Personal Finance 101 for Young Lawyers

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bk1
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Re: Personal Finance 101 for Young Lawyers

Postby bk1 » Tue Jan 10, 2017 6:54 pm

Wipfelder wrote:
Tiago Splitter wrote:You can't withdraw from a 401k for higher education expenses. Even if they let you you'll have to pay a penalty on the distribution. If you separate from service or otherwise can take the money out you can roll to an IRA for the penalty exception, but you'll still owe taxes on any distribution from there.

Not that I disagree with the philosophy of 401k before 529; if you aren't funded for retirement yet let the kids handle their educations themselves.


But it's all basically moot if you've got enough money to cover the kids expenses for school right? Like how many big-law lawyers' kids get significant financial aid that isn't loans?

Well, those people are either partners/counsel since we're talking about college-age kids so for them it is moot.

Wipfelder
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Re: Personal Finance 101 for Young Lawyers

Postby Wipfelder » Tue Jan 10, 2017 7:02 pm

bk1 wrote:
Wipfelder wrote:
Tiago Splitter wrote:You can't withdraw from a 401k for higher education expenses. Even if they let you you'll have to pay a penalty on the distribution. If you separate from service or otherwise can take the money out you can roll to an IRA for the penalty exception, but you'll still owe taxes on any distribution from there.

Not that I disagree with the philosophy of 401k before 529; if you aren't funded for retirement yet let the kids handle their educations themselves.


But it's all basically moot if you've got enough money to cover the kids expenses for school right? Like how many big-law lawyers' kids get significant financial aid that isn't loans?

Well, those people are either partners/counsel since we're talking about college-age kids so for them it is moot.


Or even really, how many Americans qualify for substantial need-based grants or whatever?

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kalvano
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Re: Personal Finance 101 for Young Lawyers

Postby kalvano » Tue Jan 10, 2017 8:55 pm

The main benefit to a 529 is that contributions aren't capped like they are with an IRA. You can make significant contributions at one time to maximize the benefits. When our son was born, we put a nice chunk into a 529 to grow for 18 years. It will affect financial aid, but that's a roll of the dice anyway as to what he may or may not get. I'd rather make sure I have enough to keep him from having to take out too much, if anything, in loans.

Besides, he's my kid and obviously a genius, so he'll likely get a smart person scholarship everywhere.

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UVA2B
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Re: Personal Finance 101 for Young Lawyers

Postby UVA2B » Tue Jan 10, 2017 9:19 pm

kalvano wrote:The main benefit to a 529 is that contributions aren't capped like they are with an IRA. You can make significant contributions at one time to maximize the benefits. When our son was born, we put a nice chunk into a 529 to grow for 18 years. It will affect financial aid, but that's a roll of the dice anyway as to what he may or may not get. I'd rather make sure I have enough to keep him from having to take out too much, if anything, in loans.

Besides, he's my kid and obviously a genius, so he'll likely get a smart person scholarship everywhere.


Probably not relevant for this thread in frugality, but 529s can also pay for primary private school, if you have the means to make the 529 feed the little monster's education needs as long as possible.

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AVBucks4239
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Re: Personal Finance 101 for Young Lawyers

Postby AVBucks4239 » Wed Jan 11, 2017 10:44 am

UVA2B wrote:Probably not relevant for this thread in frugality being efficient with money, but 529s can also pay for primary private school, if you have the means to make the 529 feed the little monster's education needs as long as possible.


FTFY.

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Re: Personal Finance 101 for Young Lawyers

Postby efo415 » Wed Jan 11, 2017 1:52 pm

..

Wipfelder
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Re: Personal Finance 101 for Young Lawyers

Postby Wipfelder » Wed Jan 11, 2017 2:02 pm

Does anyone do the childcare savings account?

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Re: Personal Finance 101 for Young Lawyers

Postby Anonymous User » Thu Jan 12, 2017 12:55 am

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?

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Tiago Splitter
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Re: Personal Finance 101 for Young Lawyers

Postby Tiago Splitter » Thu Jan 12, 2017 1:08 am

Anonymous User wrote: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?

At the very least you'll pay a bunch of payroll taxes. So like $2500 minimum. You might consider tossing $5500 into a Roth IRA since it's it's a take it or leave it thing.

How much debt will you graduate with?

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bk1
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Re: Personal Finance 101 for Young Lawyers

Postby bk1 » Thu Jan 12, 2017 1:32 am

Anonymous User wrote: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?

Are you taking any more than 10k for 3L? Don't they have origination fees? I can't remember, but if they do then avoiding more 3L loans is likely a better deal than paying 1L/2L loans.

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Re: Personal Finance 101 for Young Lawyers

Postby Anonymous User » Thu Jan 12, 2017 4:09 am

bk1 wrote:
Anonymous User wrote: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?

