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 Post subject: Young(ish) tax professional looking for unbiased advice
PostPosted: Fri Oct 31, 2014 10:08 am 

Joined: Fri Oct 31, 2014 9:45 am
Posts: 4
Removed. Thanks those who helped.


Last edited by taxguy523 on Tue Nov 04, 2014 9:22 am, edited 1 time in total.

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 Post subject: Re: Young(ish) tax professional looking for unbiased advice
PostPosted: Fri Oct 31, 2014 11:07 am 

Joined: Sun Oct 26, 2014 9:12 pm
Posts: 44
I would be more concerned about your student loans because they are life long debt. I would be trying to pay those down as much as possible; you never know when you might lose your job or your skill set is obsolete. For a CPA, I don't think your skill set becoming obsolete will happen anytime soon, but it is just a principle I live by. As for you 35k in your ~1% account, people are right when they say you should be putting that money elsewhere. I would take out some money for the engagement ring, and transfer some money over to your low yield savings. I would use the rest to pay on your student loans. I sure you did all the amortization to figure out how much is going towards interest and principle, so I'm not going to do any of that. I would stop using credit cards. Even though you pay them off every month, there really is no reason to keep them around.

As for your retirement, you're a CPA and you would know more than I would about analyzing a company's value.

You're doing the right thing, and I think you know that. You want people to validate what you are doing; that is the reason for that question.


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 Post subject: Re: Young(ish) tax professional looking for unbiased advice
PostPosted: Fri Oct 31, 2014 11:42 am 

Joined: Fri Oct 31, 2014 9:45 am
Posts: 4
Thank you for your comments. I had a few questions though:

dumplump wrote:
I would be more concerned about your student loans because they are life long debt. I would be trying to pay those down as much as possible; you never know when you might lose your job or your skill set is obsolete.


Even though I am on income based repayment and hence, it is not life long debt? I.e. under my current path whatever is there is discharged after 22 more years (17 once I switch to Pay as You Earn once it is available this summer)? In other words, I should still worry even though it is currently set to x% of my income in payments each month and whatever is left at the end of 17/22 years, whatever dollar value it is, just disappears? As far as my income dropping, my understanding is that under the plan if my income drops and I can show proof of it dropping, they will keep me on the plan and just take a lesser % (or 0% of my income each month). My biggest concern, unless I am missing something, is that in the long run it likely does cost longer to not pay off the debt ASAP even though it is on a steady path that currently allows me to save for retirement and other things and the rest disappears after x years.

dumplump wrote:
As for you 35k in your ~1% account, people are right when they say you should be putting that money elsewhere. I would take out some money for the engagement ring, and transfer some money over to your low yield savings. I would use the rest to pay on your student loans. I sure you did all the amortization to figure out how much is going towards interest and principle, so I'm not going to do any of that.
I would put it into a low yield savings account even though my interest income from it (currently about $300 a year) would shrink significantly to maybe like $10 (the bank's interest rate for this account is pathetically low)? Is that for tax savings (though I don't see how because say 75% (assuming a 25% rate of $300 is still $225 which is better than $10) or do you have some other thought in mind?

dumplump wrote:
I would stop using credit cards. Even though you pay them off every month, there really is no reason to keep them around.
Would you also mind explaining this one further? If I am not riding any balances, it makes no difference except that using the card would allow me to build up my credit (and things like frequently flyer miles) at minimal cost right? Or is there some other detriment to such usage that I am not seeing?


dumplump wrote:
You're doing the right thing, and I think you know that. You want people to validate what you are doing; that is the reason for that question.


Thank you. Actually, often I am not sure I am; the problem I have (as it seems most people unfortunately have) is that I never actually took a financial management course and so am kind of learning this stuff as I go along.


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 Post subject: Re: Young(ish) tax professional looking for unbiased advice
PostPosted: Fri Oct 31, 2014 3:19 pm 

Joined: Fri Feb 10, 2012 6:14 am
Posts: 64
I'm confused about the student loan. How much is your payment now? What % of your salary is it?

