Updated: Personal Finance Advice for New PhD

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Topic Author
bwn
Posts: 51
Joined: Tue Jun 16, 2020 11:35 pm

Updated: Personal Finance Advice for New PhD

Post by bwn »

Hi All,

Background
I'm a 31 year old married male who just finished his PhD after 7 years. My wife just got her PhD as well in the same field. During graduate school, all tuition was waved, but the stipend was only $20,000 each year. Despite this low income, I've managed to save about 17% of my income. My wife and I are working as postdocs these next two years making $56,000 each, which is close to 3x our graduate school salary. When postdoc ends in two years, our salaries are likely to almost double again to above $100,000. These changes in future earnings are making it hard to accurately plan for retirement and save for a house, especially after such a slow start, which we know is important due to the magic of compounding. I haven't been able to find any online retirement calculators that allow you to increase salary and contributions. Lastly, my wife and I don't come from families with money, so we are likely going to have to figure all of this out on our own.

Below I outline my current financial situation (you can assume the same is true for my wife) and then I present how I am currently saving and one alternative approach. My main questions is which option do people think is best? Thank you all in advance!

Current Situation
I'm currently working as a postdoc for the next two years.

Salary
  • $56,000
    • Fixed Expenses: 43.92%
    • Savings: 30%
    • Guilt Free Spending: 26.08%
Investments
    • Vanguard VFIAX $15,000
    • Vanguard VBTLX was $3,000
Emergency Savings
    • Cash Savings $8,000
Current Debt
    • Undergraduate Loans $16,000

Question
I am having a hard time calculating how much I will need to save for retirement and figuring out a reasonable timeline based on my past, current, and future salary. All the retirement calculators that I've found online only allow for a fixed income and do not allow you to increase income and contributions as you age. Anyways, I have two options for saving and I was wondering what people think is best?

Option 1: My Current Plan
  • Salary: $56,000
  • Take Home Pay: $43,909.92
  • Tax Rate: 21.59%
Monthly Breakdown
  • Monthly Pay: $3,659.16
  • Fixed Expenses (43.92%): $1,607.12
  • Savings (15%): $548.97
  • Roth IRA (15%): $548.97
  • Guilt Free Spending (26.08%): $954.30
Total Retirement Savings After 2 Years: $13,172.88


Option 2: 403(b)
  • Salary: $56,000
  • 403(b) Max Contribution: $19,500
  • Salary After 403(b) Contributions: $36,500
  • Estimated Take Home Pay: $30,140
  • Estimated Tax Rate: 17.42%
Monthly Breakdown
  • Monthly Pay: $2511.67
  • Fixed Expenses (63.99%): $1,607.12
  • Guilt Free Spending (36.01%): $904.55
Total Retirement Savings After 2 Years: $39,000
zorgs10
Posts: 14
Joined: Tue Oct 14, 2014 7:16 pm

Re: Updated: Personal Finance Advice for New PhD

Post by zorgs10 »

Dr bwn, congratulations on finishing PhD and starting postdoc!

Given your stipend, it's commendable that you've been saving 17% of your income. I have some observations and some questions:

* Your emergency funds seem to cover ~5 months of fixed expenses. Perhaps you want to make it 6 months of total expenses.
* You might want to look at HSA accounts.
* Re 403(b): does your employer provide a match? Or does your 403(b) plan have a roth option? These factors could change the answer to your questions.
* To decide between roth ira vs traditional; you need a better idea of your marginal tax rate. Use a tool like: https://www.taxact.com/tools/tax-calculator

All the best!
Topic Author
bwn
Posts: 51
Joined: Tue Jun 16, 2020 11:35 pm

Re: Updated: Personal Finance Advice for New PhD

Post by bwn »

zorgs10 wrote: Tue Sep 22, 2020 6:25 pm Dr bwn, congratulations on finishing PhD and starting postdoc!

Given your stipend, it's commendable that you've been saving 17% of your income. I have some observations and some questions:

* Your emergency funds seem to cover ~5 months of fixed expenses. Perhaps you want to make it 6 months of total expenses.
* You might want to look at HSA accounts.
* Re 403(b): does your employer provide a match? Or does your 403(b) plan have a roth option? These factors could change the answer to your questions.
* To decide between roth ira vs traditional; you need a better idea of your marginal tax rate. Use a tool like: https://www.taxact.com/tools/tax-calculator

All the best!
Thanks so much!

