Five Questions- Down Payments, Debts and IRA’s

five-questions
Table of Contents  
  1. Question One
  2. Question Two
  3. Question Three
  4. Question Four
  5. Question 5

Our listeners send in some great questions, and today we are going to tackle five of them. We answer five questions about down payments, debts, IRAs, 401k fees, and investing during a chaotic period in the stock market. You asked, and we answered your five questions!

Subscribe to the Show:

Question One

Hey Guys- My fiance and I are getting married next month, and we are trying to get our finances in order as we plan to buy a house. We are looking for something in the $300K range in about two years and will have minimal savings following the wedding. However, we also have about $100K in student loans, with varying interest rates from 4.5% up to 7.6%.

With proper budgeting, we think we can save about $70K over those two years. Would it be better for us to save all of it for a 20% down payment and closing costs? Or should we use the first $30K to pay down the highest rate student loans and use the other $40K for a 10% down payment and closing costs, knowing that we will have a higher interest rate, PMI, etc.?

The first thing you need to do is consolidate your debt and refinance any student loans you might have. Sofi offers student loan rates as low as 3.65%. (Use our link they will give you $200 off your loan. Who doesn’t want free money.)

Lowering your rates and monthly payments will help you make ground quicker. If you go with a variable loan that extra percent off your interest rate will help you gain 2-3 years of progress.

Don’t overextend yourself. Rent until your loans are paid off before you even start thinking about buying a home. Your debt will factor into getting your mortgage loan. As for a smaller down payment, without 20% down you will basically throw money away with PMI.

Question Two

Hey guys- I’m currently trying to save for a house with my partner, and while she has a substantial amount for a deposit, I have near to nothing. We really want to buy something in the next year and a half. I might mention too that I have a bit of credit card debt….($8000)  I earn abut 1400 a fortnight. I know it might be a broad question but what do you suggest I do to be able to get on top of everything? Do you think it is smart to take out a loan to consolidate the credit card debt?

The short answer is yes. Take out a loan to consolidate your debt. The interest rate will be so much better than the credit card interest you are paying. There are many companies that can make the process painless like Sofi, Lending Club and Prosper just to name a few.

If you plan on taking out a loan remember that there is a loan origination fee that will be a percentage of the loan amount. It will be different between companies. Do the math and be sure the fee is worth the amount you will be saving in the long run.

Get our best money lessons:

Question Three

Hi- A little background on myself… I am 25 years old with my career being in Chicago, IL. I am working to get to the point where I am saving 15% regularly through 401K, the match, and Betterment IRA. However, you all talk a lot about retiring earlier than the old school 60 years old and such, which sounds amazing. Ha.

My question is: With the goal of continuing to add more money into my accounts as my salary increases and retiring as early as possible, is it better to invest my money into a Betterment Roth IRA or Betterment General Investment Account?

Pros? Cons? Thoughts? Suggestions?

If you are planning to retire early, you will need your money before 59.5 years old. Putting it into an IRA account will lock your money. You can only pull out the principle without penalty so a Betterment general investment account would be more optimal.

When it comes to early retirement or even regular retirement, you must outpace what you are going to be taking out. Since you are still young, try up-ing your percentage of savings. You are now saving 15% at 25 years old so try saving 16% at 26, 17% at 27, 18% at 28, etc. to help you accelerate your savings.

Question Four

Hey Fellas,

Here is my scenario: I have a 401k through Fidelity. It is from my many years as a server in a lodge in Washington. Although I still work there occasionally, I have not been full-time for about ten years and have therefore not contributed to it for that same amount of time.

Through listening to your podcast, I learned about the fees associated with the funds within the plan; they are not pretty. I know I need to roll it over and am considering Betterment or going directly through Vanguard (or any other option you may recommend).

I currently have about $55,000, but before January I had $65,000. Should I wait to try and recoup some of my losses before rolling it over? Where should I roll it over to? Any help would be greatly appreciated. Thank you so much for your time! Absolutely love the education you both continue to distribute to your listeners!

An investor doesn’t really lose anything until they actually sell the investments so waiting for your account to recoup doesn’t really matter. We can never know what the bottom is going to be and when it’s going to happen, so your best bet is to do it now.

You don’t really have full control over your investments if it is still under your former companies plan. If you roll it over into Betterment or Vanguard, you will be able to have more control over the allocation of your funds.

There are two ways of rolling over, one simpler than the other but it depends on the company. I had rolled over a 401k into Betterment about a year ago. First I had to initiate a rollover with my previous employer’s company. After filling out a bunch of paperwork, I received a check in the mail within a week. I then had 90 days to deposit into another IRA account. Some companies make it much easier allowing you to authorize the transfer online. If you transfer into a traditional IRA, you won’t have to worry about paying any taxes on the funds.

Question 5

Hi Andrew and Thomas,

I’m a new listener to the podcast. I recently graduated from college with no debt, and I’m looking to invest the money I have saved up. Since I started listening to you guys I’ve built up the courage to set up a Betterment account and have set goals for a Roth IRA, build wealth account, and a safety net account. However, I haven’t taken the plunge and contributed to any of them because I’m concerned about the markets state right now. Do you recommend I wait until everything settles down? Or do you think I should contribute regardless of the market and if so, why?

If and when I do contribute do you recommend I max out my contributions for 2015 and 2016 tax year or just one of those years? (betterment gives me the option to add to both) What is the benefit of contributing to both years?

We have gotten many questions about the current state of the market. A lot of people are concerned, but the market will always boom and bust that’s why investing is for long-term growth. The amount it costs now to invest doesn’t really matter.

If you use dollar cost averaging, statistically your money will be fine. Since it will be many years before you can withdraw that money from your IRA time is on your side. If you invest when the market is down, you will be buying for much cheaper, and when the market goes up again  (because it will), you will see a substantial amount of growth. One of our favorite Warren Buffet quotes sums it up- “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”

As for your contributions, you should max them out. It will lower your taxable income and save you some money in taxes. If you don’t use it, you lose it so if you haven’t yet; you have until tax day to contribute.

 

What's next?

learn podcast popular toolbox search