24y and going to start investing for the first time, should I do a rIRA or a tIRA?

[chrisfromcuba]

Hi,

I’m a 24 year old nurse and my income for the 2022 year was $86k.
I just received a raise where I will be in the 24% tax bracket for the 2023 year.

I currently have $28k in private student loans and approx. $40k in government student loans.
I have a private loan for my car, approx. $12k.

I currently have $7k in a savings account and my monthly expenses are approx. $2.2k (including loan payments).

I have just spent the last year and a half building a credit score and have met my goal, yay! And now have 3 months of living expenses in my savings account for emergency funds.

At this point, I think I’m ready to start investing. However, I do have a ton of student loans (I may have to start paying the government loans after the grace period this year) and this will change my monthly expenses throughout the next few years.

My job currently provides a 403b, but from my understanding this would not be a good idea for investment as I plan to leave this job in 2 years and they do not match contributions.

So, I was looking into rIRA and tIRA. I plan to go back to school, an expected raise of income to around $120k at least depending on NP school or CRNA school once I pay off my current private loans.

Doing some research, expecting a raise of income throughout my life, the rIRA makes more sense because of my change in tax brackets and potential for future 401k investments after a job change.

Is this correct? Is rIRA my best choice right now?

Are there any other things I should look into to meet my goal of a reasonable retirement age? (50-60 y.o)

Do you see any mistakes I may be making with my financial choices so far?

Thanks in advance!

 

[ellemg1015]

@chrisfromcuba You should not be investing with that much debt. I’d pay down the higher interest debt first.

 

[chrisfromcuba]

@ellemg1015 My private student loans have an interest rate of 2.89% and the reason I am staying with my job for 2 years is because they have a loan repay back program that gives $25k towards student loans.

I also want to wait to pay off my government loans due to them being paused by the government.

With these in consideration, is paying off loans still the highest priority? Would you continue putting a percentage of funds in a savings account or would you put all towards loans now that you would have a proper emergency fund?

 

[ellemg1015]

@chrisfromcuba I’d go in this order…

1) Emergency Fund: 3 months of expenses
2) If employer has 401k match get the whole thing
3) heavy into all the debts ASAP starting with highest interest. The gov loans are currently no interest so hit those last. But why not do everything possible to get them paid while there is no interest rather than waiting until interest starts again? Staying at your job for two years is still on 50k/80k in your total debt cleared by employer.

 

[briantheguydude]

@chrisfromcuba What are the student loan interest rates?

Also, will you be working for a non-profit for at least 10 years to take advantage of PSLF?

 

[chrisfromcuba]

@briantheguydude 2.89% for my private loans and I am unsure about my government loans.

I’ve thought about that as well and I am currently working for a non-profit.
I stated above but the reason I am staying with my current job for 2 years is because they provide a loan repay back of $25k.

I’m tossing around the idea of limiting myself to only non-profits when I make the job switch. However, most NP and CRNA programs are nearly impossible to work during or they make you sign paperwork to agree against working throughout.

I’d have to look up the details on PSLF and taking time off for school.

 

[chrisfromcuba]

@briantheguydude Add on: I also failed to mention that I haven’t been making payments on my government loans due to the pause by the government. This means that I haven’t started the 10 years worth of payments :/

 

[cisabchristian]

@chrisfromcuba Incorrect, the pause on payments counts towards your payment clock unless the Supreme Court rules against this forgiveness stuff(thats a whole topic itself). I wouldn't pay a dime on fed loans till we have an answer on what's going to happen(probably June and payments resume in September with either 10k less principle or not)

If there is no 10k forgiveness, I'd slap every dime you got on SL right before interest starts accruing again.

@ 2.9% on your private loans, your savings acct will earn more interest and with the 25k you'll get in 2 years pay only the minimum that will have those gone after two years, make sense?

You're in a good position but as others stated, I wouldn't consider maxing an IRA out until one or all of your SL are paid off; unless of course you can comfortably do both.

 

[chrisfromcuba]

@cisabchristian Thank you for explaining this, it makes a lot of sense and gives me some clarity.

I’ll plan to continue to wait for the hold on government loans to end and pay minimum for my private loans as I have been doing.

This being said, I’ve always been told that putting away SOME money was better than nothing at all.

Would it be smart to continue to put money in my savings, placing $100-$200 a month into a rIRA when I’m able?

I think I can afford that amount at least.

 

[cisabchristian]

@chrisfromcuba Generally speaking even saving $20 isn't a bad thing. My personal rule with my savings is different than most. I have 2 savings and 2 checking accts.

1 savings is strictly an emergency savings(6 mos) of expenses while maintaining my current lifestyle. I don't touch this for anything other than emergency: for instance our fridge went out in september and I had to go buy a fridge. After the purchase, all additional money was funneled to this acct to replace the cost of the fridge till it was back up to 6mos of expenses.

The 2nd savings is for short term goals, I want to have a new patio put in and it's gonna cost about 12k, so I dump what money I can into this when I have it.

Checking 1 is my direct deposit acct and me money.

Checking 2 is my bills acct. Every 2 weeks I place exactly 1/2 of my monthly bills into this acct. Mine happens to be $1,150 of every check or $$2300/mo, thats mortgage, utilities, gas/insurance, and food. Literally the bare minimum.

What's left in Checking 1 I can either spend on myself, my wife and kids, or save it for my patio project or other short term goals.

The most important thing I can recommend to you, is make a budget, make a budget, make a budget and more importantly: stick to the budget.