Operation Bayes: Revealed

While I was interviewing last year, one of my interviewers asked me what I would do if I was retired. I was surprised I got asked this question since the person clearly knew how long I’ve been out of undergrad and probably from that I’m still in my twenties! It’s not so crazy to hear people in their forties mentioning this, but asking someone in their twenties? That seems bizarre to me. Anyway, I thought about it for a moment (I was caught a bit off guard) and told the person that I would go to grad school in X subfield. They told me that I could do that while working for them, since their company has tuition benefits. That got me thinking and…

I applied to grad school for X subfield of my current field! I got in! I’m pretty stoked! And scared and nervous all at the same time. But very excited!

I’d been mostly putting off grad school because it seemed like a terrible financial move (it will cost money, have an opportunity cost, and will not increase my income) and it seemed like a lot of work. My last employer wouldn’t pay a cent towards grad school. My new employer however has a sweet tuition benefits program, with no waiting period, meaning that my Master’s degree will only cost me possibly very little (somewhere around one month’s average normal expenses is my estimate). And it seems that I’ll be able to pay for my tuition with a credit card, so I may try to pick some interesting credit cards to churn with tuition.

I’ve saved up enough to pay for the entire program myself in cash and have enough to cover a year’s worth of living expenses (by some definition). I figure I would recast the mortgage and reduce some expenses, so that amount would probably last me for a second year. I could cash flow this, but I decided I felt more comfortable saving up the whole amount so that I could quit my job to do this full-time if I wanted to. Why would I choose to keep this cash even though my now-employer will pay for basically the whole program?

1) I have to pay for each course upfront and then they’ll pay me back once I finish it successfully.
2) Options! This cash will allow me to quit and pursue the Master’s program full-time if I want to, if I decide I’d rather do that than stay in industry.

My plan is to use my tuition savings account to pay for grad school and then when my employer reimburses me for the courses, use that money for whatever my next savings goal is.

My family is blue collar millionaire next door raised in working class families and didn’t really value education (my parents didn’t realize that I would likely go to college if given the opportunity until I was in high school…), but did value good work ethic and holding a job at all times, so this plan to go to grad school when it won’t increase my income has taken a long time for me to be okay with. Plus, the requisite amount of time thinking about spending this much money (five figures if my employer didn’t pay for it) on something for myself.

This is a better splurge than a comparably priced car as it is an experience rather than stuff. If my employer wasn’t paying, I would pay for it in cash.

There are a few different paths my next five years could take financially at this point:

  1. I proceed through the Master’s degree part-time, my employer pays for it in full, and nothing changes in my job when I’m done the Master’s degree. I’ve gained some knowledge, but continue at my job.
  2. I proceed through the Master’s degree part-time, my employer pays for it in full, and I change groups/teams to do something more in line with this new specialization once I have my new degree. This would see most of my grad school savings tossed into other savings buckets as time goes on and my (cash) emergency fund reduced back down to $20k-ish.
  3. I proceed through the Master’s degree part-time, my employer pays for it in full, and I decide to pursue a PhD after I finish the Master’s degree. This would see most of my grad school savings tossed into other savings buckets as time goes on, but I would probably keep my (cash) emergency fund around $30-40k in this case to help with the lower income. The mortgage will very likely be paid off before this point, which will help keep expenses lower, and the SWR on my investment portfolio should be around $1,800/month, though I would try my best to keep my expenses under/around the grad student stipend and let my investments continue growing.
  4. At some point during the Master’s degree, I decide it’s far more interesting than my full-time job and decide to quit and pursue the Master’s degree full-time and then continue on to a PhD. If the mortgage isn’t paid off, I’ll recast it, and slash expenses like crazy in order to let my savings account last for a while and keep my expenses low in preparation for a grad student stipend once I start the PhD. The SWR on my investment portfolio at this point will likely barely even cover the HOA dues and property taxes on my condo, so I’ll definitely need to acquire some more income at a later point.
  5. I decide I hate grad school and skip out partway through with no/minimal money lost and continue saving and look for a new path to pursue after I reach FI.

I can’t believe this is finally happening! I’m so excited!

