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