Advice - Planning For A MegaRoth In 2016 To "Catch-Up"

[Ramza Beoulve]

I graduated in 2012 but I did not access to a 401k until the start of 2015. For this year, I am able to max out my 401k and Roth IRA. Theoretically, I would be behind my classmates in retirement accounts,

My employer allows for after-tax 401k contributions and for 4 in-service distributions each year. After-tax contributions are placed in a stable value fund. I am targeting 2016 because I should be done with my student loan payments at the end of this year. At that point, I will be debt free (no car payment or mortgage). 2016 is 50/50 that it would be my last year of eligibility to make after-tax contributions because my plan excludes "highly compensated employees" (Defined this year as employees making more than >115k, likely be at >120k for 2016),

Expected Numbers on Jan 1st, 2016
Age: 29 (DOB in November), single w/ no dependents
Bi-weekly take-home pay after maxing 401k, Roth and insurance: ~$2200
Monthly expenses: $1400
Emergency fund: Yes
Tax-deferred accounts: 19k
Tax-exempt accounts: 18k

1) I know a HSA is likely a better vehicle than the Mega Backdoor Roth. The only problem is finding an HSA provider with low fees and good investment options. I would be age 29, no major health conditions, no medications. Do I prioritize the HSA regardless because of its multiple tax advantages?

2) Realistically, how low can I set to liquid savings versus dumping the rest to the after-tax contributions? I would have approximately 33,000 in liquid savings, including my E-fund, at the start of 2016. I don't pay to buy for 2-3 more years and median housing prices in my area are about 180k.

[dunhamjr]

not too much too add, except I can all but guarantee that you are NOT behind your classmates, few to no new graduates are able or even think of maxing their 401k in their first couple years of work.  those that do are way ahead of the curve.

[Trudie]

Try HSA bank for your HSA option.  They allow you to open a TD Ameritrade account.

Given your age, I would prioritize the Megabackdoor Roth, but I would make sure I'm covering your HSA with at least enough to reimburse yourself for current medical expenses.

I can't really offer much advice without knowing when you plan to retire and what your income needs are.  But you're doing really well for yourself.  Keep it up!

[Civex]

Hi,

I would try to do both, and while I don't have access to a HSA, I am working towards maximizing my 401k, mega Roth, and Roth IRA this year with a very similar income. The HSA is more tax advantaged, so you should utilize it first. I'm not entirely sure how a person can open an individual HSA, if their company doesn't offer one. I will be following because I wasn't able to find a way to do this with the little searching I have done.

We have eerily similar expenses and incomes, and what I did was to set the 401k contribution at 15% pretax and the after tax portion at 35%. I'm adjusting these a bit as we come to the end of the year, but with a ~$4800/biweekly gross, this left me with $1300/biweekly net. This would allow you to cover your monthly expenditures without touching your savings.

I have gone as low as $10k in the EF, but really I would just try not to touch the $33k you have saved up, and use that as a dual EF/home down payment for the next year. 20% of $180k=$40k, you are very nearly at the point of a nice downpayment and still 2-3 years out from purchasing.

[Ramza Beoulve]

I can't really offer much advice without knowing when you plan to retire and what your income needs are.  But you're doing really well for yourself.  Keep it up!

I'm not shooting for as early of retirement as many on MMM, but my early retirement goal is age 60.

We have eerily similar expenses and incomes, and what I did was to set the 401k contribution at 15% pretax and the after tax portion at 35%. I'm adjusting these a bit as we come to the end of the year, but with a ~$4800/biweekly gross, this left me with $1300/biweekly net. This would allow you to cover your monthly expenditures without touching your savings.

I have gone as low as $10k in the EF, but really I would just try not to touch the $33k you have saved up, and use that as a dual EF/home down payment for the next year. 20% of $180k=$40k, you are very nearly at the point of a nice downpayment and still 2-3 years out from purchasing.

I have a lower biweekly gross, but I live in Florida so no state income tax.

Going as low as  $10k in the EF leaves me with about 23k of an approximately 40k downpayment on a home.

My employer guarantees 4% match on my salary plus a discretionary amount based on company profits. I am planning to set my pre-tax at 17% and after-tax portion to 50% leaving me with $2200 per month to cover $1400 in expenses. That leaves me $800 breathing room in savings per month.