TheHungarianCPAPFS

CPA, CFP, IAR,Life Agent here to advise
Jan 14, 2020
15
3
Los Angeles, CA
www.erkfc.com
Status
Non-Student
QUESTION:

I'm 32 years old, a recent graduate from residency, and started my first attending job a few months ago. I've been learning a lot from WCI and this forum, and wanted some advice on how I should allocate my savings. Below is my financial info:

W-2 salary: 350k/yr
roth IRA: 30k
HY savings: 70k
Loans: None
Rent: $1700
Still living like a resident and saving about 75% of my post-tax money (about 13-15k/month).
Single wit no kids, but getting married in the next 1-2 years.

I plan on maxing out my 401k (~19k) and doing a back door roth (6k) every year. Furthermore, once I make partner in 3 years I will have access to more benefits and will be able to contribute a total of about 52k into a tax deferred account. On top of that I have a pension that I am working towards (but I will pretend I don’t have this since it is not guaranteed).

Currently I'm at a stage where I am saving money for a wedding in the next year and hopefully buying a home in 2-3 years. I live in a super HCOL area and predict I will spend ~1-1.2M to purchase a decent place. So far I have just been putting all my savings in a HY savings account. My question is, am I doing the right thing by putting all my money in a HY account given that I would want to buy a home in the next 2-3 years? Or should I open a taxable account and start putting money in there too so I can take advantage of compounding interest as soon as possible? My original plan was to place all my savings in the HY savings account until I have enough money for the down payment (150-200k). I would obviously max out my 401k and Back door roth. However, I am wondering if that is enough going towards retirement for the next 3 years. Should I open a taxable account and divert some of my wedding/downpayment money there? Keep in mind after 3 years I will be able to put a total of ~52K in a tax deferred account, so I have some room to catch up.

If the answer is yes, open a taxable account, how much should I put in there? 20% of gross? And If not now, when would be the optimal time to open a taxable account and start investing there?

Thanks for everyone’s help!


P.S. My gf, who I plan on getting engaged with, also has no student loans, makes about 80k/yr, and has about 100k in HY savings account. Obviously when we get married, we will max out her 401k and back door roth too.

ANSWER:

HILA88, consider accumulating enough down payment for your home so that your total mortgage principal will be under the new maximum mortgage loan balance of $750K. Consider that if you get a $1M loan, with $200-300K down, you will pay annual interest of about $10K/year that you will not have any tax benefit for on the remaining $250K on principal/year. Considering that you over the life of the loan you will pay back 2x the principal, you could triple your money in 30 years buy not paying the interest to the bank but rather to yourself. Therefore, while savings enough for a larger down payment, you can make a return of 4% on that money in a couple of years. No downside risk, as you arent invested in the market and no tax cost since it was your own savings that you used for the down payment.
 
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