* Should I use my Roth IRA as an emergency savings account or use a high yield savings account like Ally?
* My employer doesn't provide a match. They have a regular and roth option.

Thanks again!
iraconfused
Posts: 56
Joined: Tue Apr 16, 2019 4:05 pm

Re: Updated: Personal Finance Advice for New PhD

Post by iraconfused »

Keep it simple starting out. Both do 10% and max Roth IRA every year. EF in high yield. Take what you need for bills and save rest for house down payment. The more you make the bigger the 10% is.
Topic Author
bwn
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Joined: Tue Jun 16, 2020 11:35 pm

Re: Updated: Personal Finance Advice for New PhD

Post by bwn »

iraconfused wrote: Tue Sep 22, 2020 7:28 pm Keep it simple starting out. Both do 10% and max Roth IRA every year. EF in high yield. Take what you need for bills and save rest for house down payment. The more you make the bigger the 10% is.
Thanks! By 10% do you mean 10% to 403(b) and then max out the Roth IRA? Can you also give an example of EF in high yield?
iraconfused
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Re: Updated: Personal Finance Advice for New PhD

Post by iraconfused »

bwn wrote: Tue Sep 22, 2020 8:08 pm
iraconfused wrote: Tue Sep 22, 2020 7:28 pm Keep it simple starting out. Both do 10% and max Roth IRA every year. EF in high yield. Take what you need for bills and save rest for house down payment. The more you make the bigger the 10% is.
Thanks! By 10% do you mean 10% to 403(b) and then max out the Roth IRA? Can you also give an example of EF in high yield?
Put 10% in 403(b). Max Roth IRA. Doing this you know how much you have left out of each check per week or month. Take out what you need for monthly bills and put rest in EF (EF and house down payment) account at Ally bank in HY account or a separate CU or bank. Once you get to making big money you still have 10% coming out and a maxed Roth. Still living on the rest. Pay off any debt ASAP so you just have house payment. Pay it off ASAP if you want
alex_686
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Re: Updated: Personal Finance Advice for New PhD

Post by alex_686 »

I would be semi-relaxed about planning.

As you say, you have little idea where you will be in 2 or even 5 years. HCOL verse LCOL situations. Maybe one partner will get a dream job in a small town where they only need one of you. Too many variables. You are slightly behind but not by much.

Focus on what you can control, which is your saving rate.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
NightFall
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Joined: Wed Mar 12, 2014 4:38 pm

Re: Updated: Personal Finance Advice for New PhD

Post by NightFall »

zorgs10 wrote: Tue Sep 22, 2020 6:25 pm Dr bwn, congratulations on finishing PhD and starting postdoc!

Given your stipend, it's commendable that you've been saving 17% of your income. I have some observations and some questions:

* Your emergency funds seem to cover ~5 months of fixed expenses. Perhaps you want to make it 6 months of total expenses.
* You might want to look at HSA accounts.
* Re 403(b): does your employer provide a match? Or does your 403(b) plan have a roth option? These factors could change the answer to your questions.
* To decide between roth ira vs traditional; you need a better idea of your marginal tax rate. Use a tool like: https://www.taxact.com/tools/tax-calculator

All the best!
I agree with using the tax calculator. Your tax rates look suspect. You should also be looking at your marginal tax rate versus overall for retirement contribution calculations. In general, Roth accounts are better at low incomes, and it sounds like your income will be rising in a few years. You could contribute to the 403b to get your income into the 12% bracket and then make Roth contributions.

As to how much to save, as much as you can. Only you can say how much guilt free spending you need. Whatever you don’t spend, consider adding to retirement or paying off loans. I haven’t yet mastered the art of guilt free spending myself, and I spend much less in that category.
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calmaniac
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Re: Updated: Personal Finance Advice for New PhD

Post by calmaniac »

What field is your PhD in?

