seeking advice on what to do with extra cash

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amberwood
Posts: 1
Joined: Tue Jun 01, 2021 10:41 am

seeking advice on what to do with extra cash

Post by amberwood »

Hello! New poster here seeking investment advise. My stats are below. Thanks in advance!

Me:
  • Age 30 female living in the Midwest
    part time graduate student and teaching assistant
    working another full time job
    no house, no children, no debt
    own a newer car that I paid cash for
My retirement assets (Fidelity):
  • 401k accounts totaling 380k (170k of this is after tax 401k money and 5k is 401k roth money)
    Roth IRA 135k
    Rollover IRA 25k
    HSA 25k
My cash accounts:
  • 100k Fidelity cash account
    15k Fidelity after tax brokerage account (earning 43% this year!)
    25k in high interest checking accounts earning 3.5%

I'm looking for advice on how to invest the 100k. I am already maxing out my retirement contributions each year through payroll deductions and employer match & contributions (I will aim for the max 58k combined limit this year as I do every year). I will also max out my HSA this year. I am nervous about tax implications because of my high earnings this year. This is the first year I will not be eligible for the Roth IRA contribution.

My short term goal is to complete my masters degree and then try to find a high paying tech job in a higher cost of living part of the country. At that point I will try to meet someone, get married and buy a house. I don't expect I'll need access to the 100k within the next year or two.
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David Jay
Posts: 14585
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: seeking advice on what to do with extra cash

Post by David Jay »

Money needed in less than 5 years should not be in the market.

There is no yield out there at this time due to the low interest rate environment, so don’t waste a lot of time hunting for yield. Put it in a “high yield” savings account like Ally or else a short term bond fund with your broker and just accept the fact that it is likely to underperform inflation for at least the next couple of years.
Last edited by David Jay on Tue Jun 01, 2021 2:06 pm, edited 1 time in total.
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wetgear
Posts: 859
Joined: Thu Apr 06, 2017 10:14 am

Re: seeking advice on what to do with extra cash

Post by wetgear »

If you roll your roll over IRA into your 401k plan then you can still contribute to your roth IRA using the backdoor roth method despite your income preventing your direct contributions. Check out the wiki here on how to do that: https://www.bogleheads.org/wiki/Backdoor_Roth

Additionally if your 401k offers in-service rollovers it would be beneficial for you to roll the after tax contributions into your roth IRA so that they grow there tax free instead of the growth being added to your pre-tax portion of the 401k.

"25k in high interest checking accounts earning 3.5%" Are you sure this is the current rate? With todays rates it seems too good to be true.

If you can wait a least a year to withdraw your money, iBonds are paying well right now and you could put up to 10k into them/year but the 1 year lock up from purchase could be tricky depending on where you are exactly on that 1-2 year timeline. Ibonds are federal tax deferred until redemption and state tax free so they can help with your tax worries.

The other 90k though David Jay has it right with using a HYSA.
rhubarbpie
Posts: 82
Joined: Mon May 03, 2021 9:18 am

Re: seeking advice on what to do with extra cash

Post by rhubarbpie »

Leaving 100k out of the market for an unknown amount of time might not be ideal, either. You could choose a more conservative AA, like 50/50, and invest it in your taxable account. Or keep some of it in an HYSA (moving costs + down payment estimate?) and invest the rest.

I'm in a similar situation; I had a chunk of change from the sale of a house after a divorce, and I kept it in a money market for a couple years thinking I'd want it for a down payment. But I ended up moving interstate twice and now rent and don't know when/if I'll ever buy a house. So I've gradually convinced myself to put most of it back in the market.
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retiredjg
Posts: 54077
Joined: Thu Jan 10, 2008 11:56 am

Re: seeking advice on what to do with extra cash

Post by retiredjg »

Welcome to the forum. :happy

401k accounts totaling 380k (170k of this is after tax 401k money and 5k is 401k roth money)
This $170k in after tax 401k account caught my eye. This should almost certainly be rolled to Roth 401k or out to Roth IRA. If your plan does not allow one of those, you should probably stop contributing to the after-tax account.

The reason I'm saying this is that the after-tax account is acting like a non-deductible IRA. If you have stocks invested in it, you will eventually pay more tax on the earnings than if this money were in a taxable account.

As for your $100k, what you do with that money depends on when you need it. If you are likely to move and buy a house, you might want to leave it where it is.
tashnewbie
Posts: 4269
Joined: Thu Apr 23, 2020 12:44 pm

Re: seeking advice on what to do with extra cash

Post by tashnewbie »

I’m just repeating some of the things others have said:

Definitely check out the backdoor Roth. You should move your Rollover IRA into the 401k if you plan to do the backdoor. If the 401k won’t accept the Rollover IRA, don’t bother with the backdoor.

I bonds might be worth it for $10k of the money. 3.54% rate for next 6 months. 1 year lock up period.

Move the money into the checking account earning 3.5%, if there’s no balance cap on that account. That’s a great rate in today’s environment for an account that guarantees principal.
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Meg77
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Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX

Re: seeking advice on what to do with extra cash

Post by Meg77 »

The direct answer to your question of what to do with extra cash (after maxing retirement and once you are debt free) is to invest it in taxable brokerage according to your asset allocation.

I'd keep a fatter-than-usual emergency fund given your plan to move to a HCOL area in the short term. In addition, I'd consider buying a condo at that point if you want to rather than waiting to find someone and get married before becoming a homeowner - in which case you may want to keep the whole thing in cash as a down payment fund. You may even buy something with the specific idea of renting it out when/if you marry and move. That's what I did in my 20s and it worked out great. I have lots of single female friends who didn't wait to buy a townhome/condo and were really glad they were able to nest and build equity prior to marrying (it also mentally helps to not feel like you're waiting on a man to get your life goals in gear). Just my two cents. Renting is great especially if you'd rather maintain flexibility.

Congrats on all your success!
"An investment in knowledge pays the best interest." - Benjamin Franklin
Kookaburra
Posts: 2045
Joined: Thu Apr 02, 2020 11:14 pm

Re: seeking advice on what to do with extra cash

Post by Kookaburra »

Congratulations on your success. You’re doing very well for your age!

Curious- where is your checking account that’s pays 3.5%?
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