The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: ranchingretirement on March 05, 2018, 04:18:45 PM
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Hi everyone! I need a bit of advice from the Mustachians out there...I am due to receive a $15k bonus at the end of the month and am trying to decide what to do with it. I could:
- Contribute to my wife’s solo 401(k), which has just over $13k in tax-advantaged space remaining for 2017
OR
- Pay Off my 401(k) loan, which has a balance just over $12k, with 2.5 years left to pay it off. This equates to a ~$420/month drain on my monthly cash flow.
OR
- Something else?
I am currently leaning towards contributing the max towards the solo 401(k) and then work to accelerate paying off the 401(k) loan throughout the remainder of 2018. My thinking is that I’m in the 25% bracket for 2017, will be 22% in 2018, and I’ll never recover the chance to max out the solo 401(k) for 2017 again. On the other hand, it would be great to have the $420/month back in the paycheck.
What would you do?
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I would do the wife's 401K and then the loan. If you're emotionally attached to having the money in your paycheck: Will you be able to max out the wife's 401K in 2018 or will you be leaving space then too? Because you could pay off your loan, put 3K towards the wife's 2017 401K and then add 420 a month to the 2018 401K. That way if something happens (one of you loses a job, big unexpected expense), you could always stop contributing to the 401K and you don't have to worry about still having debt hanging over head. But I still think maxing the 2017 401K first is the way to go.
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Do the loan, for 2 reasons:
1. If you lose or quit your job, you're "home free" as opposed to paying penalties.
2. Not sure, but in the event of divorce, I think it might work out better...(not an attorney).
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Thank you for the thoughts so far! Still going back and forth with it in my mind, but I’ve got until the April 15th deadline to make a final decision. One other consideration is if I don’t contribute anything else to the Solo 401(k) prior to the tax deadline, I’m looking at a roughly $4,500 tax bill that would be due. A $13k contribution to the Solo 401(k) would result in just about a $500 refund. Realize this money would be paid at some point in the future (if I remain in the same tax bracket) but just another piece to consider.