The reason I ask, is that in addition to the monetary issues you've detailed, you've forgotten to talk up the most important asset that you are investing in: your careers. As you well know, some PhD degrees generate more income than others. It sounds like you are in pretty good shape in terms of financial future with projected $100,000 salaries directly out from your postdocs. If that is the case and that your salary is likely to continue to grow, a case can be made for taking Option #1 and not being too severe with your savings right now. I don't mean to say it is not important to save, even at this stage, but in a couple of years your salary will double again, and that is where you can really start putting away some cash. I would avoid being too Mustachian at this point and work to keep happy and mentally healthy (which can be a challenge in these COVID times).
62 yo, 1-3y til retire. AA 70/30: 30% S&P, 16% value, 14% intl, 10% EM, 30% short/int govt bonds. My mil pension + DW's now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses.
Topic Author
bwn
Posts: 51
Joined: Tue Jun 16, 2020 11:35 pm

Re: Updated: Personal Finance Advice for New PhD

Post by bwn »

NightFall wrote: Tue Sep 22, 2020 8:44 pm
zorgs10 wrote: Tue Sep 22, 2020 6:25 pm Dr bwn, congratulations on finishing PhD and starting postdoc!

Given your stipend, it's commendable that you've been saving 17% of your income. I have some observations and some questions:

* Your emergency funds seem to cover ~5 months of fixed expenses. Perhaps you want to make it 6 months of total expenses.
* You might want to look at HSA accounts.
* Re 403(b): does your employer provide a match? Or does your 403(b) plan have a roth option? These factors could change the answer to your questions.
* To decide between roth ira vs traditional; you need a better idea of your marginal tax rate. Use a tool like: https://www.taxact.com/tools/tax-calculator

All the best!
I agree with using the tax calculator. Your tax rates look suspect. You should also be looking at your marginal tax rate versus overall for retirement contribution calculations. In general, Roth accounts are better at low incomes, and it sounds like your income will be rising in a few years. You could contribute to the 403b to get your income into the 12% bracket and then make Roth contributions.

As to how much to save, as much as you can. Only you can say how much guilt free spending you need. Whatever you don’t spend, consider adding to retirement or paying off loans. I haven’t yet mastered the art of guilt free spending myself, and I spend much less in that category.
1) By tax rates looking suspect, does that mean too high? he Current numbers are from my paycheck, so they are correct. I possibly could have taken out too few allowances from my paycheck each month as I put 0 for allowances at my new job. I did this because last year I owed money in taxes. I cant figure out how to accurately fill out the W-4, so that I get the correct amount of taxes taken out each month so that I don't have to pay or get a refund at the end of the year. Any advice here would be appreciated, so I'm not giving Uncle Sam an interest free loan.

2) I'm having difficulty filling out the taxact calculator. How do I know what to put for "Your federal taxes withheld and estimated payments"?

3) How much would I have to contribute to get into the 12% tax bracket?

Thank you!
NightFall
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Re: Updated: Personal Finance Advice for New PhD

Post by NightFall »

Federal tax brackets are 0%, 10%, 12%, 22%, 24%,... Using your paycheck will tell you your total tax. It won’t tell you your marginal tax rate. That is, you want to know the tax rate you’re paying on one additional dollar of income. If your PhD is in a mathematical field, it’s the derivative of your taxes.

When you put a dollar into a traditional account, you “save” the marginal tax rate in terms of taxes. That money grows tax free until you take it out at retirement. When you take it out at retirement, you pay taxes. So if your marginal rate in retirement (impossible to know with any degree of accuracy at the age you’re currently at) is higher than now, it’s better to contribute to a Roth. Conversely, if your marginal rate is lower in retirement than now, it’s better to contribute to your 403b. There’s no way to know what those tax rates will look like. But it’s a decent bet to say 12% is low. So, if you fall in that category, I’d say use Roth contributions.

