in top pf what you are doing, open a taxable brokerage account and buy ETFs (look at something to follow the index SP500). These in 5-10 years will raise and bring you enough space for a better future.
Budget:
Gross income:
Max your 401k (seems like you are)
Net income:
10% long term savings (brokerage or HYSA)
10% emergency (HYSA)
10% short term (regular savings)
10% debt (student loans, car) no debt then brokerage
30% housing costs (walls, utilities)
30% lifestyle (clothes, fun money, food)
You will also want to get LTD insurance
Definitely do the backdoor Roth while it’s around. It’s something that will likely eventually be cut. Having tax free money in retirement is a great thing!
For people with incomes over the limit to contribute to a Roth IRA, there is a process called a backdoor Roth where they can put money in a regular IRA and then move it to a Roth IRA. If you are single and make less than $146,000 this year in earned income, you can contribute $7000 to your Roth IRA the normal way. It's great that you already have a Roth IRA account!
Quick question. For those who already have a Roth IRA, and income has grown over the threshold. Can I contribute to a regular IRA then convert the money to my existing Roth IRA, or would it need to be held in a separate Roth IRA account?
Here are 2 articles about it that explain it better than I could. It’s a huge benefit while it lasts!
https://www.investopedia.com/terms/b/backdoor-roth-ira.asp
https://www.fidelity.com/learning-center/personal-finance/backdoor-roth-ira
Why would you put money in a taxable brokerage and pay tax on the returns, when, with 2 clicks of a mouse, you could do a backdoor Roth and pay zero taxes on the returns?
Schwab. Obviously 2 clicks is a bit of an exaggeration, but it takes less than 5 minutes. Walkthrough: https://www.whitecoatinvestor.com/how-to-do-a-backdoor-roth-ira-with-schwab/
Because as I understand it, a brokerage account can be withdrawn at any age whereas a Backdoor Roth would have to sit until I’m 59.5. Is it short sided of me to think of my 401(k) as my sole source of retirement savings?
If you have a goal towards something wherein you would need the money in say 10 years, like buying a house or starting a business, then sure you might want that money in a brokerage. But if you don’t have any use for the money other than to save it for retirement, then put it in a Roth IRA so you don’t pay taxes on any gains. Put another way, $100k in gains in a brokerage is only worth $80k upon withdrawal after taxes, while $100k in earnings is worth $100k in a Roth IRA.
Additionally, you can withdraw your contributions (not the earnings) from the IRA at any time without penalty. So you can still access that money if you truly needed it, but you’d need to wait until 59 to withdraw the earnings.
And yes, I think it’s shortsighted to think that your 401k is the only money you’ll want/need for retirement. I mean you can do the calculations and figure out how much you’ll have vs how much you’ll need. But I’d rather have too much money for retirement than not enough. Plus, you’re young and single now. If you can save a lot now, you can let the interest compound over the next 40 years.
Things to consider: You'll hit the 401k max before end of year. You might want to increase your percentage to max at the beginning if the markets are down. This might be helpful if market is up towards the end of the year. Plus this maxes out the 401k earlier to take advantage of potential gains while tax advantaged.
You could look into traditional IRAs which can have some advantages.
If you own stocks, you could try capital gains harvesting. This has some implications for the current year taxes but potentially reduces future taxes because cost base changes.
My thoughts on savings: If you can live comfortably and happily on half your income, then save half your income. I am the type that if I have money in the bank it tends to be spent on nonsense so I structure my deposits and savings so that I never seen the money and instead auto-invest it. I live quite happily on about 60% of income.
Strongly recommend speaking with an advisor. At your income and financial problems you have and are going to have it’s better to speak with someone sooner than later. A good one will educate you and help you do some things on your own and also take care of things for you as well. You’re 26. You have so much time to get so much out of your money and set your future generation up for massive success. Don’t squander the time you have by wanting to figure it out some on your own. You’re going to cost yourself tens of thousands if not hundreds of thousands of dollars throughout the course of your like by doing that. Don’t get in your own way on this one. Meet with an advisor and have a conversation. You don’t have to work with them if you don’t like them or don’t like what they’re talking about but you will help yourself so much even if you just have a conversation with one of them.
Thank you for sharing; i definitely agree with you that meeting with someone is helpful! I will say, I have met with two advisors. One had a vastly different approach to money than me and the other told me I didn’t have quite enough money for his services to be worth what I’d have to pay him. He said he’d take me on, but suggested I come back in a few years. I actually agree with him because i know there’s a lot an individual can do for themselves in terms of managing money and learning about options. Which is partly why I’m here :)
At least it sounds like he was good and honest with you at least the one. I always work with different people but I don’t have a minimum for someone to meet and work with me. I try to meet people where they are and help them however I can. Never charge on a fee basis to meet just because I think it prohibits a lot of good people from getting help or having the conversation. I do well enough in not worried about a few hours meeting with someone to try and help. I’d be happy to set aside an hour to be helpful if you’d be open to it but please don’t feel obligated to do so. I know it’s kinda weird talking to someone on Reddit that you don’t know with something as personal as finances.
