Case Study: 27. How to invest? No 401k or healthcare offered

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Topic Author
Zoochadookdook
Posts: 30
Joined: Fri Jul 13, 2018 12:30 am

Case Study: 27. How to invest? No 401k or healthcare offered

Post by Zoochadookdook » Tue May 21, 2019 1:26 pm

Hey all: my current situation

27 (today). Male. Not married.

I have around 60k in HYSA/checking/old business assets still for sale.
27K Vanguard roth ira (2800 contributed in 2019 so far)
3k in VTSAX

Other assets (car, home gym, whatever in house stuff)
5k

Liabilities
Student Loans (12k at 4.1% interest starts july 15th)
House I JUST refinanced cash out to buy (116k 30yr 4.25% fixed)

I got my first "real job" out of college 3 months ago. I make $22/hr or around 2800 take home. No 401k/healthcare unless they hire me on as salary which they will review in 4 months. I still work my llc buying and selling fitness gear and hope to maintain an additional 500/month plus income from it (this month was 950 so far). I also started a car detailing business and hope to work that into my schedule to make a few bucks.

Monthly expense:


I'm wondering how to invest. My rates of loans are fairly low. My risk tolerance is high at my age. I do need some money fairly liquid for more business endeavors/a 5k car fund in the future (hoping another 2 years out) but other than that-I want my money working for me.

I was looking at the vanguard total stock index fund vs paying down the mortgage/4.1% student leans. I'm not really set on either right now. Something interesting is I can open a SE 401K and fund it up to 19,000; even it I only make 500/month on the side SE and recognize it all as profit-it's all tax deffered and can go straight in.

The plan of attack is: Find a HSA/health plan. Learn more about them.

Max Roth Ira (3200 more for 2019).

Math out SE 401 Contributions for 2019/base it off these next 3 months-open that.

Now we're onto taxable investments/non tax advantaged accounts-I should have around 55k at this point. Let's leave 10k as a business flow fund/emergency fund in Ally HYSA

Figure out how to allocate the rest (Pay down loans/mortgage principal OR invest all in easily liquitable fund such as Vanguard VTSAX)

Sorry I've been stressing out over the "right" moves to make and it really depends on a million thing

carmonkie
Posts: 154
Joined: Fri Jun 29, 2018 4:31 pm

Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by carmonkie » Tue May 21, 2019 2:12 pm

What are your monthly expenses?

Your "other assets" are depreciating assets and I would not count them as an asset.

It looks like you came ahead with only 12K in student loans and you want your money working for you, don't we all? I would get rid of the student loan. It looks like you can pay them off in big chunks. Can you set a goal to have them paid by the end of they year? That is about 2K over the next 6 months? this way you won't deplete your funds and you will be free. I can tell you from a personal point of view, sending the last student loan payment is so liberating.

Once they are paid off, you can then focus on growing your investments, setting up 3-fund, etc. Time is on your side, and you do not need to max out SE401(k) while you could get rid of the student debt.

niceguy7376
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Location: Metro ATL

Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by niceguy7376 » Tue May 21, 2019 2:44 pm

Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
Hey all: my current situation
Something interesting is I can open a SE 401K and fund it up to 19,000; even it I only make 500/month on the side SE and recognize it all as profit-it's all tax deffered and can go straight in.
The plan of attack is: Find a HSA/health plan. Learn more about them.
Max Roth Ira (3200 more for 2019).
Math out SE 401 Contributions for 2019/base it off these next 3 months-open that.
Couple of comments on above.
For you to fully fund 19K into Solo 401k, you need to earn a lot more than $500/month.

As for HSA, are you planning on getting health insurance on your own?
Roth IRA limit is $6000 and it increased by 500 from 2018 year

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ruralavalon
Posts: 16746
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Location: Illinois

Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by ruralavalon » Tue May 21, 2019 2:48 pm

Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
Hey all: my current situation

27 (today). Male. Not married.

