Personal Finance 101 for Young Lawyers

[spyke123]

Matching is very common in corp america..

[Wipfelder]

On a related note, is "no matching 401k" a common thing?

For biglaw associates, yes. For others, I don't know.

Man, that is a buzzkill.

[Anonymous User]

As someone with 60k of federal loan debt at 6.7%, I'm assuming the best use of my upcoming SA money will be to throw about 20k toward my debt, and save the remaining 10k for 3L and avoid taking out more loans?

My SA pays 3,077 per week, so 30k for the summer basically. I should pay zero federal income tax because, after personal exemption and deduction and learning tax credit (2500 tax credit if you spend 4k or more a year on education), I calculated my tax to be zero.

Also, I'd put the 20k toward my largest loan (a 20k grad plus loan) since that loan, if I'm right, will be accruing the most interest. (All my loans are 6.7%. I have 3 grad plus loans of 20k each, and then 2 small loans of like 2k each).

Can someone weigh in and confirm what I'm planning to do / provide criticism?

How could your taxes possibly be zero?

Def possible based on income. Some people even have an effective negative tax through the earned income credit.

For summer associates? If you make $30k over the summer there is no way you pay no taxes. At the very least you have to pay SS and Medicare and you won't get that back. EIC will only kick in if you have children give the summer income, and even then, only if your spouse also makes little to nothing.

[Danger Zone]

Not true re: EIC, you can earn it without claiming any dependents: https://www.irs.gov/credits-deductions/ ... ying-child

Also we don't know what other credits or deductions they might have that could bring their income down

[Winter is Coming]

Not true re: EIC, you can earn it without claiming any dependents: https://www.irs.gov/credits-deductions/ ... ying-child

Also we don't know what other credits or deductions that might have that could bring their income down

I more worried that it looks like he's budgeting 0 spending for the summer? OP what about rent, food, fun, etc.? You're not going to have the full 30k to save/pay down loans even with no tax.

[RaceJudicata]

Not true re: EIC, you can earn it without claiming any dependents: https://www.irs.gov/credits-deductions/ ... ying-child

Also we don't know what other credits or deductions that might have that could bring their income down

I more worried that it looks like he's budgeting 0 spending for the summer? OP what about rent, food, fun, etc.? You're not going to have the full 30k to save/pay down loans even with no tax.

mommy and daddy thoooooo

[Winter is Coming]

If that's the case more power to him, but then he really shouldn't be able to finagle himself into the EITC haha.

[dabigchina]

If that's the case more power to him, but then he really shouldn't be able to finagle himself into the EITC haha.

I'd be shocked if he qualified for EIC with a SA and no kids. IIRC the credit phases out at like 15k AGI.

[Anonymous User]

Not true re: EIC, you can earn it without claiming any dependents: https://www.irs.gov/credits-deductions/ ... ying-child

Also we don't know what other credits or deductions they might have that could bring their income down

Did you read the link you provided? He will make more as a SA than EIC allows for.

[Danger Zone]

Not true re: EIC, you can earn it without claiming any dependents: https://www.irs.gov/credits-deductions/ ... ying-child

Also we don't know what other credits or deductions they might have that could bring their income down

Did you read the link you provided? He will make more as a SA than EIC allows for.

Do you not know how credits and deductions work?

[Winter is Coming]

I don't think we should derail this thread with this EIC discussion; I actually think there is a another thread talking about summer associate appropriate allowances where we could talk about it.

It's possible, but extremely unlikely, that he could qualify for the EIC (especially if his parents or someone else is footing all his living expenses, i.e. he doesn't own a home/no kids/etc. and wouldn't have these type of deductions).

[Anonymous User]

Not true re: EIC, you can earn it without claiming any dependents: https://www.irs.gov/credits-deductions/ ... ying-child

Also we don't know what other credits or deductions they might have that could bring their income down

Did you read the link you provided? He will make more as a SA than EIC allows for.

Do you not know how credits and deductions work?

Sure, just never heard of anyone anywhere who made $30k for the summer and had enough deductions/credits such that they could literally keep every dollar.

Again, at the minimum, you won't get back your SS and Medicare.