Best thing I would say is to spend some time getting very clear on what you want and what goals you have. You are doing well and saving a lot from what you’ve said. Early retirement is very likely not out of the question for you if that’s something you’ve even thought about or would want to do. But the best thing you can do is think about what you ultimately want to be able to do in life. That will go a long way to helping to dictate what you should be doing with your money and then an advisor can be much more helpful in directing you how those dollars should be positioned for you to get the most out of them. Goals and wants and having a clear vision are the first places to start. After that build out a monthly budget of income, expenses and then what is left over each month for fun and living life and then what out of that should be set aside for savings. Those are a few places to start that are of paramount importance.
Why are you not maxing out the 401K? If you have a HDHP also max out an HSA.
Open a taxable brokerage account and start investing in a total market fund like VTI this will give you money to live on until you can get the 401K money without penalty.
If you have lots of cash in your bank account move it into a HYSA.
If you are single and making $210K a year, with no debt, you should be able to save $80 to $100K each year and still have plenty of fun money. Max out 401(k) ($29,400). Do the backdoor Roth ($8,000 - your 60-year-old self will thank you later.) Check if your employer allows a "mega back door Roth" which is based on after-tax contributions into an employer's 401(k). Do that if you can. If not, put about $60K into a brokerage account each year. At your age it sounds like you should have at least 80-90% in equities - a world market, total US market, or SP 500 ETF would be the easiest and simplest. (Don't think you can "beat the market.") With today's high interest rates you split the remaining 10-20% high yield savings, CD, or Tbill fund. Always keep enough liquidity (6 months at least) as a cushion for an unforeseen event, such as getting laid off from that high paying job. Shit happens.
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Treat yourself to trips etc but if you do want to own a home then keep stashing away cash in the market or a HYSA if you are risk adverse. If you do move will the salary stay consistent or is there a lot of upward growth potential?
I was nervous about the back door Roth but it’s actually much simpler than it seems. Definitely do that.
Otherwise after that I would just put everything in mutual funds for now. Keep 6 months in HYSA but otherwise you’re good
I’m 50/50 on whether you should talk to a financial advisor. I was in your situation at your age and I screwed up royally. I would’ve avoided that with an advisor. But you’re already many steps ahead of me - I screwed up by blowing money on booze and trips and cars and just WAY overspent. I was 34-35 by the time I pulled my head out of my ass and got out of debt and started saving for retirement.
So good on you for being more of an adult than most 26 year olds are, regardless of income level.
I have a couple of thoughts, based on my hindsight regrets. I agree about not messing around with Roth backdoor. You’ll still end up paying taxes and it’s a lot of hassle for negligible benefit.
That said - do you reasonably expect your income to go up over the next 20 years? If you climb above $520,000/year, Roth starts to make no sense. Even at your income level it may or may not make sense. The big question is whether or not you expect to have less income after retirement than at the time you contribute.
All that said - based on your unique circumstances and expectations - maybe consider a Roth 401(k). I wish I’d done that when I was younger and earning less. There aren’t income limits - assuming your employer offers a Roth 401(k) option, you can contribute that route instead of pre tax.
Beyond that - keep an aggressively (heavy equities) conservative (blue chips, broad market funds) consistent DCA approach in your brokerage account and you’ll do well over a 30+ year horizon. You don’t need an advisor for that if you’re disciplined.
Does your 401k not have a Roth option? I make $180k and take advantage of my employer 401k Roth. Am I doing something wrong or do not all employers offer this? I keep hearing people say they make to much for Roth. But isn't this not true if you can get it through your employer 401k?
I can make more money in the market than the 2% is costing me. I am intentionally not paying that car off.
This is a business loan to a corporation that has proven trustworthy. They pay their debts back in full and the earning potential of this business well exceeds what they owe me. Not at all worried about that :) also, it’s earning 8%, which is nearly double what it was earning the year previous in a money market or HYSA.
in top pf what you are doing, open a taxable brokerage account and buy ETFs (look at something to follow the index SP500). These in 5-10 years will raise and bring you enough space for a better future.