Are you taking any more than 10k for 3L? Don't they have origination fees? I can't remember, but if they do then avoiding more 3L loans is likely a better deal than paying 1L/2L loans.


Very good point. Yes, there are org fees. Abuot $800 per 20k loan is the fee... So it seems that maybe using the SA money to just pay as much tuition on my own, and then take the rest out in loans for 3L is the better idea?

I guess I need to calculcate whether the interest/accruement will be greater than origination fees for new loans, which I do not know how to do. However, since it is 800 per 20k, and I'd need to take out 50k for 3L (roughly), that'd be around 2k of origination fees alone. If I paid 20k of tuition myself, I'd only need to take out 30k in loans...
Last edited by Anonymous User on Thu Jan 12, 2017 4:19 am, edited 1 time in total.

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Re: Personal Finance 101 for Young Lawyers

Postby Anonymous User » Thu Jan 12, 2017 4:16 am

Tiago Splitter wrote:
Anonymous User wrote: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?

At the very least you'll pay a bunch of payroll taxes. So like $2500 minimum. You might consider tossing $5500 into a Roth IRA since it's it's a take it or leave it thing.

How much debt will you graduate with?


Graduate with about 120k of debt. Parents may give 30k toward it.

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Re: Personal Finance 101 for Young Lawyers

Postby Wipfelder » Thu Jan 12, 2017 10:21 am

Anonymous User wrote:
bk1 wrote:
Anonymous User wrote: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?

Are you taking any more than 10k for 3L? Don't they have origination fees? I can't remember, but if they do then avoiding more 3L loans is likely a better deal than paying 1L/2L loans.


Very good point. Yes, there are org fees. Abuot $800 per 20k loan is the fee... So it seems that maybe using the SA money to just pay as much tuition on my own, and then take the rest out in loans for 3L is the better idea?

I guess I need to calculcate whether the interest/accruement will be greater than origination fees for new loans, which I do not know how to do. However, since it is 800 per 20k, and I'd need to take out 50k for 3L (roughly), that'd be around 2k of origination fees alone. If I paid 20k of tuition myself, I'd only need to take out 30k in loans...


I am usually pretty gung-ho about knocking down debt but, at least while you are in school, i'd put "not getting more debt" and "savings" ahead of knocking down loans.

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polareagle
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Re: Personal Finance 101 for Young Lawyers

Postby polareagle » Thu Jan 12, 2017 12:13 pm

UVA2B wrote:Probably not relevant for this thread in frugality, but 529s can also pay for primary private school, if you have the means to make the 529 feed the little monster's education needs as long as possible.


Just a quick note, 529s cannot be used for private elementary/high school. They can only be used for qualified post-secondary education.

Coverdell ESAs, on the other hand, can be used for private elementary/high school. That flexibility (plus the ability to self direct them like an IRA) is why one might want to choose an ESA over their state's 529.

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UVA2B
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Re: Personal Finance 101 for Young Lawyers

Postby UVA2B » Thu Jan 12, 2017 1:30 pm

polareagle wrote:
UVA2B wrote:Probably not relevant for this thread in frugality, but 529s can also pay for primary private school, if you have the means to make the 529 feed the little monster's education needs as long as possible.


Just a quick note, 529s cannot be used for private elementary/high school. They can only be used for qualified post-secondary education.

Coverdell ESAs, on the other hand, can be used for private elementary/high school. That flexibility (plus the ability to self direct them like an IRA) is why one might want to choose an ESA over their state's 529.


You're right, just looked it up and I was working off of bad info from someone. Thanks.

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LaLiLuLeLo
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Re: Personal Finance 101 for Young Lawyers

Postby LaLiLuLeLo » Fri Jan 13, 2017 8:29 pm

At what point do you move away from the free tax preparation (HR Block, TurboTax, etc)?

For example, I think my stuff is pretty straightforward. Single, no dependents, no investments outside 401k, rent not own, refi'd student loans, etc. Should I hire a tax guy or just use one of the free programs?

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Tiago Splitter
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Re: Personal Finance 101 for Young Lawyers

Postby Tiago Splitter » Sat Jan 14, 2017 2:59 am

LaLiLuLeLo wrote:At what point do you move away from the free tax preparation (HR Block, TurboTax, etc)?

For example, I think my stuff is pretty straightforward. Single, no dependents, no investments outside 401k, rent not own, refi'd student loans, etc. Should I hire a tax guy or just use one of the free programs?

Use free shit as long as you have nothing but W-2.

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Re: Personal Finance 101 for Young Lawyers

Postby Anonymous User » Sun Jan 15, 2017 3:36 am

Anonymous User wrote: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?