[Danger Zone]

Yeah agreed they wouldn't keep all of it, that's just silly

[patentlitigatrix]

What are good legit ways to reduce taxable income for high income earners? Married couple with 4 kids, combined income over 500k. Both my husband and I max out our 401k, itemize, take mortgage deduction. I know taxes will be high regardless, but any tips from experience? We get the god damn AMT every year so I feel like itemizing and taking all these deductions is really not that helpful.

In particular, I don't get how back-door Roth IRA conversions help. Don't you still pay the tax on the income before you put it into the traditional IRA? So how does this help?

And HSAs make me nervous. Even as a family of 6, our health-care costs are generally low, and we get a super-cheap HMO through my husband's employer. I doubt we'd even meet the deductible on an HDHP. No one has any chronic medication conditions, or really gets sick often. Is the idea to save this for use later in life? So you are betting on getting sick? And can't you only contribute 6k a year anyways?

Also, I just don't like having cash tied up that I can't use now.

[Anonymous User]

I'm not super conversant on backdoor Roths, but I'm pretty sure the benefit there is you don't get hit with taxes on returns when you start withdrawing years down the road.

[dabigchina]

Also, you can build conversion ladders which further decrease your tax burden, although tbh I haven't looked into them too much.

[Tiago Splitter]

I'm not super conversant on backdoor Roths, but I'm pretty sure the benefit there is you don't get hit with taxes on returns when you start withdrawing years down the road.

Yeah it's a way to save for the future in a tax-advantaged way. Biglaw people make too much to take a deduction on their traditional IRA contributions if they also contribute to a 401k so might as well get it in the Roth where it grows tax free.

[patentlitigatrix]

I'm not super conversant on backdoor Roths, but I'm pretty sure the benefit there is you don't get hit with taxes on returns when you start withdrawing years down the road.

Yeah it's a way to save for the future in a tax-advantaged way. Biglaw people make too much to take a deduction on their traditional IRA contributions if they also contribute to a 401k so might as well get it in the Roth where it grows tax free.

That is making more sense now. I get the benefit is in the future, not now. Thank you!

[arklaw13]

re: HSA - it's a great potential investment vehicle, but if you've got a super-cheap plan with good coverage, it probably does not make financial sense to switch to a HDHP just for the HSA. Especially when you have 4 kids, all of whom are ticking time bombs to get hurt/sick and max the annual out of pocket limit on a HDHP.

You could look into 529's when can be state income tax-deductible, but idk of any other federal pre-tax savings you're gonna get as far as investments.

[jbagelboy]

I disagree with the 401k investment idea, since most firms don't match so its more like having a savings account, which is very low returns.

[bk1]

I disagree with the 401k investment idea, since most firms don't match so its more like having a savings account, which is very low returns.

Huh?

[dabigchina]

I disagree with the 401k investment idea, since most firms don't match so its more like having a savings account, which is very low returns.

what is the 401k investment idea?

[star fox]

I disagree with the 401k investment idea, since most firms don't match so its more like having a savings account, which is very low returns.

what is the 401k investment idea?

[RaceJudicata]

I disagree with the 401k investment idea, since most firms don't match so its more like having a savings account, which is very low returns.

I sincerely hope you don't mean -- as a general proposition -- that a 401k with or without a match is a bad idea.

[dabigchina]

What are good legit ways to reduce taxable income for high income earners? Married couple with 4 kids, combined income over 500k. Both my husband and I max out our 401k, itemize, take mortgage deduction. I know taxes will be high regardless, but any tips from experience? We get the god damn AMT every year so I feel like itemizing and taking all these deductions is really not that helpful.

In particular, I don't get how back-door Roth IRA conversions help. Don't you still pay the tax on the income before you put it into the traditional IRA? So how does this help?

And HSAs make me nervous. Even as a family of 6, our health-care costs are generally low, and we get a super-cheap HMO through my husband's employer. I doubt we'd even meet the deductible on an HDHP. No one has any chronic medication conditions, or really gets sick often. Is the idea to save this for use later in life? So you are betting on getting sick? And can't you only contribute 6k a year anyways?

Also, I just don't like having cash tied up that I can't use now.

Also, do you have a 529 set up? With 4 kids college is going to be expensive any way you cut it.