25 year old looking for opinions (funds, paying, rent, taxes)

[Steve_86]

First off, I’m posting this under a new username because I don’t want people typing my usual username into Google and finding this thread.

So I’m 25 years old, and I’m doing fairly well for myself, but I want to make sure I’m setting up my finances to hopefully ensure a retirement between 55 and 60 years old (or earlier if feasible). I currently make a pre-tax salary of $80,000 a year. I’ve got $68,000 in cash saved up and $10,500 in my 403(b) plan. I currently rent an apartment in the Los Angeles area for $1700/month. I don’t plan on being here for more than 3 years so I have no real reason to look into buying a house (I don’t think anyway; also not married).

My company puts 5% of my salary ($4,000/yr.) into a 403(b) account regardless of what I put in. I’m currently putting $12,000/yr into that account as well. The 403(b) plan is currently setup with all money going into a target date fund. I don’t know much about investing, but it’s doing ok other than the big market dropoff a few months ago. I also put $6,500/yr. into a separate savings account that has a 1% return. The rest gets spent on utility bills, gas, food, and entertainment, but I usually have a couple hundred bucks left over at the end of the month that just stay in the checking account and eventually get moved to savings.

I was thinking about upping my 403(b) contribution to the maximum of $16,500, but I’m not sure if that’s the best plan of action so that’s why I’m coming here. I’ve read some about IRAs, but I’m not extremely familiar with them. Perhaps I should stick some money in there instead of doing maximum 403(b) contributions? Please let me know your opinions. I’ve been reading these forums every day for almost a year now probably to get a feel for what I should be doing. Thanks for your help.

[brightyellowhaha]

I don't know too much about investing either but I do think you should be contributing some of that money to a Roth IRA. Since you will be contributing after taxes you will not be taxed on this money when you retire and withdraw it. I'm sure others can add some additional info.

[oneasterisk]

I'd definitely max out your 403b. That will reduce your taxable income and funded by pre-tax dollars. So your $100 contribution only costs you $75 (assuming your in a 25% tax bracket).

Also fund a ROTH IRA if you can swing it.

Also kudos on accumulating so much savings and having a well paying job at a young age.

[ChunkyMonkey]

I would fund the Roth IRA before maxing your 403b account, $5000 max. One huge advantage with Roth IRAs is that you can withdraw your original contribution without any tax penalties. Your 403b, on the other hand, will be off limits. This allows you to save for retirement and be an emergency fund if absolutely needed.

[Tallysmom]

Because you are young, you should look into a Roth IRA. It's different from a traditional IRA, because in a Roth, you have already paid the tax on those funds, so it grows tax free, and should you need to get into the Roth (say to buy a house in several years) you can take out your primary deposits with no tax. (If I am wrong on this -- someone let me know)

A traiditonal IRA uses pretax money, like a 403(b) and takes that amount off your income to lower your taxes.

There's lots of good websites to learn about investing and different things -- look at Motley Fool and Morningstar to start....

[Steve_86]

Thanks for your opinions folks. I hadn't I'm definitely going to start looking into this Roth IRA business later tonight. The withdrawl without penalties is definitely a plus in case I wind up retiring before I can take anything out of the 403b without penalty. How do the payments work? Would I be able to do one lump sum from a bank account or do I have to do it from a paycheck?

Also, thanks for the kudos oneasterisk. It was a combination of hard work, luck, and good parents that has allowed me to be in this position.

[long101]

Agreed with everybody else, I would fund both the roth and 403b. Also the Roth has income limits, so if your income continues to rise you may not be able to contribute to it (at 80k your fine).

IMO 68k in cash is way too much unless you are worried about your job or planning to do something with it. I would look into mutual funds or 'safe' stocks to put some of it or make other investments in.