Personal Finance 101 for Young Lawyers Forum

[Anonymous User]

NRA (RA for tax purposes; from a country w/o a treaty with the US, if that's relevant), just started at a big firm. Should I put anything into my 401k? The firm doesn't match. If I do get an H1B next year, should I start contributing then?
I'd really like to start saving for retirement, but not if penalties for early withdrawal or what have you are going to cost me more than just not putting anything in in the first place. Thanks.

[thearc]

great post

[Hikikomorist]

Did I screw up my math, or is it pretty much possible to eliminate federal income taxes on a standard 10-week SA by maxing out your IRA contribution, taking the Student Loan Interest Deduction, and applying the Lifetime Learning Credit?

[Necho2]

Did I screw up my math, or is it pretty much possible to eliminate federal income taxes on a standard 10-week SA by maxing out your IRA contribution, taking the Student Loan Interest Deduction, and applying the Lifetime Learning Credit?

Hmm...

35k- ~10k (personal exemption + standard deduction) = ~25k taxable income
-5.5k (prob should have Roth'd it for long-term gain, but your shtick is keep consumption miserably low so not gonna argue)
-2.5k (interest cap)

So that's like another 8k off your taxable income, right? So you still have 17k to reckon with, which is about about $2k in tax at marginal rates, so yeah I'd say the 2k max credit from Lifetime Learning credit will just about do it...

[IvanoCossack]

Income: 180k + 60k (wife)

Thinking of buying a home once I start working next year. Our wedding will be a couple months before I start, so we will likely have around $50k saved for a down payment on a house. Does anyone have any experience with Professional Mortgage Loans for attorneys? Can we apply before I start working, with an offer letter? https://www.bbvacompass.com/mortgage/pr ... loans.html

Total combined student loans are around $180k - we will likely file taxes separately so she can take advantage of teacher loan forgiveness. We were going to rent, but after paying rent in Los Angeles for 5 years we would likely spend around 150k to 200k in rent. I figured that even if the house doesn't increase in value, we would end up saving that money - unless something catastrophic happened. We would be saving for a long-term home during those 5 years if we bought a small place to start out with. Any advice? Is this a stupid/naive plan?

[AVBucks4239]

Income: 180k + 60k (wife)

Thinking of buying a home once I start working next year. Our wedding will be a couple months before I start, so we will likely have around $50k saved for a down payment on a house. Does anyone have any experience with Professional Mortgage Loans for attorneys? Can we apply before I start working, with an offer letter? https://www.bbvacompass.com/mortgage/pr ... loans.html

Total combined student loans are around $180k - we will likely file taxes separately so she can take advantage of teacher loan forgiveness. We were going to rent, but after paying rent in Los Angeles for 5 years we would likely spend around 150k to 200k in rent. I figured that even if the house doesn't increase in value, we would end up saving that money - unless something catastrophic happened. We would be saving for a long-term home during those 5 years if we bought a small place to start out with. Any advice? Is this a stupid/naive plan?

Generally the "throwing away money on rent" logic is a fallacy. Owning a home is more expensive than you think (maintenance, repair, improvements, taxes, etc.). Owning a home, fixing it up a bit, doing repair and maintenance work, and then going through all the costs of selling it and buying another home (and doing all that over again) is even more expensive. So unless you plan to stay somewhere for a while (7+ years), then I wouldn't bother buying.

[SplitMyPants]

i had always thought my plan would be to pay down loans as quickly as possible regardless of how favorable of a refinance i could get bc i don't like the psychological aspects of that much student debt.

however, if i could refinance at 1.95% for a 5-year, 2.35% for a 7-year, or 2.6% for a 10-year, should i just go with the 10-year and put the difference between the loan payments (i.e., difference between what the 10-year plan would require and what i was originally planning on paying down monthly based on my personal 5-ish year timeline) into a betterment account or something?

i feel like if i could get those rates (First Republic offers these if you meet certain criteria), i should take advantage of how low they are by taking a longer repayment and maybe saving for a mortgage down-payment or even just passively investing the money that would otherwise be used to pay down my loans if they had a higher interest rate...

[bk1]

i had always thought my plan would be to pay down loans as quickly as possible regardless of how favorable of a refinance i could get bc i don't like the psychological aspects of that much student debt.

however, if i could refinance at 1.95% for a 5-year, 2.35% for a 7-year, or 2.6% for a 10-year, should i just go with the 10-year and put the difference between the loan payments (i.e., difference between what the 10-year plan would require and what i was originally planning on paying down monthly based on my personal 5-ish year timeline) into a betterment account or something?

i feel like if i could get those rates (First Republic offers these if you meet certain criteria), i should take advantage of how low they are by taking a longer repayment and maybe saving for a mortgage down-payment or even just passively investing the money that would otherwise be used to pay down my loans if they had a higher interest rate...

