The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: aVUfan on March 19, 2015, 01:01:55 PM
-
Hello all. I've learned quite a bit from all of you over the last few months but today I decided to register and run an idea by you. I'm writing this from work(like a veteran Mustachian) so it's been written quickly and minimized everytime someone walks past me. If it isn't clear I will try to clarify things later.
I'm 27, single, with a salary of $46k. I've been putting $458 a month into a Roth IRA for the past few years so I've been able to max that out. I've just started contributing to the 457b about six months ago, and because $46000 salary isn't much, I'm not able to max both my Roth IRA as well as the 457b. I just bumped my contributions up to $500 a month on the 457b and that's starting to hurt a bit. I love to travel and am planning on buying a Suzuki DR motorcycle($3000-$6500) in a few months so I can't go full MMM penny pincher at this particular moment.
Here are where my accounts balances stand now, roughly:
Scottrade taxable $31000
Scottrade Roth $21000
Vanguard Roth $4000
457b $4000
HSA $1000
Checking/Emergency fund $5000
I am going to receive a one time, non-taxable payment of $50,000 two years from now. Assuming I'm able to max out my tax advantaged accounts with earnings that money will go into a taxable account somewhere.
457s seem like the optimal account for early retirement and I feel like I absolutely need to max it, mostly because I plan on leaving government work in around a year for a private sector gig and likely won't have the option to contribute to one after that, but who knows. This next year could be the only chance I have to contribute to a 457b.
Here is my plan:
Contribute all of my paycheck towards the 457b until I hit the limit. I'll need money to live on in the meantime so I'd be withdrawing from my taxable account. That should be around $10,000 a year, tops. So for simplicity, a year from now I would end up with $36000 in the 457b($18k in 2015 and $18k early 2016) and $11,000 in taxable($31k minus $10k in 2015 and $10k in 2016). Hopefully I'd be able to withdraw less than $10k a year from the taxable account but this is sort of a worst case scenario.
On top of the low taxable income this year, I would be eligible for the Saver's Credit because AGI would be below $30,000. That's a $200 incentive. Also, the $50k payment would be coming soon after that which would go to taxable and I don't want all of my eggs in the taxable basket.
Is there any reason not to do this? Should I do the same thing with the HSA account and max that out as well?
ETA: I realize I left out an important note; of the $31000 in my taxable account there are $5000 in long term gains(no short term gains)
-
I run a deficit budget in order to max my 457, 403b, IRA, and HSA and make up the difference from the funds in my taxable account. I will continue to do this until the taxable account is 0, so yes, I think this is a great strategy.