Your income on the face of it looks too high to be in that bracket without 403b contributions to bring it down. So, you could drop your income by deferring money in the 22% bracket until you reach the 12% bracket and put that money into a Roth. Of course, your tax situation may be more complicated than the simple scenario here, which is a reason to estimate using tax software. If you don’t know how taxes work (most people don’t except on this website), you should learn. Retirement accounts and which to use are intertwined with the taxes.
MathIsMyWayr
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Re: Updated: Personal Finance Advice for New PhD

Post by MathIsMyWayr »

I don't understand why you are even fixated on retirement savings. Both of you are now holding postdoc positions and they are not "permanent", but only temporary. You should focus on your careers instead. Please remember that your specialty/major may become irrelevant only after 5-10 years unless you get an opportunity to fully utilize and extend them. I see such cases around me all the time. Many of them get down to the level not much different from college freshmen's. I don't know what field you are in, but engineering is the worst because their knowledge is rather shallow in general.
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FiveK
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Re: Updated: Personal Finance Advice for New PhD

Post by FiveK »

bwn wrote: Tue Sep 22, 2020 9:04 pm 1) By tax rates looking suspect, does that mean too high? he Current numbers are from my paycheck, so they are correct. I possibly could have taken out too few allowances from my paycheck each month as I put 0 for allowances at my new job. I did this because last year I owed money in taxes. I cant figure out how to accurately fill out the W-4, so that I get the correct amount of taxes taken out each month so that I don't have to pay or get a refund at the end of the year. Any advice here would be appreciated, so I'm not giving Uncle Sam an interest free loan.

2) I'm having difficulty filling out the taxact calculator. How do I know what to put for "Your federal taxes withheld and estimated payments"?

3) How much would I have to contribute to get into the 12% tax bracket?

Thank you!
If you have any Excel ability, you might find the personal finance toolbox more useful for your tax and cash flow calculations, including a chart that will show your marginal tax saving rates for a range of 401k contributions. It also has a W-4 estimation section. Whatever tool you use, look at your situation as a couple (it appears the OP shows only one person's cash flow).

Yes, the paystub shows how much is being withheld, but not what your 2020 tax liability will be.

See Investment Order and Prioritizing investments for general suggestions.
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dogagility
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Re: Updated: Personal Finance Advice for New PhD

Post by dogagility »

bwn wrote: Tue Sep 22, 2020 6:44 pm * Should I use my Roth IRA as an emergency savings account or use a high yield savings account like Ally?
In my portfolio, I consider Roth IRA contributions as part of my "emergency fund". There have been threads on this in the past.

My Roth is 100% equity. Considering this money as part of my EF is a balancing act between my resilience to needing to tap my emergency fund, the likelihood of the IRA balance going below my contribution amount, the likely growth of the Roth balance... among other things. :beer
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
Topic Author
bwn
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Re: Updated: Personal Finance Advice for New PhD

Post by bwn »

NightFall wrote: Tue Sep 22, 2020 10:26 pm Federal tax brackets are 0%, 10%, 12%, 22%, 24%,... Using your paycheck will tell you your total tax. It won’t tell you your marginal tax rate. That is, you want to know the tax rate you’re paying on one additional dollar of income. If your PhD is in a mathematical field, it’s the derivative of your taxes.

When you put a dollar into a traditional account, you “save” the marginal tax rate in terms of taxes. That money grows tax free until you take it out at retirement. When you take it out at retirement, you pay taxes. So if your marginal rate in retirement (impossible to know with any degree of accuracy at the age you’re currently at) is higher than now, it’s better to contribute to a Roth. Conversely, if your marginal rate is lower in retirement than now, it’s better to contribute to your 403b. There’s no way to know what those tax rates will look like. But it’s a decent bet to say 12% is low. So, if you fall in that category, I’d say use Roth contributions.

Your income on the face of it looks too high to be in that bracket without 403b contributions to bring it down. So, you could drop your income by deferring money in the 22% bracket until you reach the 12% bracket and put that money into a Roth. Of course, your tax situation may be more complicated than the simple scenario here, which is a reason to estimate using tax software. If you don’t know how taxes work (most people don’t except on this website), you should learn. Retirement accounts and which to use are intertwined with the taxes.
Thank you very much for this comprehensive answer! Do you have any tax books that you recommend?
Topic Author
bwn
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Re: Updated: Personal Finance Advice for New PhD

Post by bwn »

dogagility wrote: Wed Sep 23, 2020 5:27 am
bwn wrote: Tue Sep 22, 2020 6:44 pm * Should I use my Roth IRA as an emergency savings account or use a high yield savings account like Ally?
In my portfolio, I consider Roth IRA contributions as part of my "emergency fund". There have been threads on this in the past.

