Hi Money Minder,
Hey there! I’m a 23-year-old guy who’s currently pulling in 64,000 a year. Recently, I was offered a second job that pays 35 bucks an hour. Pretty sweet, right? The catch is, the owner said I could either be paid like a regular employee (W2) or set up an LLC and get paid through that. I’m thinking I’ll make an extra 20k a year on top of my current job. My plan is to use this extra cash to knock out my car loan, student debt, and start investing.
Right now, I’m tossing 10% of my salary into a Roth 401k and my company matches an extra 4%. Should I up my Roth 401k contributions, switch to a traditional one, or max out my Roth IRA? I want to invest more, save more, and also cut down on taxes. Any advice?
Thanks a bunch,
Financially Thriving
Response from THE MONEY MINDER:
Hello There,
Congratulations on receiving a job offer for a second job and for proactively seeking advice on how to manage your finances wisely. Given your plans to use the additional income to pay off debts and invest, it’s crucial to approach this situation strategically. Considering your current income and financial goals, here’s a practical approach to help you make informed decisions:
Firstly, it’s great that you’re already contributing 10% of your income to a Roth 401k, especially with the company match. Since you are looking to invest/save more and save on taxes, here’s a suggestion: consider increasing your Roth 401k contributions gradually if your budget allows. This will not only help you save for retirement but also provide tax benefits in the long run.
However, given your desire to pay off debts, another option to consider is maxing out your Roth IRA. This can diversify your retirement savings and potentially offer more investment options. Contributing to both your Roth 401k and Roth IRA can be a smart move if you can manage it within your budget.
When it comes to the decision between being paid as a W2 employee or under an LLC, you may want to consult with a financial advisor or tax professional to evaluate the tax implications and legal responsibilities associated with each option. This choice can impact how you save, invest, and manage your earnings.
Overall, it’s essential to strike a balance between saving for the future, paying off debts, and managing your current income effectively. Creating a solid financial plan that aligns with your goals and priorities will help you make the most of your additional income while optimizing tax benefits.
Remember, taking a methodical approach and seeking professional guidance when needed will set you on the path towards financial stability and long-term success. Good luck with your financial journey!
Farewell from THE MONEY MINDER.
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