Author Topic: Help allocation to 401k's, IRA's, and ESPP  (Read 989 times)


  • Handlebar Stache
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Help allocation to 401k's, IRA's, and ESPP
« on: September 13, 2018, 01:38:04 PM »
For now, I'm in a good position in my life where I have a nice first-world problem to have: My savings has become a lot more difficult because of different options. For simplicity, ignore my HSA.

Here is my current situation:
  • 401k with suboptimal investment options, but an employer match (50% of up to 6% of income). There is a Roth option
  • [Roth or T]IRA with my self-picked Mustachian options (my own allocation that is basically just VTSMX (85%) and VTIAX (8%))
  • ESPP with a 25% employer match

Now, some things to note on the ESPP
  • I can contribute 15% of my after-tax earnings
  • The company is one that you'd feel comfortable investing significant amounts and for a long term.
  • The employer match is taxable income, taxed as ordinary income
  • 1099 is sent for applicable tax sales
  • There is a 1 year holding period. So I buy $100 of stock, and 1 year later they give me $25 worth. I cannot sell those initial shares for a year, even if I wanted to forfeit the match

Lets get the first thing out of the way: I'm meeting the company match on the 401k.

The question is what to do with the rest of my money that is available for savings. I cannot afford to max out the 401k AND everything else.

My thought is that I should be doing it this way:
1: Hit the match on the 401k--100% to Roth; 6% of my after tax earnings
2: Get the full ESPP contribution, 15% of my after tax earnings
3: Max out the IRA contribution
4: Anything left goes back to the 401k

Ultimately, I'm looking at the ESPP as something that should definitely be maxed out from this reasoning:
1: It will have an effectively guaranteed 10% return on my investment (25% match minus 15% Capital Gains Tax). This is under the assumption that over a year it will not decrease in value--a serious assumption, but one I'm comfortable with
2: I can then use that money on the sale to pump it back into the IRA/401k (401k would mean I'd take it as my paycheck, and increase my 401k contribution)

Are there any gigantic flaws in this reasoning? What would you guys do?