before the opportunity is lost forever.

I would:
1. Immediately max the contributions on the 401k for every remaining 2016 paycheck
2. Immediately use cash to pay off the 7k debt
3. Set my 2017 401k contributions to $1500 per month
4. Make a 2016 contribution to the IRA in early April 2017, or as cash permits

Although your employer 401k is not a great 401k, you can take it with you when you leave and put it with Vanguard then.

ashleyalvarado

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MDM, thanks for the link and thank you as well tawyer for considering that the IRA contribution can be sent in after the end of the year.

Now, looking at the link and opinions it looks like I will, for sure knock out 7k from the student loans.  And because I forgot about the IRA time limit I'll do a half way fill up and put in 6k into my 401k by years end and aswell max out a IRA early next year.

Thanks for the advice.

Metric Mouse

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MDM, thanks for the link and thank you as well tawyer for considering that the IRA contribution can be sent in after the end of the year.

Now, looking at the link and opinions it looks like I will, for sure knock out 7k from the student loans.  And because I forgot about the IRA time limit I'll do a half way fill up and put in 6k into my 401k by years end and aswell max out a IRA early next year.

Thanks for the advice.

Good work! Think about how much further ahead you'll be in a year or two.  By this time next year you'll have less debt, a much larger 'satche, and you'll likely never miss the money that is deposited into your 401k account every month. It'll be a series of small steps that have lead to huge change.

And welcome to the forum!