The Smallest My Paycheck Will Ever Be

The new year brought a new saving perspective. In the course of a week, with a quick consultation with the trusted voice over at Our Next Life,  I drastically changed my saving strategy for 2016 and beyond.

It all started with a random tidbit of information I found on Reddit. I should have learned it years ago, but it never mattered until a cold day in early January. I was shocked to learn that Traditional IRAs have income limits. Did you know that traditional IRAs or tIRAs have income limits? MAGI limits to be exact. I had no idea. I always knew that Roth IRAs had a phase out income level, but I was completely unaware that tIRAs also carried a cut off.

To make matters worse, the tIRA closes the door to saving awesomeness at an earlier income than the Roth! This was not good news. Here I was concerned about the Roth limit, when I could lose the ability to contribute to a tIRA altogether.

This is also where I had to come to terms with my own anchors. Attending law school and doing well in law school meant I (at least initially) had my sights on the greenest pastures: Big Law pastures. 1st year associates in my city, when the market was good, made between $100,000 to $120,000. The available data when I entered law school showed the market at its best. Fresh out of law school? Sure, here’s 6-figures!

It took a long time for me to accept that Big Law was not the place for me. Too long, in fact. When I took my current job, I consciously accepted that I was not going to be making Big Law money. I don’t make Big Law money.

The trouble with this is that my anchor was still Big Law money. I didn’t think I was making very much money. When I read that I should contribute to a Roth during my low income years, I thought “This is it! These are my low income years.”

However, when you put our income together, Hubs and I make more than a pittance. If we don’t change course, we could miss tIRAs altogether. With this information in hand, I decided it was time to change direction

Old Plan:

  • Max HSA
  • Max Roth IRA
  • Contribute as much as I can to my 401k, slowly increasing the percentage.

New Plan:

  • Max HSA
  • Stop Roth IRA
  • Max 401k!!!!

  • Make determination in 2017 to contribute to tIRA for 2016.

I save roughly the same dollar amounts in the old and the new plan. However, by having it come out pre-tax, I should have a little more to contribute to the House Fund. I hope I can contribute to and max my tIRA for 2016. We’ll see. The House Fund needs all the help it can get.

.. And as the title suggests. Today’s paycheck, my first check with the full maxed 401k contribution taken out, is the smallest my paycheck will ever be. It’s only looking up from here.

As an extra bonus, my 401k match contribution, my first 401k match ever, is deposited today. It is the most excellent saving day. 

Have you ever missed the mark with your assumptions? When was the last time you evaluated your saving strategy?

Advertisements

9 comments

  1. I like it! And I always love the excitement that comes with a drastic new plan! (I have a new one nearly weekly!) I think it’s great. Congrats.

    1. Funny you say that. Hubs was giving me crap today for creating master plans and then deviating from those plans with a new master plan. All new plans are exciting! This is my favorite one in a while 🙂

  2. Great new plan, Kate! My savings strategy is pay myself first (set up with automation), but every now & again I’ll give even more of a push to these savings goals. Sometimes my assumptions fail me, but I always think that no matter what choice I make towards savings is always going to result into a positive one. 🙂

    1. You are so right. No matter how you save, it’s a good result. Half my stuff is automated – out of sight, out of mind, the other half is conscious choice (saving what’s left over). I’m having much better luck with the automation!

  3. Thanks for the shout out — I hope my advice ends up being good! :-S I definitely know that we are now wishing we had saved more unrestricted, non-IRA and non-401(k) dollars earlier, since we’re now totally set on that front, in our mid-30s, while our taxable accounts that have to support us for 20ish years have a ways to go. But I also hope you can hit some big goals on the house fund front this year AND max your IRA. 🙂

    1. If this doesn’t work out, it’s all your fault. 😉 LOL

      Are you keeping your IRA/401k money locked up? Why not start rolling it, especially during your no/low income years?

      I hope I can max my IRA too! I hope, I hope, I hope!

      1. We may roll a little over, but our *hope* is to live as cheaply as we can when we’re younger so we can live it up a bit more when we’re older and aren’t into roughing it. Also, this lines up nicely with Medicare — once we can get Medicare, then we won’t care much about our income, because it won’t count against us the same way it will in our Obamacare years. So the goal is to keep income minimal now, save the big bucks for later. 🙂

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s