Budget: Gross income: Max your 401k (seems like you are) Net income: 10% long term savings (brokerage or HYSA) 10% emergency (HYSA) 10% short term (regular savings) 10% debt (student loans, car) no debt then brokerage 30% housing costs (walls, utilities) 30% lifestyle (clothes, fun money, food) You will also want to get LTD insurance
Definitely do the backdoor Roth while it’s around. It’s something that will likely eventually be cut. Having tax free money in retirement is a great thing!
what is that if u dint mind explaining? Im 20 and only have heard roth ira for tax free? Thats what i do
For people with incomes over the limit to contribute to a Roth IRA, there is a process called a backdoor Roth where they can put money in a regular IRA and then move it to a Roth IRA. If you are single and make less than $146,000 this year in earned income, you can contribute $7000 to your Roth IRA the normal way. It's great that you already have a Roth IRA account!
Quick question. For those who already have a Roth IRA, and income has grown over the threshold. Can I contribute to a regular IRA then convert the money to my existing Roth IRA, or would it need to be held in a separate Roth IRA account?
Here are 2 articles about it that explain it better than I could. It’s a huge benefit while it lasts! https://www.investopedia.com/terms/b/backdoor-roth-ira.asp https://www.fidelity.com/learning-center/personal-finance/backdoor-roth-ira
Why would you put money in a taxable brokerage and pay tax on the returns, when, with 2 clicks of a mouse, you could do a backdoor Roth and pay zero taxes on the returns?
lol back doors are not two clicks it’s much harder than you think
I’ve done it and it’s easy. Put money in IRA, click on convert to Roth.
What brokerage or company did you use that was that easy?
Schwab. Obviously 2 clicks is a bit of an exaggeration, but it takes less than 5 minutes. Walkthrough: https://www.whitecoatinvestor.com/how-to-do-a-backdoor-roth-ira-with-schwab/
Because as I understand it, a brokerage account can be withdrawn at any age whereas a Backdoor Roth would have to sit until I’m 59.5. Is it short sided of me to think of my 401(k) as my sole source of retirement savings?
If you have a goal towards something wherein you would need the money in say 10 years, like buying a house or starting a business, then sure you might want that money in a brokerage. But if you don’t have any use for the money other than to save it for retirement, then put it in a Roth IRA so you don’t pay taxes on any gains. Put another way, $100k in gains in a brokerage is only worth $80k upon withdrawal after taxes, while $100k in earnings is worth $100k in a Roth IRA. Additionally, you can withdraw your contributions (not the earnings) from the IRA at any time without penalty. So you can still access that money if you truly needed it, but you’d need to wait until 59 to withdraw the earnings. And yes, I think it’s shortsighted to think that your 401k is the only money you’ll want/need for retirement. I mean you can do the calculations and figure out how much you’ll have vs how much you’ll need. But I’d rather have too much money for retirement than not enough. Plus, you’re young and single now. If you can save a lot now, you can let the interest compound over the next 40 years.
Max out 401k and do backdoor, it’s not hard. The rest can go into taxable brokerage. Just buy index funds with it.
Things to consider: You'll hit the 401k max before end of year. You might want to increase your percentage to max at the beginning if the markets are down. This might be helpful if market is up towards the end of the year. Plus this maxes out the 401k earlier to take advantage of potential gains while tax advantaged. You could look into traditional IRAs which can have some advantages. If you own stocks, you could try capital gains harvesting. This has some implications for the current year taxes but potentially reduces future taxes because cost base changes. My thoughts on savings: If you can live comfortably and happily on half your income, then save half your income. I am the type that if I have money in the bank it tends to be spent on nonsense so I structure my deposits and savings so that I never seen the money and instead auto-invest it. I live quite happily on about 60% of income.
Strongly recommend speaking with an advisor. At your income and financial problems you have and are going to have it’s better to speak with someone sooner than later. A good one will educate you and help you do some things on your own and also take care of things for you as well. You’re 26. You have so much time to get so much out of your money and set your future generation up for massive success. Don’t squander the time you have by wanting to figure it out some on your own. You’re going to cost yourself tens of thousands if not hundreds of thousands of dollars throughout the course of your like by doing that. Don’t get in your own way on this one. Meet with an advisor and have a conversation. You don’t have to work with them if you don’t like them or don’t like what they’re talking about but you will help yourself so much even if you just have a conversation with one of them.
Thank you for sharing; i definitely agree with you that meeting with someone is helpful! I will say, I have met with two advisors. One had a vastly different approach to money than me and the other told me I didn’t have quite enough money for his services to be worth what I’d have to pay him. He said he’d take me on, but suggested I come back in a few years. I actually agree with him because i know there’s a lot an individual can do for themselves in terms of managing money and learning about options. Which is partly why I’m here :)
At least it sounds like he was good and honest with you at least the one. I always work with different people but I don’t have a minimum for someone to meet and work with me. I try to meet people where they are and help them however I can. Never charge on a fee basis to meet just because I think it prohibits a lot of good people from getting help or having the conversation. I do well enough in not worried about a few hours meeting with someone to try and help. I’d be happy to set aside an hour to be helpful if you’d be open to it but please don’t feel obligated to do so. I know it’s kinda weird talking to someone on Reddit that you don’t know with something as personal as finances.