I have around 60k in HYSA/checking/old business assets still for sale.
27K Vanguard roth ira (2800 contributed in 2019 so far)
3k in VTSAX

Other assets (car, home gym, whatever in house stuff)
5k

Liabilities
Student Loans (12k at 4.1% interest starts july 15th)
House I JUST refinanced cash out to buy (116k 30yr 4.25% fixed)
I suggest paying off the $12k student loan at 4.1%.

Why did you do a "cash out" refinance?


Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
I got my first "real job" out of college 3 months ago. I make $22/hr or around 2800 take home. No 401k/healthcare unless they hire me on as salary which they will review in 4 months. I still work my llc buying and selling fitness gear and hope to maintain an additional 500/month plus income from it (this month was 950 so far). I also started a car detailing business and hope to work that into my schedule to make a few bucks.
$500/month is just $6,000 annually, which limits what you can contribute to a self-employed work-based plan. An individual (solo) 401k may not be your best choice. "Can't exceed 100% of compensation." You better choices might be a SEP IRA or SIMPLE IRA, with a lot less paper work and reporting required.

Since you are self-employed you could consider using a SEP IRA, SIMPLE IRA, or individual (solo) 401k. Vanguard, small-business plans,"Compare plans". That link has a nice table comparing the features (like contribution limits, amount of paperwork required, etc.) of the three types of plans.

Both Fidelity and Schwab also offer the same types of plans. Fidelity "Retirement plans for small businesses ". Schwab, "Small business retirement plans".

The College Investor (12/11/2017), "Comparing The Most Popular Solo 401k Options".

The Bogleheads' wiki has articles on each type of plan. Boglehead's wiki, "SEP IRA". Boglehead's wiki, "SIMPLE IRA". Boglehead's wiki, "Solo 401k Plan".



Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
Monthly expense:


I'm wondering how to invest. My rates of loans are fairly low. My risk tolerance is high at my age. I do need some money fairly liquid for more business endeavors/a 5k car fund in the future (hoping another 2 years out) but other than that-I want my money working for me.

I was looking at the vanguard total stock index fund vs paying down the mortgage/4.1% student leans. I'm not really set on either right now. Something interesting is I can open a SE 401K and fund it up to 19,000; even it I only make 500/month on the side SE and recognize it all as profit-it's all tax deffered and can go straight in.

The plan of attack is: Find a HSA/health plan. Learn more about them.
Does your employer offer a High Deductible Health Plan (HDHP) at your job? That's required to make you eligible to use a Health Savings Account (HSA).

"A high deductible health plan (HDHP) is a health plan which pays nothing except for preventive care until the deductible is met. If your plan meets IRS requirements and you have no other health insurance, you are allowed to invest in a health savings account (HSA), which allows you to deduct contributions to the account from your taxes, pay medical expenses from the account tax-free, and invest unused money for future medical expenses." Wiki article, High deductible health plan"".


Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
Max Roth Ira (3200 more for 2019).

Math out SE 401 Contributions for 2019/base it off these next 3 months-open that.

Now we're onto taxable investments/non tax advantaged accounts-I should have around 55k at this point. Let's leave 10k as a business flow fund/emergency fund in Ally HYSA

Figure out how to allocate the rest (Pay down loans/mortgage principal OR invest all in easily liquitable fund such as Vanguard VTSAX)

Sorry I've been stressing out over the "right" moves to make and it really depends on a million thing
My suggestion for the $60k is:
1) pay off the $12 student debt,
2) $3.2k for the rest of the 2019 IRA contribution,
3) $5k for the car fund,
4) $10k for the business opportunities/emergency fund,
5) $6k for the self-employed account,
6) the rest (about $23k) for a taxable account, investing in very tax-efficient stock index funds, such as Vanguard Total Stock Mkt Idx Adm (VTSAX) or Vanguard Total Intl Stock Index Admiral (VTIAX).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
Zoochadookdook
Posts: 30
Joined: Fri Jul 13, 2018 12:30 am

Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by Zoochadookdook » Tue May 21, 2019 3:02 pm

niceguy7376 wrote:
Tue May 21, 2019 2:44 pm
Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
Hey all: my current situation
Something interesting is I can open a SE 401K and fund it up to 19,000; even it I only make 500/month on the side SE and recognize it all as profit-it's all tax deffered and can go straight in.
The plan of attack is: Find a HSA/health plan. Learn more about them.
Max Roth Ira (3200 more for 2019).
Math out SE 401 Contributions for 2019/base it off these next 3 months-open that.
Couple of comments on above.
For you to fully fund 19K into Solo 401k, you need to earn a lot more than $500/month.