Go with the 15 year and invest the difference imo.

[Danger Zone]

Agreed, that's what I'm doing

[PB&J.D.]

My firm has a 401(k) with small matching for traditional and a Roth feature. What's the best way to maximize overall savings? And can I still open a separate Roth IRA and max that given the Roth feature, assuming I get under the AGI limit?

[bk1]

My firm has a 401(k) with small matching for traditional and a Roth feature. What's the best way to maximize overall savings? And can I still open a separate Roth IRA and max that given the Roth feature, assuming I get under the AGI limit?

Max out your 401k. Max out your IRA (you can backdoor Roth even if you're over the AGI limit).

[PB&J.D.]

My firm has a 401(k) with small matching for traditional and a Roth feature. What's the best way to maximize overall savings? And can I still open a separate Roth IRA and max that given the Roth feature, assuming I get under the AGI limit?

Max out your 401k. Max out your IRA (you can backdoor Roth even if you're over the AGI limit).

Just to clarify the 401(k) question: does it make sense to contribute up to the match for traditional and contribute the max remainder post-tax (Roth), or is there more to think about re tax treatment? Also should I max Roth now given stub year and shift more to traditional, pre-tax moving forward?

[bk1]

My firm has a 401(k) with small matching for traditional and a Roth feature. What's the best way to maximize overall savings? And can I still open a separate Roth IRA and max that given the Roth feature, assuming I get under the AGI limit?

Max out your 401k. Max out your IRA (you can backdoor Roth even if you're over the AGI limit).

Just to clarify the 401(k) question: does it make sense to contribute up to the match for traditional and contribute the max remainder post-tax (Roth), or is there more to think about re tax treatment? Also should I max Roth now given stub year and shift more to traditional, pre-tax moving forward?

Roth vs traditional depends on what you think taxes will be in retirement and what you think your income will be in retirement. The hedge is generally to split between Roth and traditional. Though if your income is high now, people will generally recommend traditional.

My view is that it is mostly a wash since you don't have a crystal ball. Do whichever you prefer. I think simplest is just do all traditional for your 401k and then 5500 into backdoor Roth (assuming your income means you can't do traditional IRA).

[Danger Zone]

If your 401k offers a Roth option, you can mega backdoor if you want to save more aggressively

[SplitMyPants]

Go with the 15 year and invest the difference imo.

Agreed, that's what I'm doing

thanks for the input—much appreciated

[bk1]

If your 401k offers a Roth option, you can mega backdoor if you want to save more aggressively

iirc, there are other requirements such that offering Roth doesn't necessarily mean you can mega backdoor.

[Danger Zone]

If your 401k offers a Roth option, you can mega backdoor if you want to save more aggressively

iirc, there are other requirements such that offering Roth doesn't necessarily mean you can mega backdoor.

You're probably right. I haven't done my research because my company doesn't offer the roth option, so I stopped there.

[kalvano]

If your 401k offers a Roth option, you can mega backdoor if you want to save more aggressively

iirc, there are other requirements such that offering Roth doesn't necessarily mean you can mega backdoor.

You're probably right. I haven't done my research because my company doesn't offer the roth option, so I stopped there.

Your plan has to offer in-service distributions, which is pretty rare. Otherwise you can’t touch 401(k) money until you either leave / get fire, or are 59.5.

[kalvano]

My firm has a 401(k) with small matching for traditional and a Roth feature. What's the best way to maximize overall savings? And can I still open a separate Roth IRA and max that given the Roth feature, assuming I get under the AGI limit?

Max out your 401k. Max out your IRA (you can backdoor Roth even if you're over the AGI limit).

Just to clarify the 401(k) question: does it make sense to contribute up to the match for traditional and contribute the max remainder post-tax (Roth), or is there more to think about re tax treatment? Also should I max Roth now given stub year and shift more to traditional, pre-tax moving forward?

Roth vs traditional depends on what you think taxes will be in retirement and what you think your income will be in retirement. The hedge is generally to split between Roth and traditional. Though if your income is high now, people will generally recommend traditional.

My view is that it is mostly a wash since you don't have a crystal ball. Do whichever you prefer. I think simplest is just do all traditional for your 401k and then 5500 into backdoor Roth (assuming your income means you can't do traditional IRA).