My Roth is 100% equity. Considering this money as part of my EF is a balancing act between my resilience to needing to tap my emergency fund, the likelihood of the IRA balance going below my contribution amount, the likely growth of the Roth balance... among other things. :beer
Thanks! This is a great point.
Nowizard
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Re: Updated: Personal Finance Advice for New PhD

Post by Nowizard »

Frankly, when first completing a terminal degree and without any savings, the focus was simply on figuring out investment choices and funding them to the maximum amount possible. After many years in school, there are numerous things that appear that are part of both a more balanced life as well as a financial plan. Projecting a given amount needed to retire comfortably is much less important than focusing on the process since you cannot guarantee results or know what lies ahead. That process is actually more simplistic than often realized and basically involves two things, establishing a plan that is modified as required with changing circumstances and saving amounts that strike a balance between the present and future. After that, it becomes either an obsession or one of many important issues in life. That is to say that this is a good place to determine that process, but your history says you will figure it out and are simply entering a new phase of life.

Tim
Topic Author
bwn
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Re: Updated: Personal Finance Advice for New PhD

Post by bwn »

Nowizard wrote: Wed Sep 23, 2020 8:48 am Frankly, when first completing a terminal degree and without any savings, the focus was simply on figuring out investment choices and funding them to the maximum amount possible. After many years in school, there are numerous things that appear that are part of both a more balanced life as well as a financial plan. Projecting a given amount needed to retire comfortably is much less important than focusing on the process since you cannot guarantee results or know what lies ahead. That process is actually more simplistic than often realized and basically involves two things, establishing a plan that is modified as required with changing circumstances and saving amounts that strike a balance between the present and future. After that, it becomes either an obsession or one of many important issues in life. That is to say that this is a good place to determine that process, but your history says you will figure it out and are simply entering a new phase of life.

Tim
Thank you for the sage advice, Tim! I just don't want to make any large financial mistakes.
tashnewbie
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Re: Updated: Personal Finance Advice for New PhD

Post by tashnewbie »

Definitely confirm your marginal tax brackets. With $112k combined household income, assuming no pretax deductions like retirement plans or healthcare premiums, it looks like you're in the 22% federal bracket. $112k - ~$24k standard deduction for MFJ = $88k taxable income. If you defer ~$8-9k between the two of you, either in 403b contributions or HSA etc, you'll be in the 12% bracket. See this for more information about tax brackets: https://www.nerdwallet.com/article/taxe ... x-brackets

I would probably defer enough to get into the 12% bracket, and then max a Roth IRA and, if you have any extra money beyond what you want to have as a cash cushion or available for "guilt-free spending," put it in Roth 403b. The Roth IRA contributions can be used as a part of your emergency savings/house down payment fund. If you invest in all equities in the Roth IRA, you may have to be more flexible about when you purchase a house, and you may want to have other cash reserves that are in an account that won't lose principal, such as an online "high yield" savings account at Ally, Barclays, Marcus, etc.
Topic Author
bwn
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Re: Updated: Personal Finance Advice for New PhD

Post by bwn »

tashnewbie wrote: Wed Sep 23, 2020 9:03 am Definitely confirm your marginal tax brackets. With $112k combined household income, assuming no pretax deductions like retirement plans or healthcare premiums, it looks like you're in the 22% federal bracket. $112k - ~$24k standard deduction for MFJ = $88k taxable income. If you defer ~$8-9k between the two of you, either in 403b contributions or HSA etc, you'll be in the 12% bracket. See this for more information about tax brackets: https://www.nerdwallet.com/article/taxe ... x-brackets

I would probably defer enough to get into the 12% bracket, and then max a Roth IRA and, if you have any extra money beyond what you want to have as a cash cushion or available for "guilt-free spending," put it in Roth 403b. The Roth IRA contributions can be used as a part of your emergency savings/house down payment fund. If you invest in all equities in the Roth IRA, you may have to be more flexible about when you purchase a house, and you may want to have other cash reserves that are in an account that won't lose principal, such as an online "high yield" savings account at Ally, Barclays, Marcus, etc.
Thank you! This was exactly what I was looking for. Thank you for explaining it in such clear language to a Boglehead novice like myself! Could you just specify MFJ?
tashnewbie
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Re: Updated: Personal Finance Advice for New PhD