As for HSA, are you planning on getting health insurance on your own?
Roth IRA limit is $6000 and it increased by 500 from 2018 year
I meant in terms of however much I bring in. This month weekends it's looking like 1000. I'm hoping for 500+ consistant. I was doing it through school managing 35k/40k off a few days a week but I don't have that flexibility with this new full time job.

HSA yes, I'm looking at HDHP that I can pay for; looks about 200 a month

Yep, i've put 2800 in so far this year so the 3200 is left to max it

Topic Author
Zoochadookdook
Posts: 30
Joined: Fri Jul 13, 2018 12:30 am

Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by Zoochadookdook » Tue May 21, 2019 3:04 pm

carmonkie wrote:
Tue May 21, 2019 2:12 pm
What are your monthly expenses?

Your "other assets" are depreciating assets and I would not count them as an asset.

It looks like you came ahead with only 12K in student loans and you want your money working for you, don't we all? I would get rid of the student loan. It looks like you can pay them off in big chunks. Can you set a goal to have them paid by the end of they year? That is about 2K over the next 6 months? this way you won't deplete your funds and you will be free. I can tell you from a personal point of view, sending the last student loan payment is so liberating.

Once they are paid off, you can then focus on growing your investments, setting up 3-fund, etc. Time is on your side, and you do not need to max out SE401(k) while you could get rid of the student debt.
Gym is worth a constant 3k/it's rogue and was purchased pre loved. Other stuff I figured it's worth that at least for the next few years. Really shouldn't count it though I guess.

I paid out of pocked for community college and ran my llc through college.

I'm struggling with reasoning why to pay them off vs paying the minimum payment/investing (sort of the argument in paying off your mortgage every month vs investing the extra payment)

Topic Author
Zoochadookdook
Posts: 30
Joined: Fri Jul 13, 2018 12:30 am

Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by Zoochadookdook » Tue May 21, 2019 3:10 pm

ruralavalon wrote:
Tue May 21, 2019 2:48 pm
Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
Hey all: my current situation

27 (today). Male. Not married.

I have around 60k in HYSA/checking/old business assets still for sale.
27K Vanguard roth ira (2800 contributed in 2019 so far)
3k in VTSAX

Other assets (car, home gym, whatever in house stuff)
5k

Liabilities
Student Loans (12k at 4.1% interest starts july 15th)
House I JUST refinanced cash out to buy (116k 30yr 4.25% fixed)
I suggest paying off the $12k student loan at 4.1%.

Why did you do a "cash out" refinance?


Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
I got my first "real job" out of college 3 months ago. I make $22/hr or around 2800 take home. No 401k/healthcare unless they hire me on as salary which they will review in 4 months. I still work my llc buying and selling fitness gear and hope to maintain an additional 500/month plus income from it (this month was 950 so far). I also started a car detailing business and hope to work that into my schedule to make a few bucks.
$500/month is just $6,000 annually, which limits what you can contribute to a self-employed work-based plan. An individual (solo) 401k may not be your best choice. "Can't exceed 100% of compensation." You better choices might be a SEP IRA or SIMPLE IRA, with a lot less paper work and reporting required.

Since you are self-employed you could consider using a SEP IRA, SIMPLE IRA, or individual (solo) 401k. Vanguard, small-business plans,"Compare plans". That link has a nice table comparing the features (like contribution limits, amount of paperwork required, etc.) of the three types of plans.

Both Fidelity and Schwab also offer the same types of plans. Fidelity "Retirement plans for small businesses ". Schwab, "Small business retirement plans".

The College Investor (12/11/2017), "Comparing The Most Popular Solo 401k Options".