Entering in 112k, 25 years ,6.8% interest I came up with a payment of $777. Is yours very significantly lower than that? And do you expect to be making close to your same salary for the next 22/17 years?

It seems possible that you will end up paying the loan in full in which case it would make sense to pay it sooner and avoid a lot of interest. Have you calculated what your salary needs to stay under for you to come out ahead on this proposition?

Also, will getting married affect your payment? I know that on my own income I could have a much lower income-based payment on my Federal loans, but since I'm married and our income is considered together, I make way too much.


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 Post subject: Re: Young(ish) tax professional looking for unbiased advice
PostPosted: Sat Nov 01, 2014 12:23 pm 

Joined: Sun Oct 26, 2014 9:12 pm
Posts: 44
taxguy523 wrote:
Thank you for your comments. I had a few questions though:

dumplump wrote:
I would be more concerned about your student loans because they are life long debt. I would be trying to pay those down as much as possible; you never know when you might lose your job or your skill set is obsolete.


Even though I am on income based repayment and hence, it is not life long debt? I.e. under my current path whatever is there is discharged after 22 more years (17 once I switch to Pay as You Earn once it is available this summer)? In other words, I should still worry even though it is currently set to x% of my income in payments each month and whatever is left at the end of 17/22 years, whatever dollar value it is, just disappears? As far as my income dropping, my understanding is that under the plan if my income drops and I can show proof of it dropping, they will keep me on the plan and just take a lesser % (or 0% of my income each month). My biggest concern, unless I am missing something, is that in the long run it likely does cost longer to not pay off the debt ASAP even though it is on a steady path that currently allows me to save for retirement and other things and the rest disappears after x years.

dumplump wrote:
As for you 35k in your ~1% account, people are right when they say you should be putting that money elsewhere. I would take out some money for the engagement ring, and transfer some money over to your low yield savings. I would use the rest to pay on your student loans. I sure you did all the amortization to figure out how much is going towards interest and principle, so I'm not going to do any of that.
I would put it into a low yield savings account even though my interest income from it (currently about $300 a year) would shrink significantly to maybe like $10 (the bank's interest rate for this account is pathetically low)? Is that for tax savings (though I don't see how because say 75% (assuming a 25% rate of $300 is still $225 which is better than $10) or do you have some other thought in mind?

dumplump wrote:
I would stop using credit cards. Even though you pay them off every month, there really is no reason to keep them around.
Would you also mind explaining this one further? If I am not riding any balances, it makes no difference except that using the card would allow me to build up my credit (and things like frequently flyer miles) at minimal cost right? Or is there some other detriment to such usage that I am not seeing?


dumplump wrote:
You're doing the right thing, and I think you know that. You want people to validate what you are doing; that is the reason for that question.


Thank you. Actually, often I am not sure I am; the problem I have (as it seems most people unfortunately have) is that I never actually took a financial management course and so am kind of learning this stuff as I go along.


I would pay off the student loan debt. Even though you are on an income plan, you never know when you could be fired or laid off. The debt is life long, because the debt is pretty much is not able to be discharged in bankruptcy court. You can thank your federal politicians for that wonderful law.

I should rephrase what I stated, I would transfer and close out the 5000K account instead. I would transfer that over to your account with 35K. I would then take some of that money to buy the ring, and then use the rest to pay down on your debt.
My point from the original statement was that either way you would end up with a low amount in your account anyways. Why? Because you would have used most of the money to pay on your debts. That 1% is not that much a of difference on a low amount. On top of that, inflation is eroding away your earnings from that account.

For the credit card statement, my point was basically that you might not have a job in the future because of a lay off or firing. Even though you are financial responsible to pay them off every month, I would just start using your own money. Just in case something crazy happens. You can call me paranoid that is fine. My reason is that I have seen people who looked like they had the world wrapped around their fingers with decent jobs and decent pay, and then something happens which leads to financial ruin. They paid their stuff on time and were financially responsible when they were getting paid well, but as soon as their job disappeared their life became hell. Anecdotal story, yes I know, but it gave me some perspective.