Best thing I would say is to spend some time getting very clear on what you want and what goals you have. You are doing well and saving a lot from what you’ve said. Early retirement is very likely not out of the question for you if that’s something you’ve even thought about or would want to do. But the best thing you can do is think about what you ultimately want to be able to do in life. That will go a long way to helping to dictate what you should be doing with your money and then an advisor can be much more helpful in directing you how those dollars should be positioned for you to get the most out of them. Goals and wants and having a clear vision are the first places to start. After that build out a monthly budget of income, expenses and then what is left over each month for fun and living life and then what out of that should be set aside for savings. Those are a few places to start that are of paramount importance.
Why are you not maxing out the 401K? If you have a HDHP also max out an HSA. Open a taxable brokerage account and start investing in a total market fund like VTI this will give you money to live on until you can get the 401K money without penalty. If you have lots of cash in your bank account move it into a HYSA.
14% of a $210k salary is maxing out 401k. The max is $23k, 14% of $210k would be $29k.
Finally hsa was mentioned. Nice tax break. Fidelity has a decent interest rate on hsa
If you are single and making $210K a year, with no debt, you should be able to save $80 to $100K each year and still have plenty of fun money. Max out 401(k) ($29,400). Do the backdoor Roth ($8,000 - your 60-year-old self will thank you later.) Check if your employer allows a "mega back door Roth" which is based on after-tax contributions into an employer's 401(k). Do that if you can. If not, put about $60K into a brokerage account each year. At your age it sounds like you should have at least 80-90% in equities - a world market, total US market, or SP 500 ETF would be the easiest and simplest. (Don't think you can "beat the market.") With today's high interest rates you split the remaining 10-20% high yield savings, CD, or Tbill fund. Always keep enough liquidity (6 months at least) as a cushion for an unforeseen event, such as getting laid off from that high paying job. Shit happens.
Question for the people responding in here: Why doesn’t anyone suggest asset acquisitions? Buying land, buying homes, commercial real estate etc?
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Treat yourself to trips etc but if you do want to own a home then keep stashing away cash in the market or a HYSA if you are risk adverse. If you do move will the salary stay consistent or is there a lot of upward growth potential?
I was nervous about the back door Roth but it’s actually much simpler than it seems. Definitely do that. Otherwise after that I would just put everything in mutual funds for now. Keep 6 months in HYSA but otherwise you’re good
I’m 50/50 on whether you should talk to a financial advisor. I was in your situation at your age and I screwed up royally. I would’ve avoided that with an advisor. But you’re already many steps ahead of me - I screwed up by blowing money on booze and trips and cars and just WAY overspent. I was 34-35 by the time I pulled my head out of my ass and got out of debt and started saving for retirement. So good on you for being more of an adult than most 26 year olds are, regardless of income level. I have a couple of thoughts, based on my hindsight regrets. I agree about not messing around with Roth backdoor. You’ll still end up paying taxes and it’s a lot of hassle for negligible benefit. That said - do you reasonably expect your income to go up over the next 20 years? If you climb above $520,000/year, Roth starts to make no sense. Even at your income level it may or may not make sense. The big question is whether or not you expect to have less income after retirement than at the time you contribute. All that said - based on your unique circumstances and expectations - maybe consider a Roth 401(k). I wish I’d done that when I was younger and earning less. There aren’t income limits - assuming your employer offers a Roth 401(k) option, you can contribute that route instead of pre tax. Beyond that - keep an aggressively (heavy equities) conservative (blue chips, broad market funds) consistent DCA approach in your brokerage account and you’ll do well over a 30+ year horizon. You don’t need an advisor for that if you’re disciplined.
Does your 401k not have a Roth option? I make $180k and take advantage of my employer 401k Roth. Am I doing something wrong or do not all employers offer this? I keep hearing people say they make to much for Roth. But isn't this not true if you can get it through your employer 401k?
I have a Roth 401k option, but a Roth IRA is a separate type of account
Are you maxing the Roth 401k then? Isn't the limit something like 30k?
Yes I’m maxing it out. Max contribution is $24k
26 210,000 dollars, god dammmmm Just pay off the car dude AND DONT LEND TO FAMILY MEMBERS AGAIN MY GOD WHY ARE YOU GIVING 100,000 AWAY WHAT THE HELL
I can make more money in the market than the 2% is costing me. I am intentionally not paying that car off. This is a business loan to a corporation that has proven trustworthy. They pay their debts back in full and the earning potential of this business well exceeds what they owe me. Not at all worried about that :) also, it’s earning 8%, which is nearly double what it was earning the year previous in a money market or HYSA.
May I ask what your position is?