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April 2015 net worth update (+1.4%)

31-Dec-2014 31-Mar-2015 30-Apr-2015 MoM YTD
cash $12,300 $9,300 $6,700 -$2,600 -$5,600
savings $47,800 $61,900 $59,600 -$2,300 +$11,800
investments $164,500 $176,200 $188,200 +$12,000
+6.8%
+$23,700
+14.4%
mortgage $143,000 $140,800 $140,100 +$700
+0.5%
+$2,900
+2.0%
net worth $531,600 $556,600 $564,400 +$7,800
+1.4%
+$32,800
+6.2%
taxable assets – debts $70,600 $53,700 $52,800 +$900
+1.7%
+$17,800
+25.2%
$ until FI $845,000 $826,000 $815,200 -$10,800
-1.3%
-$29,800
-3.5%

This month was all about the pre-tax 401(k). It’ll be done with part of the first June paycheck. I also realized that one quarter’s ESPP contributions + discount is about equal to two months’ spending, so to max out the 401(k) while doing a lump sum to the 401(k), I really won’t use up that much of my buffer. Sweet! Thanks to not paying taxes on the income going into the pre-tax 401(k), I managed to get my savings rate up to 83% this month!

My investments are up enough this month that a 4% SWR of them will now cover the following expenses: passport replacement, condo insurance, property taxes, and HOA dues. I anticipate adding toiletries, cell phone, driver’s license renewal, vehicle tab renewal, and bras to the list of items in my budget that a 4% SWR would cover this year. Pretty exciting to watch!

A metric I was tracking was liquidated assets – debts. I’ve been counting down the tax advantaged assets until I don’t need to liquidate them to pay off the mortgage and I no longer need my traditional 401(k)! I still need the following assets to pay off the mortgage: Roth IRA, taxable investments, checking accounts, and cash savings. I forecast that by the end of next year, I would just need my cash savings accounts to pay it off!

Expenses: I spent $4,214 in April including the mortgage or $3,186 without it. Some of my controllable expenses broke down as follows:

  • ($534) Kept one pair of jeans from all of the online shopping
  • $288 Annual refresh of regular bras and a new sports bra for running
  • $128 Tops – stocked up on t-shirts when I found a great sale and will return ~$50-60 of these
  • $118 total clothing
  • $39 Entertainment/Social [average so far this year: $195, average last year: $211] – this was one book and two years (only meant to pay for one of LastPass. I need to get some e-books from the library instead of buying books for the commute.
  • $0 Eating out by myself [average so far this year: $3, average last year: $18]
  • $88 Work lunches [average so far this year: $56, average last year: $147]
  • Half of annual property taxes (only up 9% from last year, not the 20% I had budgeted for!)
  • Passport renewal!
  • $344 Medical
  • $62 Toiletries [average so far this year: $26, average last year: $33] – stocking up on a year’s supply of shampoo
  • $294 Yoga classes – bought a multi-class pass
  • $155 Pillow – it was past time to replace the one I bought five years ago…
  • $9 Taxis – I had to run an errand after work and decided it was better to cab home and cook dinner than to eat dinner out and bus home.
  • $20 Fuel [$83 so far this year, $35 at this time last year] – So apparently Costco has super cheap gas?
  • $0 Travel – first month with $0 spent on Travel this year!

Spending looks high this month since I paid property taxes, meaning that ~75% of this month’s spending was on housing. My discretionary spending this month was actually pretty good. Most of the clothing purchases were necessities (bras), I didn’t eat out by myself at all, I’m on track to spend ~half of what I did last year on work lunches, even my entertainment/social spending was pretty low, and work reimburses me for a certain amount of fitness spending.

You might notice a few of the usual categories missing. I mentioned last month that my boyfriend and I were trying something different with how we share expenses. That means that going forward he’s paying for groceries, date nights, electricity, internet, household goods, and some other items, depending on how the numbers work out. I’m still making spreadsheets about the electricity bill even though I’m not paying it, don’t you worry ;)

I predict that my total May spending will be…$1,611. Let’s see how this goes!

Savings: $59,600 (down $2,300)

These funds are spread across a checking account that gets free ATM fees anywhere in the world, my new and old health savings account, a savings account at my credit union, and a bit of a buffer in my credit union checking account.

This is down since I didn’t get an April paycheck and used funds from savings to replenish my checking account for May. My new HSA is all up and working now, so one of the items on my to do list for May will probably be to try to figure out what to do with my old HSA.

Investments: $188,200 (up $12,000 or +6.8%)

This includes my Roth and Traditional 401(k), my 401(k) employer matching (fully vested!), my Roth IRA, my taxable investments including stock index funds and Series I Savings Bonds.

