4 Financial Moves to Make (Or Not Make) as a Senior Associate
Written by Chris DeVito
Congratulations, you’ve somehow survived your first few years in BIG LAW and just became a senior associate. A potential turning point in your career. Will you stick with it and make a push for Partner? Or are you hanging around just long enough to finish off those pesky student loans? Whichever one you ultimately choose will lead to big changes in your finances in the long term. Here are 4 money moves to make (or NOT make) depending on which way you’re headed.
DO, or DON’T pay of your student loans!
By now, you’ve likely bitten off a sizeable chunk of what once felt like an unsurmountable mountain of debt. With a monthly payment somewhere in the $1,000 -$2,000 range, it will feel great to have that cash back in your life. But should you pay these off? If the goal is to just wipe out your loans to not have that large monthly payment, perhaps then you might have a better option. It may seem crazy in this interest rate environment, but refinancing may be a great option. Consider this.
- If you came out with loans around $150,000-$200,000 and never re-financed, you’re likely looking at monthly payments in the amount of $1,500-$2,000 with an interest rate north of 6-7%.
- Let’s assume that you’ve paid your loans down aggressively and now have $50,000 remaining. If you were to refinance those at a 15 Year 6.5% rate you would lower your monthly payment to around $435. That’s a big difference. Sure, you may now be paying your loans for longer than anticipated, but now you may not require a BIG LAW salary to do so.
DO, or DON’T MAX out your 401(k)!
If you’re looking to make a job change that might include an In-House position it might not be a bad idea to hold off on your 401(k) contributions. It’s no secret that BIG LAW rarely matches 401(k) contributions. The 401(k) limit for 2024 is $23,000, but that’s the total for the year, NOT per employer. So, if you contribute $23,000 to your firm’s 401(k) before changing jobs mid-year, you won’t be able to contribute for the rest of the year. If the new role offers a 401(k) match, you’ll be missing out on that benefit the first year.
- Build up some cash & more liquid investments. If you haven’t done this already, now is a great time. Whether you are gunning for Partner or looking to take a salary cut, having a “war chest” of cash will help you feel more comfortable making the transition. With rates today around 4-5% in the bank, there are plenty of attractive options that also offer FDIC protection on your cash.
DO, or DON’T switch to a Pre-Tax 401(k) Contribution instead of a Roth!
If the plan is to take a pay cut this year, then this might be a great idea. If dropping from one of the higher tax-brackets you might be saving some money by taking the deduction now and then converting to a Roth later. Consider the example below.
- You are in the 35% Bracket and make a $23,000 contribution to your 401(k) in 2024, avoiding $8,050 in Federal taxes that year. Next year (assuming tax brackets stay the same), you drop to the 32% bracket and convert your pre-tax 401(k) to a Roth. You pay the $7,360 in taxes (assuming no investment growth), saving yourself $688 in taxes. Not a bad idea huh?
Whatever may be ahead of you in your career, consider these options. They may or may NOT provide some additional layer of security that helps you in your decision.
For Educational Purposes Only- Not to be relied upon as financial, tax, or legal advice. The information herein has been derived from sources believed to be accurate. Any assumptions as to interest rates, rates of return, inflation, or other values are hypothetical and for illustrative purposes only. 6484572RG_Mar26