These are the reasons I give for paying off your loan. Economically you have what they call opportunity cost, the money that is going towards your loans could be going to an IRA or other investment. The interest or dividend you might have received is the opportunity cost of paying your loans each month. Once your loans are paid off, you can use that money to invest or entertain yourself.

Let me know if I left anything out.


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 Post subject: Re: Young(ish) tax professional looking for unbiased advice
PostPosted: Sat Nov 01, 2014 6:40 pm 

Joined: Fri Feb 10, 2012 6:14 am
Posts: 64
If he lost his job, he could put his loans in deferment. And if he lost his job, then he would probably wish he kept his credit cards. I completely disagree.

However, to the OP, I think you need to run the numbers on your loan and see if you're really likely to save any money by staying on income based repayment. In additions to the questions I posed before, it matters a lot how much you're paying now. If you're paying $600 a month right now, you'd save money by paying your loan in full over the next 10 years, just because all your payment right now would be interest and your loan balance will never decrease. You'll pay more in interest than the principal you have forgiven. If fact, if your loan is 6.8% you need to pay $610 a month just to keep your balance from going up.

And if your income goes up some time in the next 17 years (let's hope it does) your payment will go up as high as $1288/month. You could end up spending the next 7 years letting your loan balance increase by a few thousand a year and still end up having to pay it all off, costing you a massive amount of money, maybe 150-200% as much as if you just paid it off as fast as you could.


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 Post subject: Re: Young(ish) tax professional looking for unbiased advice
PostPosted: Sun Nov 02, 2014 4:49 pm 

Joined: Fri Oct 31, 2014 9:45 am
Posts: 4
Sarah and dumplump, I think the two of you are hitting on something that has been one of my top concerns. Originally the plan has been to accumulate an emergency fund to prepare me for possible worst case circumstances like lump has described- hence the cash sitting in savings accounts. But I think I've now got to the point where maybe it makes sense to apply additional funds to tackling the debt. Of the outstanding debt, about $14k is subject to 7.3% interest while then ear is at about 5.4%. One of the thoughts I've floated around is seeing if I can pay off the $14k ASAP without interrupting IBR, when eligible this summer switch IBR over to PAYE so that worse case scenario it is all gone by 2030 no matter what. You seem to b indicating I should do my best to pay off the rest between whenever I pay off the $14k (probably soon) and 2030? In either event it seems we are still talking about, given the hugeamount of debt, a complete payoff not happening until at least 2026 ($100k + interest/$10kyr is probably about 11 yrs from 2015). Isn't there something to be said for just suffering the 4 years worth of extra payments for the steady liquidity and ability to put things into retirement in the meanwhile? Doing out the calculations, there will be an amount discharged at the end of this period though I'm not sure how much would be due to interest compared to principal. Further complicating matters is the time value of money and the fact that as time goes on, despite the increases of my salary I am not sure the portion going to IBR will increase much as my girlfriend (currently in school) will have even more of her own PAYE/IBR eligible debt starting next year that would be considered in reference to our incomes once we wed and once we have kids, if we do, in a few years it will further revise the portion of my income eligible for IBR downward. Thoughts?


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 Post subject: Re: Young(ish) tax professional looking for unbiased advice
PostPosted: Sun Nov 02, 2014 6:19 pm 

Joined: Fri Feb 10, 2012 6:14 am
Posts: 64
I can only say that my husband and I both have significant grad school debt (not as much as you) and moderate salaries (not as much as you) and children, and we wouldn't save money doing IBR. And that's even considering that I'm a public servant and could have my debt discharged in 10 years instead of 25. The amount I'd have discharged would be outweighed by all the money that we would lose by filing married but separate (we'd lose a lot of deductions).