Post by tashnewbie »

bwn wrote: Wed Sep 23, 2020 9:12 am Thank you! This was exactly what I was looking for. Thank you for explaining it in such clear language to a Boglehead novice like myself! Could you just specify MFJ?
MFJ = married filing jointly tax filing status
White Oak
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Re: Updated: Personal Finance Advice for New PhD

Post by White Oak »

bwn wrote: Tue Sep 22, 2020 6:08 pm
Undergraduate Loans $16,000

Guilt Free Spending (26.08%): $954.30

Salary: $56,000
25% allocated to "guilt-free spending" seems way too high given your position. I would put most of that toward your student loan. If you put it all toward the loan, it'd be paid off in 1.5 years. Maybe put $800/month toward the loan and $150/month as guilt free spending. Then when the loan is gone, you can split the freed-up cash flow between savings and your guilt free category.

Sorry if this seems harsh, but you are asking the Bogleheads.
Topic Author
bwn
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Re: Updated: Personal Finance Advice for New PhD

Post by bwn »

White Oak wrote: Wed Sep 23, 2020 9:36 am
bwn wrote: Tue Sep 22, 2020 6:08 pm
Undergraduate Loans $16,000

Guilt Free Spending (26.08%): $954.30

Salary: $56,000
25% allocated to "guilt-free spending" seems way too high given your position. I would put most of that toward your student loan. If you put it all toward the loan, it'd be paid off in 1.5 years. Maybe put $800/month toward the loan and $150/month as guilt free spending. Then when the loan is gone, you can split the freed-up cash flow between savings and your guilt free category.

Sorry if this seems harsh, but you are asking the Bogleheads.
No, I appreciate the feedback!
Topic Author
bwn
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Re: Updated: Personal Finance Advice for New PhD

Post by bwn »

tashnewbie wrote: Wed Sep 23, 2020 9:03 am Definitely confirm your marginal tax brackets. With $112k combined household income, assuming no pretax deductions like retirement plans or healthcare premiums, it looks like you're in the 22% federal bracket. $112k - ~$24k standard deduction for MFJ = $88k taxable income. If you defer ~$8-9k between the two of you, either in 403b contributions or HSA etc, you'll be in the 12% bracket. See this for more information about tax brackets: https://www.nerdwallet.com/article/taxe ... x-brackets

I would probably defer enough to get into the 12% bracket, and then max a Roth IRA and, if you have any extra money beyond what you want to have as a cash cushion or available for "guilt-free spending," put it in Roth 403b. The Roth IRA contributions can be used as a part of your emergency savings/house down payment fund. If you invest in all equities in the Roth IRA, you may have to be more flexible about when you purchase a house, and you may want to have other cash reserves that are in an account that won't lose principal, such as an online "high yield" savings account at Ally, Barclays, Marcus, etc.
If I am expected to be at a higher tax bracket when I retire, does it still make sense to contribute enough to the 403(b) or 457 to drop down to the 12% tax bracket now? Thanks!
Topic Author
bwn
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Pre-Tax Contribution Vs Post-Tax Contribution

Post by bwn »

[Thread merged into here, see below. --admin LadyGeek]

My wife and I got new jobs and we are making around $112,000 combined each year with no pretax deductions, which looks like it will put us in the 22% federal bracket. We are young and expecting to be in a higher tax bracket when we retire and so far have only been maxing out our Roth IRAs.

I recently received advice, that we should contribute enough to our 403(b) or 457 to drop us to the 12% federal bracket ($112,000 - $24,000 standard deduction for married filing jointly = $88,000. Then $88,000 - $9,000 to a 403(b) or 457 = $79,000, which is then in the lower bracket).