If income is high enough, there’s no point in a traditional IRA because you’re phased out of claiming a deduction. Just do a backdoor Roth and call it a day. That would apply to most Biglaw people, I think.

As to 401(k) versus IRA, that also partly comes down to what investment choices and fees the 401(k) offers.

[bk1]

If income is high enough, there’s no point in a traditional IRA because you’re phased out of claiming a deduction. Just do a backdoor Roth and call it a day. That would apply to most Biglaw people, I think.

As to 401(k) versus IRA, that also partly comes down to what investment choices and fees the 401(k) offers.

Agree on the first.

On the second, "maximizing savings" means maxing out both 401(k) and IRA. If you can't max (and you have already taken advantage of any 401(k) match), I agree that it depends on fees/choices. I suspect IRAs tend to be better than 401(k)s, but that's just a guess because I have seen some pretty crappy 401(k)s (and you get to choose your IRA custodian whereas your employer chooses your 401(k) custodian).

[californiauser]

What's the standard stub year tax return on 180k salary with 2 standard deductions in NYC?Thanks.

[kalvano]

If income is high enough, there’s no point in a traditional IRA because you’re phased out of claiming a deduction. Just do a backdoor Roth and call it a day. That would apply to most Biglaw people, I think.

As to 401(k) versus IRA, that also partly comes down to what investment choices and fees the 401(k) offers.

Agree on the first.

On the second, "maximizing savings" means maxing out both 401(k) and IRA. If you can't max (and you have already taken advantage of any 401(k) match), I agree that it depends on fees/choices. I suspect IRAs tend to be better than 401(k)s, but that's just a guess because I have seen some pretty crappy 401(k)s (and you get to choose your IRA custodian whereas your employer chooses your 401(k) custodian).

For 401(k), you should without question every year contribute up to the employer match (if any). Then I would allocate the full amount ($5,500) to an IRA. At that point, if the 401(k) isn't particularly good, or has very high fee options, you may do better to simply contribute to a taxable account rather than more 401(k) contributions if you're going to lose a lot of the return because of fees. That's not a hard and fast rule, it's just something to consider.

For most IRAs (through a Fidelity or TD Ameritrade, for example), your investment choices are pretty much exactly what you can get in a taxable brokerage account. I use my Roth to park BDCs, REITs, and high turnover funds so I don't get hit with taxes on those distributions. If your 401(k) has very limited "funds of funds" choices, or funds with 2%+ fees, you'd have to run the comparison of what you save now in taxes and invest in the 401(k) as compared to how much those fees hurt over the long term to determine what the best path is.

Of course, you could just do a full 401(k) contribution, a full IRA contribution, and then another $5,000 or $10,000 in a taxable account. If you're in Biglaw, it's the best time to maximize savings because that income likely won't continue forever.

[dudders]

I'm PSLF eligible and after several years of payments, finally submitted some eligibility paperwork, which triggered an automatic transfer of my loans to FedLoan from a different servicer.

I'm dismayed to see that, following this move, my credit score has tanked 20 points and I'm not sure it's done moving downward yet.

I'm well-acquainted with everything that can affect credit scores and this is the only thing that could have affected my score in any negative fashion.

I wanted to put this out there as a warning, and also to ask if anyone else experienced a dip after changing servicers. If so, how long did it take your score to recover?

[JenDarby]

Per Transunion FICO model, my score peaked at 821 in January then I re-refinanced my loans (Feb) and bought a house (Mar) and it dropped to 790 . It went down more to 786 in May (nothing opened or closed, but it may have been when my mortgage appeared), and since then it's bounced around from 786-800.

Per Experian, my score was around 790 in Jan, dropped to 775 in Feb and has gradually gone up to 795 with a few points gain every month.

Per the Transunion Vantage 3.0 model, my score was 770 in Jan, dipped to 749 in May, raised back up to 799 in July, dropped to 782 in Aug and is up to 797 now (everything post buying a house in March, and it being reported to credit agencies, is for no obvious reason since nothing else in my credit profile changed) .

This is all to say it's kind of a shit show, and that's why they have ranges. You should recover from a 20pt dip fairly quickly. Though, a 20pt dip is in no way "tanking" when it comes to credit scores.

[boredtodeath]

Go with the 15 year and invest the difference imo.

Agreed, that's what I'm doing

thanks for the input—much appreciated

Doing the same. Interest rate on the loan down to 2.95% now. Even in a bear market you can beat that, and in this market...