I'm not really saying what you should or shouldn't do, just that you should crunch the numbers before assuming you're getting a good deal. There are plenty of good calculators on the government website and you can set up some excel spreadsheets too. You're a tax attorney, you should be able to do it - I'm a social worker and I managed to figure it out ;)

Oh, and you should talk to your spouse about spending a huge chunk of money on a ring. Not doing that is a very good idea if she's on board. My husband and I spent about $300 on bands and I had a family stone set for about $200. If I hadn't had something from my family I probably would have gone with something small, and not a diamond.


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 Post subject: Re: Young(ish) tax professional looking for unbiased advice
PostPosted: Mon Nov 03, 2014 1:43 am 

Joined: Sun Oct 26, 2014 9:12 pm
Posts: 44
ssarah wrote:
If he lost his job, he could put his loans in deferment. And if he lost his job, then he would probably wish he kept his credit cards. I completely disagree.

However, to the OP, I think you need to run the numbers on your loan and see if you're really likely to save any money by staying on income based repayment. In additions to the questions I posed before, it matters a lot how much you're paying now. If you're paying $600 a month right now, you'd save money by paying your loan in full over the next 10 years, just because all your payment right now would be interest and your loan balance will never decrease. You'll pay more in interest than the principal you have forgiven. If fact, if your loan is 6.8% you need to pay $610 a month just to keep your balance from going up.

And if your income goes up some time in the next 17 years (let's hope it does) your payment will go up as high as $1288/month. You could end up spending the next 7 years letting your loan balance increase by a few thousand a year and still end up having to pay it all off, costing you a massive amount of money, maybe 150-200% as much as if you just paid it off as fast as you could.


If he lost his job, then credit cards and racking up debt are not the answer. If he continued what he is doing now, then he would probably be fine because of his emergency fund. Yes he can put his loans in deferment, but they would still accumulate interest. The best thing would be to pay more towards your loans and get those things paid off as soon as possible. The more you pay towards principle the faster your loan will decrease, and less interest they would get from you.

Since you have some funds with 35K in it, I would be using some of that to pay on the principle. I would also take the money from your retirement accounts and use them to pay towards your loan principle. I know that it sucks to do because of taxes, but it will help you pay down your debt faster. If you were to take all your savings and lets say withheld about 25%. You would be left with 18000 USD. If you were to combine this with your 32K of your emergency fund(assuming 3K for the ring), then you would have 50K to pay towards your debt. After paying this toward your debt all that would be left over is 62K. Still alot, but alot less than what you currently have. I ended up doing this with my school loans. It sucks but sometimes it is better to do these things for a better financial future. You did state that you usually save around 20-30% of your paycheck. I would be using more of that to put towards the student loan. Life will be a struggle, but I think that is the best way to pay off your loans.

Side Note:
I don't know how long you have been seeing this woman, but I would hold off on marriage. Before marriage, I would get a prenuptial agreement to secure your assets in case anything goes wrong. Make sure both sides fully understand the agreement and have plenty of time to review before signing. Make sure attorneys for both sides have time to review the agreement. Yes this sounds bad, and you think to yourself "She is the one, trust me there is no need for this sort of thing." Lots of guys tell themselves that, and then when walls start falling down they get stripped of their assets and destroyed financially in marriage court. This protects you, and it protects her from getting financially destroyed.


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 Post subject: Re: Young(ish) tax professional looking for unbiased advice
PostPosted: Mon Nov 03, 2014 9:20 am 

Joined: Tue Jun 30, 2009 9:44 pm
Posts: 326
Location: Atlanta, Georgia
Just chiming in because I strongly disagree with a couple points of advice you've received from dumplump (though I do agree with his advice to put a chunk of the liquid $35k to pay student loans). Let me say up front that I strongly believe in getting rid of debt quickly, but it also needs to be done prudently.

First, I see no need or reason to get rid of your credit cards. You use them responsibly, pay them off in full every month, benefit from the earned rewards, etc. Keep the status quo. Not that you'd necessarily want to put an emergency on your credit cards, but I think it's a good idea to at least have them there as an option/safety net if worst comes to absolute worst.

