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  • Late Start Earner

Aggressively Front-Loading Retirement Savings

Next month (April), I will receive 3 paychecks instead of 2 since I am paid on a biweekly basis. In the past I would think of things to buy with my extra paycheck, but this year (and, hopefully, for years to come) I thought about how this could affect my investment strategy. The other day, my boyfriend realized that maxing out his Roth IRA was within scope this year and was asking me about where he can next park his money in a tax-advantaged account (the answer is, once you max out your Roth IRA you can turn to employer-sponsored tax-advantaged retirement options). Our conversation got me thinking — if I know that I will have enough savings to max out all of my retirement accounts (Roth IRA, pre-tax 401k, Roth 401k via after-tax conversion) and additionally contribute to a taxable brokerage account, why aren’t I prioritizing maxing out both Roth accounts first rather than simply the Roth IRA (which I maxed out last month in February)?

Earlier this year, I had been uncertain about my ability to stick to my budget and actually save the amount I would need to max out my accounts. But as I review my progress a few months into the year, I feel more confident that I will be able to accomplish these goals.

In fact, I may have an opportunity to fully max out all my employer-sponsored retirement accounts by June. Here’s what I am thinking.

  • I have a little over $6K cash in my savings account and an additional $3K on its way from my tax refunds, which together can fund 2 months’ full of expenses. Takeaway: I do not ”need” a paycheck for 2 months.

  • The Roth 401k intakes after-tax money and has tax-free earnings. Takeaway: Prioritize the Roth 401k first since more time in the market means more time to accumulate earnings.

  • My employer allows a maximum 75% of earnings to be contributed towards retirement.

  • Stop all taxable brokerage account investments until employer-sponsored retirement accounts are maxed out.

Rough numbers:

- Remaining Pre-Tax: $12K

- Remaining After-Tax: $18K

- 75% Paycheck Contribution: $6K

Quick back of the envelope calculations suggest that I will be able to do the following:

- April: Contribute 75% of 3 paychecks -> Max out Roth 401k/After-tax and live off of tax refund + $2.5K of Savings.

- May: Contribute 75% of 2 paychecks -> Max out pre-tax, and live off of Savings + RSU vest.

By June, I will have maxed out all retirement accounts! From there, that gives me flexibility to figure out my taxable investment goals and getaway property loan payoff (at 4.5%). One possible plan is, starting in June, dollar-cost average my paychecks into a taxable brokerage account (roughly $5K/month) and use all further RSUs/bonuses to lump-sum pay off the getaway loan.

- June: $15K (loan payoff) + $5K Taxable

- July: $5K Taxable

- Aug: $30K (loan payoff: RSU + Bonus) + $5K Taxable

- Sep: $5K Taxable

- Oct (3 paycheck month): $10K Taxable

- Nov: $15K (loan PAID OFF: RSU) + $5K Taxable

- Dec: $5K Taxable

With this plan, the getaway property is paid off by year-end, and I have also invested an additional $40K into my taxable investment account. I can also definitely see myself rearranging things to prioritize the loan payoff by end of August before investing the rest of my savings into the taxable account. Almost every year the market slides a bit in October, so I wouldn’t mind amping up my contributions at that time.

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