Does it make sense to do this if we will be in a higher tax bracket later on or should we just start contributing after tax dollars to a 403(b) Roth or 457 Roth?
Last edited by bwn on Sun Sep 27, 2020 3:11 pm, edited 1 time in total.
Katietsu
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Re: Pre-Tax Contribution Vs Post-Tax Contribution

Post by Katietsu »

This is a huge guessing game when you are decades away from retirement. When you suggest after tax dollars to a 403b/457b, this can have a couple meanings. If you are suggesting using a Roth 403b/Roth 457b, that sounds like a reasonable choice.
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bwn
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Re: Pre-Tax Contribution Vs Post-Tax Contribution

Post by bwn »

Katietsu wrote: Sun Sep 27, 2020 3:08 pm This is a huge guessing game when you are decades away from retirement. When you suggest after tax dollars to a 403b/457b, this can have a couple meanings. If you are suggesting using a Roth 403b/Roth 457b, that sounds like a reasonable choice.
Yes, thank you for catching that. Yes, it would be determining to put money to a traditional 403b/457 to drop to a lower tax bracket and then max out our Roth IRA or contribute to Roth 403b/457 and max out our Roth IRA.
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FiveK
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Re: Updated: Personal Finance Advice for New PhD

Post by FiveK »

bwn wrote: Sun Sep 27, 2020 2:40 pmIf I am expected to be at a higher tax bracket when I retire, does it still make sense to contribute enough to the 403(b) or 457 to drop down to the 12% tax bracket now? Thanks!
Depends to some extent on the definition of "when". In other words, do you mean "leading up to" or "after" retirement?

See Traditional versus Roth - Bogleheads for the generic answers.
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LadyGeek
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Re: Updated: Personal Finance Advice for New PhD

Post by LadyGeek »

bwn - In order to give appropriate advice, it's best to keep all the information in one spot. They may seem like separate discussions, but they're all related to your portfolio. We need to see everything together to make sure we point you in the right direction.

If you have any questions, ask them here.
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Tamarack
Posts: 25
Joined: Sun Nov 17, 2019 3:09 pm

Re: Updated: Personal Finance Advice for New PhD

Post by Tamarack »

I cant figure out how to accurately fill out the W-4, so that I get the correct amount of taxes taken out each month so that I don't have to pay or get a refund at the end of the year. Any advice here would be appreciated, so I'm not giving Uncle Sam an interest free loan.
This calculator will tell you exactly how to fill out your W-4: https://www.irs.gov/individuals/tax-wit ... -estimator
:beer
CedarWaxWing
Posts: 769
Joined: Sun Nov 02, 2014 12:24 pm

Re: Updated: Personal Finance Advice for New PhD

Post by CedarWaxWing »

https://www.irs.com/articles/2020-feder ... eductions/
Shows tax tables, and standard deduction.

Unless you have other income not accounted for in your note, after the standard deduction (24,800) for a married filing jointly couple, it is likely you will have a very small amount of your income taxes at 22% marginal rate. If you are each making 100k after the post doc year(s)... putting all the funds you can into the Roth accounts at your current income level seems to me a good way to go.

IF the small amount taxed at 22 % bothers you ... you could put the appropriate amount into the 403b to get your marginal rate to 12%, but in the big picture, in light of your savings patterns and your expected incomes... to me all Roth seems to be a very good idea. (This also is based on the estimate that if you save well, and earn at 22% or better in the next 3 to 4 decades... the Roth accounts, if never taxed again on withdrawls, might be most beneficial in retirement years.

After maxing whatever Roth contributions are available (individual roths, and 403 b Roth?) I would consider maxing out the rest of the 403 B.

But, as you already suggested, the possibilities of your being in a higher than 22% marginal rate, if you believe that to be likely, would make me decide to put everything I can into a Roth and consider simply doing a taxable savings and/or a taxable investing account for funds you can access for emergencies and or long term needs (house, car, and ?)

My newly minted PhD kid is going all roth for now. He and his wife are now VERY good cooks.... and save tons of "dough" by not eating out much at all. They also eat better than they would at most restaurants. (In a better environment imho... and theirs also. :)
Topic Author
bwn
Posts: 51
Joined: Tue Jun 16, 2020 11:35 pm

Re: Updated: Personal Finance Advice for New PhD

Post by bwn »

Tamarack wrote: Sun Sep 27, 2020 5:27 pm
I cant figure out how to accurately fill out the W-4, so that I get the correct amount of taxes taken out each month so that I don't have to pay or get a refund at the end of the year. Any advice here would be appreciated, so I'm not giving Uncle Sam an interest free loan.
This calculator will tell you exactly how to fill out your W-4: https://www.irs.gov/individuals/tax-wit ... -estimator
:beer
Thank you!
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