Andrey is a savvy 10-year-old wondering what’s the best way to save up for his first car.
Ingrid wants to know if her parents’ preference for Retiring on Dividends is a better approach compared to the 4 Percent Rule.
Erica’s part-time work schedule will place her in an unusually low tax bracket this year. Should she take this rare chance to execute a Roth conversion? Or is it better to prioritize debt payoff?
Chloe is worried about the end of student loan forbearance. Should she pull back from making retirement contributions to focus on debt payoff?
Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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Here are the details:
Andrey asks (at 01:28 minutes): I’m Andrey and I’m 10 years old. I’m wondering what I should do with my $1,000 since I want to save up for my first car. Should I invest in cryptocurrency or put it into a bank for safekeeping?
Ingrid asks (at 31:30 minutes): My parents recently learned about a strategy called Retiring On Dividends. They’re no longer convinced they should follow the 4 Percent Rule.
The articles they read cite many reasons why buying high-yield dividend stocks is superior to using a safe withdrawal rate.
For example, dividend stocks tend to pay out more dividends when the market is down, shielding you from sequence of returns risk.
What’s your take on this?
Erica asks (at 46:31 minutes): I have a window of opportunity to convert my Traditional IRA to a Roth IRA at a lower tax bracket this year. Should I take it?
I just graduated from nursing school and accepted my first job. My salary will start at $131,680 per year which is triple what I made as a public school teacher.
My job starts in August, so I’ll be in an unusually low tax bracket this year with only 5 months of income.
I have a Traditional IRA with $78,000 and a Roth IRA with $4,000. If I convert the entire amount. I’d pay $19,738 in taxes.
I also have $36,000 in private student loans with a variable interest rate of 6.2 percent right now. And $24,000 in federal student loans with a 5 percent interest rate. I plan to refinance the variable to a lower fixed rate of 4.8 percent.
So should I make minimum payments on my student loans in order to capitalize on a discounted Roth conversion this year?
Or is it more important to start slamming on the debt and get rid of the student loans?
I can only afford to do one or the other and I feel torn.
Chloe asks (at 55:27 minutes): I lived at home after graduating from college in 2019. That plus the pandemic allowed me to max out my Roth IRA and contribute to other savings goals.
But with student loan forbearance ending on September 1st, I have questions about my financial setup.
I’m a 27-year-old teacher with a $61,000 annual salary.
My employer requires a 4 percent minimum contribution to my 403(b) and matches that with a 6 percent contribution.
I contribute an additional $500 a month to my 403(b) on top of the minimum requirement. Between my and my employer’s contributions, I save $1,000 a month in that account.
I contribute $300 a month to my HSA and some smaller amounts to my sinking funds.
In total, I have $29,000 in my 403(b), $21,000 in my Roth IRA, $28,000 in a taxable brokerage account, and $3,000 in my HSA. All this money is earmarked for retirement.
I also have a $10,000 emergency fund.
I’ve paid down my federal student loans from $30,000 to $16,000 since 2019. The highest interest rate among the loans is 4.45 percent. I have the option to defer payments because I’m enrolled in a master’s program.
I had the remaining $16,000 set aside in my high-yield savings account, but I invested $10,000 into my brokerage account when the forgiveness plan was announced.
My questions are:
- Should I use money from my taxable brokerage to max out my Roth IRA for 2024? Or should I stop making extra contributions to my 403(b) and put it towards my Roth IRA instead?
- Should I use my remaining $6,000 cash as a lump sum payment on student loans and then pay monthly towards the remaining $10,000 with money from my brokerage account? Or should I make the payments monthly from the $6,000 and then cash flow the payments after that?
Resources Mentioned:
How I Discovered the 4% Retirement Rule, with Bill Bengen | Podcast
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