The change here comes from:

  1. Good-sized contributions to my new 401(k) – I’ve now contributed 50% of the pre-tax limit in the last month :D
  2. Employer matching contributions (almost double what I got at my last job)
  3. ESPP contributions that are currently sitting in cash

The rollover from my old 401(k) completed successfully. The old Roth 401(k) money is now in my Roth IRA and the old pre-tax 401(k) money is in my new 401(k).

Mortgage: $140,100 (down $700 or -0.5%)

Some statistics here:

  • 2.5%: the interest rate on my 5/1 ARM
  • January 2018: when the interest rate on my mortgage is set to reset, possibly to 7.5%
  • 28.6%: portion of my regular payment went to interest (originally was 59%; down 0.1 percentage points)
  • 60.8%: amount of equity in my condo, assuming purchase price (up 0.1 percentage points)
  • 51.0%: amount of the mortgage I’ve paid down (up 0.2 percentage points)

I’m just letting the regular, automatic payment go for now, until my cash savings is at the level I want and my 401(k) is fully maxed out.

TOTAL: $564,300 (up $7,700 or +1.4%)

I ended 2014 with a net worth of $531,600, so I’ve seen a change of +$32,700 or +6.2% so far this year. I’m going to set the y-axis on this graph to $650,000 so we can see how my net worth grows towards that throughout the year. I finally updated the graph this month!

April 2015 Net Worth Graph

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Q1 2015 Update

Whew, that was a busy Q1! I quit my job, had ~1.5 months unpaid between jobs, went on an awesome trip for a month with my boyfriend, and started a new job.

Income

Things were actually not too bad in terms of income in Q1. I only got paid enough in January to cover February’s budget, saw no income at all in February, and then saw a full month’s paychecks at my new, increased salary, plus my signing bonus in March. Thanks to the signing bonus, my Q1 net income was (by a small margin) the largest I expect to see this year, though each quarter should be reasonably similar.

Saving

In Q1, I saved 79% of my net pay, which amounted to a bit over $20,000 in savings. I’m hoping I’ll be able to hit 80% overall this year :)

My savings was split to the following accounts:

  • 86% Cash savings
  • 10% Mortgage payment principal
  • 4% Traditional 401(k)
  • < 0% HSA

I made my 2015 Backdoor Roth IRA contribution on January 2nd, so that is done already! Next up is maxing out the pre-tax and after-tax 401(k). I’ll finish maxing out the pre-tax 401(k) in Q2 and the after-tax 401(k) in Q3.

I haven’t made any extra mortgage payments this year and it’s looking like I might not end up making any. I’ll talk about that a bit later.

Giving

I think the idea of Fidelity/Vanguard Charitable is really cool (but expensive at my donation amounts…), so I’m doing something similar with a savings account at my credit union. I have automatic transfers set up for every paycheck and I’ll do manual transfers when I get a bonus. This account’s purpose is to get me to give my money to other people for causes that I deem worthy. I’m trying to let the account build up a bit so that I have enough to pay for my January donation next year instead of not having enough money in the account for a bit to take the donation out and so that I can make larger donations. I plan to increase the % within the next few years.

In Q1, I made my annual January donation as usual and made another couple donations for causes friends were supporting. Not all of my donations are tax-deductible, but that’s totally okay!

Spending

Q1 2015 SpendingWhen you see that I spent more money on Travel than on Housing, you know it was an expensive quarter. I had budgeted for this quarter to be the most expensive of them all.

All in all, I spent $14,271 in Q1, about $5k of which was spent each on Travel and Housing. Another $2k on Clothing and everything else is tiny in comparison to those three. On the plus side, I have no more big travel expenses for the year.

I am going to try to reign in my clothing spending more in the rest of the year.

I was underbudget in a few areas:

  • I only spent $355.09 on groceries, of $600 budgeted.
  • I only spent $136.91 on work lunches, of $344 budgeted.
  • I only spent $63.52 on fuel, of $144 budgeted.
  • I had planned on replacing my passport in Q1, but that got pushed off until Q2. I replaced my driver’s license though, which countered that somewhat.
  • I only spent $13.46 on dining out, of $40.00 budgeted.

I’m still on track to spend under $40k in 2015 (my goal for the year) – I’m expecting the other quarters to be an average of $8k apiece. I’ll check in on that again at the end of Q2.

Readers, how was your Q1?

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Poof goes the rollover (and my 2015 investment plan and updates to my Investment Policy Statement)

I realized in hindsight that this could have been three separate posts, but I’m going to leave it as is.