Second, I recommend you leave the funds that are already in your retirement accounts there and, in fact, continue contributing to your retirement on an ongoing basis, as you have planned. It is so important to begin the contributions when you're young and see the real power of compounding as you get older. Odds are that the gains you make through the retirement investing would significantly overshadow the savings from paying down your student loans. Moreover, your current cash flow is sufficient to cover your minimum student loan payments and then some. I would throw extra money earned towards the loans, but keep the retirement going and don't back-track on that.

This advice comes from a fellow JD who also graduated with significant student loan debt, contributed to retirement as a first priority, and put all extra monthly money towards student loan payoff second -- loans were gone just over four years post-graduation.


Last edited by LeRainDrop on Mon Nov 03, 2014 9:55 am, edited 1 time in total.

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 Post subject: Re: Young(ish) tax professional looking for unbiased advice
PostPosted: Mon Nov 03, 2014 9:42 am 

Joined: Fri Oct 31, 2014 9:45 am
Posts: 4
dumplump wrote:
Side Note:
I don't know how long you have been seeing this woman, but I would hold off on marriage. Before marriage, I would get a prenuptial agreement to secure your assets in case anything goes wrong. Make sure both sides fully understand the agreement and have plenty of time to review before signing. Make sure attorneys for both sides have time to review the agreement. Yes this sounds bad, and you think to yourself "She is the one, trust me there is no need for this sort of thing." Lots of guys tell themselves that, and then when walls start falling down they get stripped of their assets and destroyed financially in marriage court. This protects you, and it protects her from getting financially destroyed.


Thanks for the rest of your comment. I am not too concerned about this; I am a lawyer and she is about to finish up law school so we are both pretty familiar with issues like these. I agree with you 100% on this though that not enough couples think about things like that and not enough recognize the financial aspects of marriage.


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 Post subject: Re: Young(ish) tax professional looking for unbiased advice
PostPosted: Wed Nov 05, 2014 4:43 am 

Joined: Sun Oct 26, 2014 9:12 pm
Posts: 44
LeRainDrop wrote:
Just chiming in because I strongly disagree with a couple points of advice you've received from dumplump (though I do agree with his advice to put a chunk of the liquid $35k to pay student loans). Let me say up front that I strongly believe in getting rid of debt quickly, but it also needs to be done prudently.

First, I see no need or reason to get rid of your credit cards. You use them responsibly, pay them off in full every month, benefit from the earned rewards, etc. Keep the status quo. Not that you'd necessarily want to put an emergency on your credit cards, but I think it's a good idea to at least have them there as an option/safety net if worst comes to absolute worst.

Second, I recommend you leave the funds that are already in your retirement accounts there and, in fact, continue contributing to your retirement on an ongoing basis, as you have planned. It is so important to begin the contributions when you're young and see the real power of compounding as you get older. Odds are that the gains you make through the retirement investing would significantly overshadow the savings from paying down your student loans. Moreover, your current cash flow is sufficient to cover your minimum student loan payments and then some. I would throw extra money earned towards the loans, but keep the retirement going and don't back-track on that.

This advice comes from a fellow JD who also graduated with significant student loan debt, contributed to retirement as a first priority, and put all extra monthly money towards student loan payoff second -- loans were gone just over four years post-graduation.


I would state that depending on what you majored in and what famial foundations you come from it is easy to make this statement. For most who graduate from college, they have majored in something worthless that yields zero job prospects. For me i dont have the famial background to go back in case the shit hits the fan. I too had retirement, but because of what lack of support i have along with a garbage major, economics, im currently in i had to liquidate my accounts for a loan and also medical expenses. That is where im coming from. Now while he does not have this problem, the idea that his loans are not a problem is ludicrous. Any debt is a problem, and someone should do whatever they can to rectify it as soon as possible. Credit cards should be used in an emergency, and that is really about it. Why use the card? For that wonderful cash back rewards gimmick. His credit is good as is. Any loan institute would look at his financial income and past payment history and see that he would have a low risk of default. There is no need to keep using the cards. Just put them aside and use cash/debit.


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