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Re: Personal Finance 101 for Young Lawyers

Postby KMart » Sun Jan 15, 2017 3:46 am

Tiago Splitter wrote:
LaLiLuLeLo wrote:At what point do you move away from the free tax preparation (HR Block, TurboTax, etc)?

For example, I think my stuff is pretty straightforward. Single, no dependents, no investments outside 401k, rent not own, refi'd student loans, etc. Should I hire a tax guy or just use one of the free programs?

Use free shit as long as you have nothing but W-2.

As someone who worked at a small tax law firm doing taxes before law school, this. Unless you start structuring your finances in a way where you're trying to create a lower liability for yourself, or when you have various investments generating income (or losses), you don't need a professional to charge you to enter numbers into a program. Don't forget, tax preparation fees are tax-deductible on your Schedule A (subject to limitations, but still).

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Danger Zone
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Re: Personal Finance 101 for Young Lawyers

Postby Danger Zone » Sun Jan 15, 2017 11:27 am

Anonymous User wrote:
Anonymous User wrote: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.

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Toni V
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Re: Personal Finance 101 for Young Lawyers

Postby Toni V » Sun Jan 15, 2017 2:40 pm

A couple of things ―

I have a 401k but I am now wondering if this is a good idea given that there is no match? I’ve noticed that not all 401k outcomes are as profitable as others…. what’s up with that?

I haven’t started my taxes yet but given that I purchased a home (recently lateralled) I will begin itemizing this year. From what little I’ve read on the subject, the tax benefits are better than I ever expected. Since I will be itemizing I wonder if my work-related parking is tax deductible ($1,680 a year). I believe that my tax software will cover that….I will be using H&R…is Turbo tax or something else better?

FWIW: On bigger purchases. I only buy from stores offering sales AND interest-free payments for a year or more. Probably SOP for most.

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Tiago Splitter
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Re: Personal Finance 101 for Young Lawyers

Postby Tiago Splitter » Sun Jan 15, 2017 3:26 pm

Toni V wrote:I have a 401k but I am now wondering if this is a good idea given that there is no match? I’ve noticed that not all 401k outcomes are as profitable as others…. what’s up with that?

The 401k provide significant tax advantages that outweigh the minor benefit of additional investment options in a taxable brokerage account. If the decision is between IRA and 401k then I would go with IRA first, but if you're saving more than the IRA max ($5500 per year) put the excess into your 401k.

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Re: Personal Finance 101 for Young Lawyers

Postby AVBucks4239 » Mon Jan 16, 2017 12:57 pm

Toni V wrote:A couple of things ―

I have a 401k but I am now wondering if this is a good idea given that there is no match? I’ve noticed that not all 401k outcomes are as profitable as others…. what’s up with that?

I haven’t started my taxes yet but given that I purchased a home (recently lateralled) I will begin itemizing this year. From what little I’ve read on the subject, the tax benefits are better than I ever expected. Since I will be itemizing I wonder if my work-related parking is tax deductible ($1,680 a year). I believe that my tax software will cover that….I will be using H&R…is Turbo tax or something else better?

FWIW: On bigger purchases. I only buy from stores offering sales AND interest-free payments for a year or more. Probably SOP for most.

I haven't seen your full financial picture, but I'm guessing that contributing to a 401k would provide even better tax advantages than those you are receiving with respect to your house purchase.

Just because you're not seeing it in your tax return doesn't mean it's not an awesome way to save on taxes.

Wipfelder
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Re: Personal Finance 101 for Young Lawyers

Postby Wipfelder » Mon Jan 16, 2017 1:27 pm

AVBucks4239 wrote:
Toni V wrote:A couple of things ―

I have a 401k but I am now wondering if this is a good idea given that there is no match? I’ve noticed that not all 401k outcomes are as profitable as others…. what’s up with that?

I haven’t started my taxes yet but given that I purchased a home (recently lateralled) I will begin itemizing this year. From what little I’ve read on the subject, the tax benefits are better than I ever expected. Since I will be itemizing I wonder if my work-related parking is tax deductible ($1,680 a year). I believe that my tax software will cover that….I will be using H&R…is Turbo tax or something else better?

FWIW: On bigger purchases. I only buy from stores offering sales AND interest-free payments for a year or more. Probably SOP for most.

I haven't seen your full financial picture, but I'm guessing that contributing to a 401k would provide even better tax advantages than those you are receiving with respect to your house purchase.

Just because you're not seeing it in your tax return doesn't mean it's not an awesome way to save on taxes.


Yea, 401k is way better for tax purchases. The deductible for a home isn't that great of a deal usually, it rarely even covers the expenses associated with home ownership.

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

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bk1
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Re: Personal Finance 101 for Young Lawyers

Postby bk1 » Mon Jan 16, 2017 3:22 pm

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

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




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