I’m starting a new job soon with a big pay raise, almost doubling my current salary! I haven’t been contributing to my 401k because I’ve been focused on paying off credit card debt from my last year of law school. The good news is that with the new job, I’ll clear that debt quickly.
Here’s the thing—I won’t be eligible for my new firm’s 401k for a whole year. I plan to max out my IRA during that time, but I was planning to put around $1,000-$1,200 a month into my 401k. So now, I’m not sure where to put that extra cash.
I’ll also be working on building a $30-40k emergency fund, paying down student loans ($1,600/month), and saving for a house down payment.
Any advice on where to put this extra money for now? Should I stick with maxing the IRA and put the rest into something else? I’d appreciate any suggestions, especially since I’m behind on savings and just getting started with retirement planning. Thanks a lot!
First, finish paying off your credit cards, then max out your IRA. Next, build a 3-6 month emergency fund in a high-yield savings account (HYSA). If you have a high-deductible health plan, max out your HSA, too. Once you have a solid emergency fund, start putting the rest in a brokerage account.
So, you can’t put money into your 401k right now, but you can still use an IRA. If your company matches 401k contributions, make sure you maximize that as soon as you’re eligible. Until then, focus on paying off the credit cards first.
Blaze said: @Farley
I can’t participate in the 401k until I’ve been there for a year. Any suggestions on what to do with the money in the meantime?
Got it! You could keep that money in the same account you’re using for your emergency fund, and once you’re eligible for the 401k, you can increase your contributions to make up for it.
You could either max out a traditional IRA and get the tax deduction or consider a Roth if you qualify. Just run the numbers to see if the traditional IRA’s tax savings now will be worth it compared to paying taxes later.
Consider opening a brokerage account and using it to create an emergency fund with a high-dividend fund like PBDC or a covered call fund like JEPQ. This way, you can build up a cushion and generate dividends that can help replenish it if you ever need to dip into it. Any extra can go into growth stocks or an index fund like VOO.
I’d open a taxable brokerage account and invest there, maybe focus on dividend stocks. I do dividends in my taxable account and focus on growth in my IRA and 401k.
I’d start with building that emergency savings. Once you have 6-12 months saved, think about private investments if you want to diversify. Personally, I like commercial real estate and take small positions in group projects that target around 20% returns.