Rolling over a 401(k) is a slow process stuck in the archaic ages. At the beginning of April, I initiated the termination from my old employer’s plan. The next day, I had my Roth 401(k) money invested in my Roth IRA. Three business days later, I had in my hands a check for the tens of thousands of dollars that I had in my pre-tax 401(k). I filled out the rollover paperwork that I had acquired from the new 401(k) plan a few weeks prior and mailed off the check the next day, with the morning mail pickup. Within 10 business days of the original request, the funds were in my new 401(k) and I could breathe clearly again.

It was pretty scary seeing the ~$100k in my 401(k) disappear the evening after I started the process and the vast majority of it still not in a bank account. It definitely made me question my attachment to the Backdoor Roth IRA and make me wonder if I was making the right decision not rolling my old 401(k) into a Rollover IRA. Once the funds had arrived in the new 401(k) though, I was definitely in agreement that this was the best and simplest decision, to keep all of my 401(k) money in one spot.

My asset allocation was quite a bit out of whack during this time – basically all of my fixed income was in my 401(k) that disappeared. For reference, today, 2/3 of my fixed income is in my 401(k). Since my 401(k) is a bit over half of my investments, that wasn’t the end of the world. My allocation looked something like 23% fixed income (not bad), 57% US stocks (way too much), and 20% international stocks (way too little).

Overall though, the rollover went reasonably smoothly and so far, I’m glad I did it instead of trying to manage two 401(k)s.

 

My 2015 investment plan

Since there was a large chunk of money to be invested, this was a great time to re-balance and set up my 2015 investment plan!

I’m working with a target asset allocation of 28% fixed income (age in bonds + 1 percentage point for having > $100,000 in investments) and then the stocks split 50/50 to US and international.

Category EOY Value Current Missing
Total $218.4k $87.4k $131.0k
Fixed income $61.2k $18.6k $42.5k
US stocks $78.6k $52.1k $26.6k
International stocks $78.6k $16.8k $61.9k

The missing chunk represents the rollover, my mid-April through end of year pre-tax and after-tax 401(k) contributions, and expected 401(k) employer match contributions. This year is going to be reasonably easy to re-balance with contributions and not needing to exchange anything.

At the moment, my Roth IRA holds US stocks, so I just sent my Roth 401(k) to the Total Stock Market index fund there. I used to hold shares of an Extended Market index fund in my Roth IRA as well to balance out the large portion of my 401(k) that was in a S&P 500 index fund, but I now have access to a Total Stock Market index fund in my 401(k) and don’t need to worry about that anymore, so I exchanged all of the Extended Market index fund into the Total Stock Market index fund.

Since my Roth IRA holds mostly US stocks and that’s where my after-tax 401(k) contributions will go, I plan to put my after-tax 401(k) contributions into a US stock market index fund in my 401(k) until I move the money over to my Roth IRA since it’ll take several months to max it out.

That means my 2015 contributions will be allocated as follows:

Account Category $
After-tax 401(k) US stocks $Xk
Pre-tax 401(k) US stocks $26.6k – $Xk
International stocks $61.9k
Fixed income $42.5k

I calculated the percentages for each of the pre-tax 401(k) contribution categories overall for the year and then applied those to the amount that was being contributed this week (the rollover and the mid-April paycheck deductions and employer match).

That means that the only manual thing left to do for my investments this year is to move my after-tax 401(k) to my Roth IRA in the fall. I’m a little overweight in fixed income at the moment (30% of my investments) since a big stock contribution will come later in the year, but that’s perfectly fine.

I’m so happy to have finally finished this! Usually I do this work in December/January and it’s now late April…

 

Updates to my Investment Policy Statement

With the new job and 401(k), I decided it was time to check up on my Investment Policy Statement, which hadn’t really been updated since early 2012.

My long-term goal has always been to be able to retire at 50 with a paid-off home and enough in investments to cover estimated living expenses at a 3% withdrawal rate. I also added a medium-term goal of having the mortgage paid off by my 30th birthday and enough in investments to cover my then-current expenses at a 4% withdrawal rate. This sounds like a Big Hairy Goal, but I’m actually on track to meet it.

I changed my IPS to reflect my plan to lump sum my 401(k) contributions since it no longer affects my employer match. I also added some notes on my feelings about rollovers.

I’ve been contemplating asset allocation a lot over the last six months or so. I’ve been using the following model for the last several years:

The percentage of the investments in stocks is 100 minus (at the time of re-balancing):

  • My age
  • The multiples of $100,000 in investment assets that I have

I added an additional note of: “This formula will continue until I reach 30% in fixed income and 70% in stocks and then it will stay there until I choose to re-evaluate it.”

