Author Topic: Chump change savings question now, with next year in mind as well.  (Read 2897 times)

Johnez

  • Handlebar Stache
  • *****
  • Posts: 1088
  • Location: Southern California
So far in five months at my new job I've managed to save $4,600 spread about in my three savings accounts (401k @$2200, Roth IRA @$1100, and HSA@$1300).  I'm thankful for this site in pointing me in the right direction regarding accounts and investment choices, without which I probably wouldn't even have that small amount.  However, the end of the year is nigh, and thus the time for contributing to these accounts is running out.  I only have so much money, and with the holidays coming my "extra" money won't be so "extra," being doled out in various ways to various people.  Thankfully my debt is quite low, about $1100 total (no vehicle loans), $800 of which is interest free, no hair on fire there.  My question is, if I were to be able to scrounge together 120 $10 workers by the end of the year ($1200), to which ditch should these fellows be assigned?

It doesn't amount to much in the grand scheme of things, but I most likely wouldn't max out everything at the end of next year either.  I will be getting 2 nice raises next year and will be able to up my contributions, so knowing which account to prefer over the others is beneficial for next year as well.  The help for this year is actually more important for next year when I have a larger amount to work with, and a fresh sheet. 

My thinking is either:

a)  Max out HSA and Roth as they are smaller, and try pouring everything I can into 401k. 

b)  Max ($17,500) 401k and try filling Roth and HSA as I go. 

The reason for my (a) option is that I can pull out Roth original contributions any time I want.  Being relatively young (28 years old) this kind of appeals to me in emergency situations and also future planning (house down payment).  I'd like to have as much money available to me as possible.

The reason for (b) option is that I can roll my 401k into my Roth sometime in the future and actually have more in there than by simply contributing to the Roth to the max.  This might be tremendously helpful in planning for the future.  The only problem there is that there's quite a few limitations attached (can't roll over 401k till I leave job, 5 year waiting period for touching 401k contributions in Roth).  This will take a lot of planning to carry out and could be tripped up by unplanned things, rewards are great though.

The current plan for next year is to max Roth (with help of half my tax return, about $1500), max HSA, and contribute $11,000 into 401k. 

Thoughts, ideas, criticism?

GardenFun

  • Bristles
  • ***
  • Posts: 459
  • Location: Packers Hell - they're everywhere!
Re: Chump change savings question now, with next year in mind as well.
« Reply #1 on: October 19, 2014, 05:39:00 PM »
Do you get any company match in your 401k?  If so, make sure you max that out prior to investing in the other two options. 

If you met your company match, put it in the Roth IRA. 

What is the interest rate on the $300 debt?  If it is over 5%, pay it off before the Roth IRA.

You can fund your 2014 Roth IRA until April 15, 2015 so look to contribute the tax refund money as part of your 2014 contribution, thus increasing that year's amount and still allowing up to $5500 for 2015. 

teen persuasion

  • Handlebar Stache
  • *****
  • Posts: 1060
Re: Chump change savings question now, with next year in mind as well.
« Reply #2 on: October 20, 2014, 08:55:54 AM »
If you are funding your HSA thru payroll deductions, it is saving you FICA + fed tax.  That is better than your 401k, which saves fed tax.  The Roth saves you no tax right now.

If I had to make the decision, I would max the HSA first, then work on the 401k.  More in those accounts should increase your tax refund in the new year, and you will still have time to put that refund into an IRA up to 4/15.  You can put it in the Roth, or put some in a traditional IRA and cut your taxes a bit further.  It isn't all or nothing - you can do some of each, up to a total of $5500.

Pooperman

  • Magnum Stache
  • ******
  • Posts: 2973
  • Age: 29
  • Location: North Carolina
Re: Chump change savings question now, with next year in mind as well.
« Reply #3 on: October 20, 2014, 09:31:37 AM »
Echoing those before me, I would look at paying off the debt with interest on it. What to do with the rest depends on how much lent to Uncle Sam interest free this year. Make sure you max your IRA (Roth if 15% bracket, another combo if above) for the year. Make sure to max HSA for the year (you can't fill in for what you missed later if something happened and you needed that extra for some medical expense). Everything else -> 401k. So basically option a. Not sure what your e-fund looks like, so I would hit the debt first, fill the e-fund second, then the HSA, then the IRA, then the 401k. If you have a decent e-fund already, i would ignore the R-IRA completely with this money. You should stash your e-fund into your R-IRA as cash to max the contribution there. Make sure you put as much away as you can because limits reset and you can't go back to fill them in later (until way after FIRE).

Bob W

  • Magnum Stache
  • ******
  • Posts: 2947
  • Age: 60
  • Location: Missouri
  • Live on minimum wage, earn on maximum
Re: Chump change savings question now, with next year in mind as well.
« Reply #4 on: October 20, 2014, 09:36:11 AM »
Be sure to max out your deductions on your W4.   I like to owe taxes in April.  I don't loan money to governments who can't pay their bills.