A Strange Budget With After-Tax 401k... | August Budget With Me | Retire Early

[@chaselesser3191]

I’m doing 670/week across 401k/Roth/HSA. So like $35k/year. But I’m trying to catch up from my lack of investing in my late 20’s early 30’s.

[@raymondwzeng]

Hell yeah! Keep it up and you'll reach your goals 💪

[@glenapfelstadt287]

As always, super impressed by your progress! Good luck managing through your cash short month!

[@aaronquadd3019]

Good luck on the journey. I'm going to pretty close to maxing out my pretax portion as well. Sorry you ran into a frustrating part. Keep it up!

[@aaronquadd3019]

At least it's a good problem to have.

[@SreysrosTakeo]

So proud of you !!

[@ChrisRampersad]

Nice work on the 401k. Reminds me i should double check mine ,job change so have two accounts and i want to make sure i wont go over the limit. I remember back the day, when a travel budget would be 120 a month and i could save that and a couple long weekend s and one longer get away. Now have increased that bucket so i have more options (train travel for example)

[@raymondwzeng]

Yeah, $120/month would be super super slim pickings these days unless you were very deliberate about time and location. Glad to hear that you're putting more money though towards life experiences though!

[@aromo4800]

You can also do a regular Backdoor Roth

[@danielkulba]

Hey Ramond, I'm in a financial situation pretty similar to yours. I just started my first ft swe job and am wondering whether it is better to contribute to my 401k pre or post tax

[@raymondwzeng]

I'm not too well-versed in this area, to be honest. Based on what I've been told, it depends on the situation. The main question for pre-tax vs Roth would be whether you think your income (from withdrawing from your retirement accounts) would be higher or lower in retirement. Higher income in retirement would benefit from Roth (pay taxes now, vs paying more taxes later), while lower income would benefit from pre tax (defer taxes now and pay less later). Most FIRE folks tend to fall into the pre-tax bucket because they're saving such a big percentage now (and so they would withdraw, and thus pay, less taxes by paying taxes later). There's also the question about income growth. Generally, I've heard Roth to be better at the start of your career while you're in a lower income bracket. I think the answer is *both*, technically. Unless you're starting at a Big N company, I've heard that the optimal strategy is to split it some way when you're in the mid-20s tax brackets. I am a lazy person - so I max out a Roth IRA and a pre-tax 401k to get a little bit of both (with my MBDR also adding more to Roth). Definitely one of those questions that would benefit from someone that knows taxes intimately. Hope I hoped to point you in the right direction though!

[@dlg5485]

If you want to retire early, a 401k is one of the worst places to put your money. You should be maxing out a Roth and a HSA before maxing your 401k because those accts offer far more flexibility, meaning you can pull money out (with some limitations) before age 59.5 without penalty.

[@raymondwzeng]

@@dlg5485 Appreciate the concern. Besides the fact that I'm already maxing out my Roth IRA and HSA, I think I should be fine. It's not difficult to pull money out of your 401k before 59.5 without penalties.

[@dec1slh]

If he rolls aftertax into Roth IRA, he can access his contributions anytime without penalty (assuming he adheres to the 5 year rules).

[@stephaniel6867]

Curious what's the point of maxing out the 401k early? I understand the mega backdoor Roth; however, why not spread it out throughout the entire year?

[@raymondwzeng]

Good question. It's personal preference for myself. I know that I won't be able to hit the total combined limit under my savings rate, so I just preferred to front load my pretax 401k and back load whatever is left into the MBDR. Next year, I might switch over to doing equal amounts to have a consistent flow of money instead of all at once in either account. What do you do for your retirement account?

[@stephaniel6867]

@raymondwzeng I determine the overall amount I'll pay and have equal payments taken throughout the year. Generally my last payment will be less. I ask bc depending on the company, this method could affect your match for a company who does it per paycheck.

[@chaselesser3191]

@@stephaniel6867​​⁠Honestly it’s time in the market. Even though it’s minimal. Your money has more time to grow.

[@aaronquadd3019]

It's more time to compound and has a ligher likihood to hit the beneficial gains of the market