{ "media_type": "text", "post_content": "Currently mid twenties, and trying to take financing more seriously and would really appreciate some insight on how to allocate my income into savings! Make about roughly 70k a year (post-tax, no pre-tax contributions). I spent about $3,350 a month (~40k a year on rent, car loan, bills etc), so I have about roughly 30k to save annually. Obviously putting 6k into roth ira, and I need help with insight on how to allocate he remaining 24k between Roth 401k, emergency fund, personal saving, etc.", "post_id": "6175cb5753ae15002d99f4e8", "reply_count": 4, "vote_count": 1, "bowl_id": "59064a3cb12379001006592c", "bowl_name": "Personal Investment Chatter" }

Currently mid twenties, and trying to take financing more seriously and would really appreciate some insight on how to allocate my income into savings! Make about roughly 70k a year (post-tax, no pre-tax contributions). I spent about $3,350 a month (~40k a year on rent, car loan, bills etc), so I have about roughly 30k to save annually. Obviously putting 6k into roth ira, and I need help with insight on how to allocate he remaining 24k between Roth 401k, emergency fund, personal saving, etc.

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Adding onto it, Personally never contributed to pre-tax 401k. Can someone explain in what situation this would be beneficial? Also, I don’t really have any huge debt other than my car, but I am planning on buying my first house next year (currently have about 30k in tax-free withdrawable contribution money from roth ira, personal brokerage). How should I allocate my saving under this condition? Thanks!

The way I look at it is - you put money in the pre tax 401k because A) 19k pretax dollars is less than putting in 19k post tax dollars. So you will get more in your paycheck to spend/invest B) if I am going to use this money at retirement, it’s going to be taxes as income. Now if I’m making 0 wages at 65, then the first dollar will still be taxed at 0% so I’m better off doing this. In reality I may have other passive sourced of income, but they’ll still be much less than what I make now. For you specifically if you are at MCk I imagine you will be making triple of this in about 5 years till you retire. So even with your eventual passive income, you may wanna put some into Roth while you make 70k since that’s relatively low, but once you reach 90k+19k =110k you could start to switch to the traditional. Or you may wanna step it up to the next federal tax bracket. Personally I started traditional once I was at 110k

A couple questions you need to answer - do you think your income is increasing, do you think the tax rates will be higher in future, do you want tax break now or later? Presuming you answer yes, yes, later - savings matrix would say max Roth IRA if you’re within limits of MAGI, then max 401k (Roth preferably), then taxable brokerage. You can withdraw principal contributions from Roth IRA (after 5 years?) and I believe 10% of earnings for first home purchase. 401k I believe you could pull a % from there for first home purchase too.

From what Ive read, I think I can pull my principal contribution from ROTH IRA whenever I want with no penalty or tax. Roth 401k is where I need to wait 5 years for that. So I am thinking about utilizing the backdoor ira to transfer money from roth 401k to roth ira. Is this allowed/ is there a limit as to how much I can transfer at once in a given year?

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