80k windfall

[Aquemini]

Hello,

I'm a 28 y.o. man in first year residency in a high COL city.
Income: 72k
Assets: 37k in roth IRA (already maxed out for 2022), 10k cash/e-fund
Debt: none
AA: 100% stocks (index funds, 70/30 us/intl)

I'm set to receive an unexpected 80k and am looking for advice on how to invest this money (more of an asset location question). I do intend on investing all of the money with long time horizon. I have access to a 403b at work and matching will start soon, once I start pgy2 year. My understanding (correct me if I'm wrong) is that I can't lump sum into a 403b and rather contributions are through paycheck deductions, with max contribution of 20.5k per yr. My goal now is to max out 403b and roth IRA, but that would take a few years to get 80k into market. So is my best option to lump sum a large chunk of the money into taxable now and then sell as needed (after 1+ yr) to fund retirement accounts? It seems strange to be investing in taxable as I did not think I would need to do that for many years. Any feedback is greatly appreciated!

[artemis]

How about just putting it all in a taxable account and keeping it there indefinitely? Most physicians need a taxable account sooner or later, as they max out all their available retirement account space as an attending. You'd just be getting a few years' head start on that process.

[JBME]

What is your future in 1-3 years? Do you want to buy a house? I wouldn't invest any of this money. Time in market > timing the market but if you're maxing your 403b in residency, along with a Roth IRA, you are ahead of 99% of fellow residents when it comes to your finances.

I'd put the $80k in a HYSA or some ($10k) in ibonds for 2022. I'd max my 403b for this year, and start doing that now. That's going to lead to a much smaller resident paycheck. You use the $80k to help you live for the next 3-4 years while you keep maxing the 403b. money is fungible. When you're done with residency you see how much you have left and use that as a starting point for a down payment on a house and/or a wedding and/or 529s or then put it into taxable with the intention of not touching it again until retirement

[Aquemini]

How about just putting it all in a taxable account and keeping it there indefinitely? Most physicians need a taxable account sooner or later, as they max out all their available retirement account space as an attending. You'd just be getting a few years' head start on that process.

Hadn't thought of this but I like that this would maximize time in market and would simplify things. Thanks

[Larry Ragman]

Agree with artemis. If you really intend this $80K for the long term then just lump sum it into a taxable investment account and keep it there. My preferred in your situation is a total stock market index, but there are many good choices. Bear in mind that "taxable" is just a reference to the dividends. Well notionally capital gains too in the fund, but Vanguard at least can wash those out. So, you get a fund on which you only have to pay taxes on dividends at qualified dividend rates, that otherwise grows with the market. You get much more flexibility than with retirement accounts and when you eventually take it out you are taxed at LTCG rates. Sweet deal.

As for your 403b, just start contributing as soon as you can, ideally to get full match at minimum and then max out contributions as soon as you can start doing that.

[Aquemini]

What is your future in 1-3 years? Do you want to buy a house? I wouldn't invest any of this money. Time in market > timing the market but if you're maxing your 403b in residency, along with a Roth IRA, you are ahead of 99% of fellow residents when it comes to your finances.

I'd put the $80k in a HYSA or some ($10k) in ibonds for 2022. I'd max my 403b for this year, and start doing that now. That's going to lead to a much smaller resident paycheck. You use the $80k to help you live for the next 3-4 years while you keep maxing the 403b. money is fungible. When you're done with residency you see how much you have left and use that as a starting point for a down payment on a house and/or a wedding and/or 529s or then put it into taxable with the intention of not touching it again until retirement

As of now I plan on doing 3 yr fellowship after 3 yr residency. Single for now. In no rush to buy a house and fully intend on renting during fellowship. But yeah things could change and I could be looking to buy a home with wife and 2 kids in three years LOL. What I could do is something like: 30k in taxable and leave it long term, 10k ibonds, 40k HYSA helping me to max out retirement accounts over next 2 yrs.

[Tim]

Set aside know items and keep it safe: you have fellowship interviews and moving and boards etc.
40k for retirement.
Plug the rest into taxable.

[xraygoggles]

Assuming 10k is enough for e-fund, and you don't have any large purchases coming up (car, house, fancy trip), then put it in total stock mkt etf in taxable.

[FreshPaint]

Yes 403b comes out of the paycheck. Once I started moonlighting to cover my living expenses I had 100% of my paycheck deferred so that the 403b was maxed early in the year. You could dump 80k now into taxable and also max out 403b from resident salary, but that might be difficult lifestyle wise to have less take home pay. Maybe go for like 50-60k now into taxable and keep the rest as additional E-fund and cushion when you're maxing 403b? I wouldn't ever plan on selling stocks within 1 year to free up cash to contribute to a 403b, I would just keep that amount in cash.

[Tangler]

Hello,

I'm a 28 y.o. man in first year residency in a high COL city.
Income: 72k
Assets: 37k in roth IRA (already maxed out for 2022), 10k cash/e-fund
Debt: none
AA: 100% stocks (index funds, 70/30 us/intl)

I'm set to receive an unexpected 80k and am looking for advice on how to invest this money (more of an asset location question). I do intend on investing all of the money with long time horizon. I have access to a 403b at work and matching will start soon, once I start pgy2 year. My understanding (correct me if I'm wrong) is that I can't lump sum into a 403b and rather contributions are through paycheck deductions, with max contribution of 20.5k per yr. My goal now is to max out 403b and roth IRA, but that would take a few years to get 80k into market. So is my best option to lump sum a large chunk of the money into taxable now and then sell as needed (after 1+ yr) to fund retirement accounts? It seems strange to be investing in taxable as I did not think I would need to do that for many years. Any feedback is greatly appreciated!

1. Open a taxable account (brokerage account). (Vanguard or Fidelity etc.) link this account to your bank account with the money. Transfer the money from bank into this brokerage account. Immediately after transfer it usually goes into a money market fund (MM) and you will need to transfer from the MM to the ETFs or stock index funds.

2. Put it all into stock index fund ETFs. I suggest 75% in VTI and 25% in VXUS (you are young, lump sum it and chill)

3. Leave it for 30 years and don't touch it or look at it too often

4. Have a cold beverage (diet coke zero or ice tea, or mountain dew) and cook some BBQ and enjoy the spring weather, and drink a toast to the WCI forum

[StateOfMyHead]

Agree with artemis. If you really intend this $80K for the long term then just lump sum it into a taxable investment account and keep it there. My preferred in your situation is a total stock market index, but there are many good choices. ear in mind that "taxable" is just a reference to the dividends. Well notionally capital gains too in the fund, but Vanguard at least can wash those out.

Approximately how many years is considered "the long term" with regard to total stock market index fund?

[xraygoggles]

Approximately how many years is considered "the long term" with regard to total stock market index fund?

I believe the S&P has never had a 20-year rolling period with negative returns, so that would essentially be a guaranteed positive nominal return.

But realistically, 5 years or more until you need the funds is prolly okay to put in the stock market.

[Larry Ragman]

Approximately how many years is considered "the long term" with regard to total stock market index fund?

xraygoggles has it about right from my perspective.