The Bogleheads' wiki has articles on each type of plan. Boglehead's wiki, "SEP IRA". Boglehead's wiki, "SIMPLE IRA". Boglehead's wiki, "Solo 401k Plan".



Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
Monthly expense:


I'm wondering how to invest. My rates of loans are fairly low. My risk tolerance is high at my age. I do need some money fairly liquid for more business endeavors/a 5k car fund in the future (hoping another 2 years out) but other than that-I want my money working for me.

I was looking at the vanguard total stock index fund vs paying down the mortgage/4.1% student leans. I'm not really set on either right now. Something interesting is I can open a SE 401K and fund it up to 19,000; even it I only make 500/month on the side SE and recognize it all as profit-it's all tax deffered and can go straight in.

The plan of attack is: Find a HSA/health plan. Learn more about them.
Does your employer offer a High Deductible Health Plan (HDHP) at your job? That's required to make you eligible to use a Health Savings Account (HSA).

"A high deductible health plan (HDHP) is a health plan which pays nothing except for preventive care until the deductible is met. If your plan meets IRS requirements and you have no other health insurance, you are allowed to invest in a health savings account (HSA), which allows you to deduct contributions to the account from your taxes, pay medical expenses from the account tax-free, and invest unused money for future medical expenses." Wiki article, High deductible health plan"".


Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
Max Roth Ira (3200 more for 2019).

Math out SE 401 Contributions for 2019/base it off these next 3 months-open that.

Now we're onto taxable investments/non tax advantaged accounts-I should have around 55k at this point. Let's leave 10k as a business flow fund/emergency fund in Ally HYSA

Figure out how to allocate the rest (Pay down loans/mortgage principal OR invest all in easily liquitable fund such as Vanguard VTSAX)

Sorry I've been stressing out over the "right" moves to make and it really depends on a million thing
My suggestion for the $60k is:
1) pay off the $12 student debt,
2) $3.2k for the rest of the 2019 IRA contribution,
3) $5k for the car fund,
4) $10k for the business opportunities/emergency fund,
5) $6k for the self-employed account,
6) the rest (about $23k) for a taxable account, investing in very tax-efficient stock index funds, such as Vanguard Total Stock Mkt Idx Adm (VTSAX) or Vanguard Total Intl Stock Index Admiral (VTIAX).

Cash out refi as I didn't have the income AGI self employed to get a mortgage 4 years ago. Instead I put 20% down and my father took a loan against his 401k I made payments on (variable rate at the prime - .25 or so). Being w2 employed-this was the easiest way to purchase as there is no lien on the house-I just have to pay his loan off.

Part of being self employed is to match up a 401k; i am wondering if I can roll it over into an employer sponsored plan should I be hired full time in the future. Thank you for the links I'm happy to look into them!

My employer does but as a "temporary" w2 employee for a trial period-i don't qualify

My suggestion for the $60k is:
1) pay off the $12 student debt,
2) $3.2k for the rest of the 2019 IRA contribution,
3) $5k for the car fund,
4) $10k for the business opportunities/emergency fund,
5) $6k for the self-employed account,
6) the rest (about $23k) for a taxable account, investing in very tax-efficient stock index funds, such as Vanguard Total Stock Mkt Idx Adm (VTSAX) or Vanguard Total Intl Stock Index Admiral (VTIAX).

This is reasonable- I'm still split on the benefits of paying off the student loans quick vs investing though.

carmonkie
Posts: 154
Joined: Fri Jun 29, 2018 4:31 pm

Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by carmonkie » Tue May 21, 2019 3:39 pm

Do a google search for student loan calculator and plug in the numbers of your loan and you will see that you are paying mostly interest and very little towards the balance. You will see why we are suggesting you pay the student loan first.

I think you are seeing that your monthly payment is very low so no big deal, but the interest payments add up over the life of the loan.

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StormShadow
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Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by StormShadow » Tue May 21, 2019 5:08 pm

Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
I got my first "real job" out of college 3 months ago. I make $22/hr or around 2800 take home. No 401k/healthcare unless they hire me on as salary which they will review in 4 months.
Yeah, this is what I'd focus on. Having a steady salary with potential to grow in the future.

