Young Professional Seeking Advice
Hi everyone. I stumbled across this forum a few months ago and have been hooked ever since. From a young age, the idea of being financially independent has been intriguing and it is now towards the top of my priority list.
I am 24 years old and have been w*rking for a little over a year. I have zero debt and don't plan on acquiring any soon. I track my expenses carefully and am very serious about saving.
My expenses are around 20% of my gross income, taxes are roughly 25% (federal, state, payroll) and I save the rest. I currently max out a Roth 401k, Roth IRA, HSA. I put in 10% into an after tax 401k which will be rolled over into a Roth IRA every year. My company offers company match on the 401k and also a company sponsored defined contribution pension plan. I also take advantage of a employee stock purchase program where I put 5% of my pay and can buy the stock at a discount.
I invest in low expense index funds in my 401k (85% equities and 15% bonds). For my IRA, I have a couple of stocks and low expense index tracking ETFs. I play around a little with my after tax cash but am considering not wasting my time and go 100% low expense ETFs. However, I think I would always think 'what if' if I didn't invest at least a small % (5-10%) of my assets in individual stocks.
My goal is to continue saving a lot and slowly start pulling out of the market and buy short to medium term bonds. Then at some point I'll have enough assets to cash-flow match my expenses (including inflation) and hopefully at that time the interest rate environment will be more favorable. At that point I plan to transfer those assets into longer term bonds, hold a sizable cash cushion for emergencies and leave the rest in equities for long term growth.
Now I have a few questions. I am currently in the 25% marginal tax bracket and expect to jump to the 28% marginal bracket next year (I also w*rk in a state with >5% income tax). What are your thoughts on having me switch to a traditional 401k from a Roth to save on taxes?
I know the rule of thumb is if you expect to be in a higher tax bracket when you retire then it is better to use a Roth now. I know my tax bracket will increase over the next few years but won't I have more control over my income in retirement? I imagine that I would try and time my withdrawals in a tax efficient manner.
Another thought to consider is if I decide to retire young then I shouldn't touch my traditional accounts before I am 59.5 unless if I take a SEEP distribution. However, with a Roth 401k I would be able to easily roll that over to a Roth IRA and after 5 years I would be able to withdraw my contribution penalty free. That seems more ER friendly. But if I did do the traditional 401k then I would be able to save more after tax (from the tax savings) which would help with ER too. There is a big difference between 25% tax bracket and 15% if you include state tax as well.
In the end it seems like there are too many unknowns so there is no 'right' way of doing this. I could always do a 50/50 split between the two.
My next questions is regarding i-bonds. They seem like a great idea, very safe, inflation protection and more depending on current interest rates. What are your thoughts on having me purchase some? Am I too young to be thinking of such conservative investments? I sort of thought of it as a saving vehicle that would protect my initial investment by keeping up with inflation. I also like TIPS but they seem expensive right now.
Hi everyone. I stumbled across this forum a few months ago and have been hooked ever since. From a young age, the idea of being financially independent has been intriguing and it is now towards the top of my priority list.
I am 24 years old and have been w*rking for a little over a year. I have zero debt and don't plan on acquiring any soon. I track my expenses carefully and am very serious about saving.
My expenses are around 20% of my gross income, taxes are roughly 25% (federal, state, payroll) and I save the rest. I currently max out a Roth 401k, Roth IRA, HSA. I put in 10% into an after tax 401k which will be rolled over into a Roth IRA every year. My company offers company match on the 401k and also a company sponsored defined contribution pension plan. I also take advantage of a employee stock purchase program where I put 5% of my pay and can buy the stock at a discount.
I invest in low expense index funds in my 401k (85% equities and 15% bonds). For my IRA, I have a couple of stocks and low expense index tracking ETFs. I play around a little with my after tax cash but am considering not wasting my time and go 100% low expense ETFs. However, I think I would always think 'what if' if I didn't invest at least a small % (5-10%) of my assets in individual stocks.
My goal is to continue saving a lot and slowly start pulling out of the market and buy short to medium term bonds. Then at some point I'll have enough assets to cash-flow match my expenses (including inflation) and hopefully at that time the interest rate environment will be more favorable. At that point I plan to transfer those assets into longer term bonds, hold a sizable cash cushion for emergencies and leave the rest in equities for long term growth.
Now I have a few questions. I am currently in the 25% marginal tax bracket and expect to jump to the 28% marginal bracket next year (I also w*rk in a state with >5% income tax). What are your thoughts on having me switch to a traditional 401k from a Roth to save on taxes?
I know the rule of thumb is if you expect to be in a higher tax bracket when you retire then it is better to use a Roth now. I know my tax bracket will increase over the next few years but won't I have more control over my income in retirement? I imagine that I would try and time my withdrawals in a tax efficient manner.
Another thought to consider is if I decide to retire young then I shouldn't touch my traditional accounts before I am 59.5 unless if I take a SEEP distribution. However, with a Roth 401k I would be able to easily roll that over to a Roth IRA and after 5 years I would be able to withdraw my contribution penalty free. That seems more ER friendly. But if I did do the traditional 401k then I would be able to save more after tax (from the tax savings) which would help with ER too. There is a big difference between 25% tax bracket and 15% if you include state tax as well.
In the end it seems like there are too many unknowns so there is no 'right' way of doing this. I could always do a 50/50 split between the two.
My next questions is regarding i-bonds. They seem like a great idea, very safe, inflation protection and more depending on current interest rates. What are your thoughts on having me purchase some? Am I too young to be thinking of such conservative investments? I sort of thought of it as a saving vehicle that would protect my initial investment by keeping up with inflation. I also like TIPS but they seem expensive right now.
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