My 2013 financial snapshot - feedback please

[sneezel22]

Hey everyone, putting my financial stats below. I think my financial plan is overall pretty good, but I would like some more opinions.

Age: 24 (almost 25)

Income:

• 2013 Salary: 75,000 (expect to increase 5-8k per year for next several years)
• 2013 Bonus: 7,000 (expect to be about 10% of salary every year)

Current Debts:

• 6500 remaining on an interest-free loan from parents for car (paying off @ $600 per month)

Balances:

• Personal Online brokerage account: 34,500 (65% stocks, 35% mutual funds)
• Big Bank savings account: 24,500
• Health savings account: 3,700 (I use a HDHP)
• 401k: 29,500 (10% of my salary goes to this)
• Roth IRA: 12,000 (have not deposited $5,000 for 2013 yet)

Monthly Expenses:

• Car loan repayment: $600
• Rent: $600
• Other: Approximately $1000

Goals:

• Be able to buy a house or apartment in the next 0-3 years if I find one I like ($150k-$250 price range). I would like to be able to put 20% down so I won't have to pay PMI.
• Continue to put money into online brokerage account for personal investing.

Questions:

• I'm having trouble figuring out how much % to put in my 401k. Currently I am doing 10% but could definitely do more. I need to balance this with growing my savings accounts for a down payment on a house, though.
• If there is potential for me buying a house, should I put money into my Roth IRA for 2013?
• My employer default 401k is Traditional, but I also could do a Roth 401k. Since I expect my income to continue to increase in the future, does it make more sense to do a Roth 401k now and switch to Traditional later?

I welcome any other advice or suggestions that you have.

[~bs]

For someone that's 24 YO, you're doing pretty well IMO.

I'm curious why you have such a large HSA? Doesn't the balances expire yearly?

If you're looking towards buying a place, then your savings should be in a regular investment account & roth. I would not increase the 401k contribution. You can withdraw the roth contribution amount without penalty, but be aware that you won't be able to replace it again so easily ($5,500 limit per year).

The roth vs traditional 401k is always debatable. IMO no one knows for sure what the future holds. The comfort of knowing the Roth is after tax is nice, but the traditional has its advantages as well. Your tax rate may be higher 10 years from now, but it's also possible that the extra untaxed portion of the traditional made up for that or more in value. Also, at your income level, you're already solidly in the 25% tax rate. Even if your income doubled, the marginal rate goes up by 3%. If you were in the 10 or 15% rate, it might make a bigger difference doing the roth first, then traditional. Of course one could argue that long term, the rates will all be higher as the govt. needs to cover the ballooning debt. Since you already fully contribute to a ROTH IRA, perhaps just go with the tradtional 401k or do a 50/50 split?

[MJtwelve]

75,000 at 24? I want your job. Not even close and I'm turning 24 in a few months.

HSA's don't expire yearly, only FSA's do.. you can contribute up to a max in them every year and even use it for investing purposes.

[MonkeyMama]

I think you are probably in a very high tax bracket, already. (Single, no home deductions). I would not do the ROTH 401k in your shoes. 25% tax rate, could maybe flip a coin. The reason is the current tax break is pretty nice, and there is usually opportunity at some point in the future to convert to ROTHs at lower tax rates (unemployment, disability, time off work, early retirement). But I would not fault you for doing ROTH at 25% tax bracket, if cash flow was not of issue. (Tax law also changes often, so there is no guarantee you can convert to ROTHs 20 years in the future).

If I were you, I would put $5k aside into the ROTH IRAs. This money is far easier to tap for first home or for any reason pre-retirement. Though we of course do not recommend touching retirement money for other purposes, I do think it is more useful to shift money into a ROTH than to keep it in taxable accounts. IF you need it you need it, but otherwise you haven't given up the tax shelter. If you think you will possibly need this money towards home, keep it in cash (versus stocks). You can always shift it to more aggressive investments when you are sure you won't need it in the shorter term. {Which is likely what will happen, and why I Recommend}.

I'd probably keep putting 10% to your regular 401k (assuming you are not entitled to more match if you put away more). + $5k to ROTH. If you need to back this down a few percentages for home down payment savings, should be fine in the short run.

Home ownership is a nice tax break, and once you get settled with a home, you may want to evaluate the 401k ROTH more seriously, as cash flow needs should decrease (no longer saving for a home), and tax bracket may even decrease.

Many people just do 50/50 to 401k Traditional and 401k ROTH as there is no clear answer. When in doubt, could just do a little of both.

[~bs]

75,000 at 24? I want your job. Not even close and I'm turning 24 in a few months.

HSA's don't expire yearly, only FSA's do.. you can contribute up to a max in them every year and even use it for investing purposes.

Gotcha. I was thinking of the FSA.

[Anton martin]

Good Luck

Why don't you hire financial planner for yourself. I hope it will work for you for sure.....

Hey everyone, putting my financial stats below. I think my financial plan is overall pretty good, but I would like some more opinions.

Age: 24 (almost 25)

Income:

• 2013 Salary: 75,000 (expect to increase 5-8k per year for next several years)
• 2013 Bonus: 7,000 (expect to be about 10% of salary every year)

Current Debts:

• 6500 remaining on an interest-free loan from parents for car (paying off @ $600 per month)

Balances:

• Personal Online brokerage account: 34,500 (65% stocks, 35% mutual funds)
• Big Bank savings account: 24,500
• Health savings account: 3,700 (I use a HDHP)
• 401k: 29,500 (10% of my salary goes to this)
• Roth IRA: 12,000 (have not deposited $5,000 for 2013 yet)

Monthly Expenses:

• Car loan repayment: $600
• Rent: $600
• Other: Approximately $1000

Goals:

• Be able to buy a house or apartment in the next 0-3 years if I find one I like ($150k-$250 price range). I would like to be able to put 20% down so I won't have to pay PMI.
• Continue to put money into online brokerage account for personal investing.

Questions:

• I'm having trouble figuring out how much % to put in my 401k. Currently I am doing 10% but could definitely do more. I need to balance this with growing my savings accounts for a down payment on a house, though.
• If there is potential for me buying a house, should I put money into my Roth IRA for 2013?
• My employer default 401k is Traditional, but I also could do a Roth 401k. Since I expect my income to continue to increase in the future, does it make more sense to do a Roth 401k now and switch to Traditional later?

I welcome any other advice or suggestions that you have.

[MakeAStash]

At your income level, an IRA and 401k can become a tax trap in that upon withdrawal you will pay tax at your ordinary income rate, which is often the highest rate around.

A 401k with a employer match is always worth doing up to the match. Beyond that, consider investing in a non-dividend growth stock (BRKB is an example) to buy and hold long term. Like an IRA or 401k, there is no tax due while you hold the stock, which might be decades. When you finally do sell some, under current tax laws you pay tax on gains at the Capital Gains rate, which historically has been less than the ordinary income rate.

Since there is no way to predict future tax laws, don't rely exclusively on such a strategy, but instead diversify your strategies.