Sure, maxing out your tax sheltered space is fine but you need a salary to do this. Focus on your career.

feehater
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Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by feehater » Tue May 21, 2019 7:05 pm

OP should be able to deduct his individual health insurance plan as a business expense as long as it's not being offered from his W2 job right?

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ruralavalon
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Location: Illinois

Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by ruralavalon » Wed May 22, 2019 8:05 am

carmonkie wrote:
Tue May 21, 2019 3:39 pm
Do a google search for student loan calculator and plug in the numbers of your loan and you will see that you are paying mostly interest and very little towards the balance. You will see why we are suggesting you pay the student loan first.

I think you are seeing that your monthly payment is very low so no big deal, but the interest payments add up over the life of the loan.
Yes.

Check the math, it's really pretty clear a that paying off the student loan is a good idea.
Last edited by ruralavalon on Wed May 22, 2019 10:07 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Wiggums
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Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by Wiggums » Wed May 22, 2019 9:12 am

carmonkie wrote:
Tue May 21, 2019 3:39 pm
Do a google search for student loan calculator and plug in the numbers of your loan and you will see that you are paying mostly interest and very little towards the balance. You will see why we are suggesting you pay the student loan first.

I think you are seeing that your monthly payment is very low so no big deal, but the interest payments add up over the life of the loan.
+100

Topic Author
Zoochadookdook
Posts: 30
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Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by Zoochadookdook » Wed May 22, 2019 10:41 am

carmonkie wrote:
Tue May 21, 2019 3:39 pm
Do a google search for student loan calculator and plug in the numbers of your loan and you will see that you are paying mostly interest and very little towards the balance. You will see why we are suggesting you pay the student loan first.

I think you are seeing that your monthly payment is very low so no big deal, but the interest payments add up over the life of the loan.
Sure, it's a 10 year @ 4.1%. It's like 2500 in interest over the life. Assuming you can get better returns in 10 years on market spreads....which you should unless we hit a recession. I mean ok let's say I pay them off today. The only difference is no payments start and I'll have 50k vs 60k to allocate places. I'm still trying to figure out where to throw those funds.

Topic Author
Zoochadookdook
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Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by Zoochadookdook » Wed May 22, 2019 10:44 am

StormShadow wrote:
Tue May 21, 2019 5:08 pm
Zoochadookdook wrote:
Tue May 21, 2019 1:26 pm
I got my first "real job" out of college 3 months ago. I make $22/hr or around 2800 take home. No 401k/healthcare unless they hire me on as salary which they will review in 4 months.
Yeah, this is what I'd focus on. Having a steady salary with potential to grow in the future.

Sure, maxing out your tax sheltered space is fine but you need a salary to do this. Focus on your career.
I'm focusing on finding one! This has potential but i'm looking at all areas. The self employment is something to fall back on/supplemental, but even part time pulling ideally 10-12k a year on the side is considered in the equation.

GlacierRunner
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Re: Case Study: 27. How to invest? No 401k or healthcare offered

Post by GlacierRunner » Wed May 22, 2019 12:40 pm

ruralavalon wrote:
Tue May 21, 2019 2:48 pm

My suggestion for the $60k is:
1) pay off the $12 student debt,
2) $3.2k for the rest of the 2019 IRA contribution,
3) $5k for the car fund,
4) $10k for the business opportunities/emergency fund,
5) $6k for the self-employed account,
6) the rest (about $23k) for a taxable account, investing in very tax-efficient stock index funds, such as Vanguard Total Stock Mkt Idx Adm (VTSAX) or Vanguard Total Intl Stock Index Admiral (VTIAX).
I was going to write a separate post and then realized I was just writing what is said here. Solid advice.

If you are a good budgeter an alternative would be to set aside $250/month from your paycheck toward the replacement car and another amount ($500) to DCA the IRA for the rest of the year so that you are set for next year, but again, the plan laid out is solid.

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