Why? I’ve realized that with the possibility of early retirement, I’ll need more money in stocks than I’ve previously considered. If I end up working past when a 3% WR on my investments is achieved, then I’ll re-evaluate my asset allocation formula.

“I want the US stocks to replicate the entire US stock market.

I don’t want to stake everything on the US stock market. Market weighting sounds good, so my ideal split would be 50/50 on US/International Stocks.”

My plan for now is to keep my Roth IRA 100% stocks, all of the fixed income in my 401(k), and all stocks in my taxable investment account.

There was an interesting section at the bottom of my IPS showing short-term goals, including estimated net worth for 2010 through 2014. I surpassed all of those numbers, some by a long shot! Some of my goals for the next 5 years include getting my savings rate above 80%, paying off the mortgage, reaching a $1M net worth by the end of 2018, and reaching a $1.5 M net worth by the end of 2020. It seems pretty crazy to imagine my net worth going from the mid $500k range today to $1.5M in 5.5 years, considering that it took the last 5 years to build it up to $500k, but that’s what my spreadsheet shows! The next five years are going to be some incredible wealth building years and I thank all of you readers for following along on this wonderful ride!

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March 2015 net worth update (+4.3%)

31-Dec-2014 28-Feb-2015 31-Mar-2015 MoM YTD
cash $12,300 $6,600 $9,300 +$2,700 -$3,000
savings $47,800 $42,200 $61,900 +$19,700 +$14,100
investments $164,500 $176,500 $176,200 -$300
-0.2%
+$11,700
+7.1%
mortgage $143,000 $141,500 $140,800 +$700
+0.5%
+$2,200
+1.5%
net worth $531,600 $533,800 $556,600 +$22,800
+4.3%
+$25,000
+4.7%
taxable assets – debts $70,600 $73,800 $53,700 +$20,100
+27.2%
+$16,900
+23.9%
$ until FI $845,000 $785,600 $826,300 +$40,700
+5.2%
-$18,700
-2.2%

Yay, I finally got some big paychecks from my new job this month (which made up for all of the time with no income!) and I won’t get another one until September, but that’s okay because I’m going to max out my 401(k) as quickly as possible. I crossed off my first financial goal for the year of having $60,000 in savings for Operation Bayes. I have a bit more cash than that right now, which is so that I can cover expenses from cash while I max out my 401(k). My first 401(k) deduction for the new job came off my paycheck AND it was deposited into my actual 401(k) account, which is quite exciting! :)

I’ve been running the numbers and it looks like I should come within $1,000 of saving 80% of my net income this year!!! That’s been one of my targets and I would be very excited if I hit it. In fact, I saved 78% of my net non-bonus income this month! My original goal for the year was to save 70% of my monthly net income, but now I think that is too low of a goal and I should be shooting for 75% and then 100% of bonuses!

Expenses: I spent $5,718 in March including the mortgage or $4,691 without it. Some of my controllable expenses broke down as follows:

  • New pair of running shoes
  • Three layering camisoles
  • ~$400 end-of-season sales on outerwear: a vest (50% off), a light jacket at 20% off, and a warm jacket at 30% off. I haven’t bought a warm jacket in 5.5 years, so I’ve been budgeting for that one for a while.
  • Six pairs of socks
  • Returned all but $60 of the online shopping for shorts/skirt from last month
  • One pair of leggings
  • Online shopping to find a pair of jeans since I changed sizes AGAIN and not back to my previous size. I only plan to keep one pair, so I should see a ($500) clothing expense next month.
  • $1,200 total clothing
  • $452 Entertainment/Social [average so far this year: $248, average last year: $211] – Renewed our theater season tickets for next year and enjoyed some delicious meals out.
  • $1 Eating out by myself [average so far this year: $4, average last year: $18]
  • $177* Groceries [average so far this year: $118, average last year: $185]
  • $87 Work lunches [average so far this year: $45, average last year: $147] – Food at my new office is much cheaper than at my last job :)
  • $29* Household goods – paper towels, water filters, and some other cleaning supplies
  • $34* Internet
  • 4 months of HOA dues – we rearranged how we’re splitting expenses and I paid my boyfriend back for the last 3 months of HOA dues and then paid the April dues. This means that I removed several other items from my budget going forward.
  • Renewed my driver’s license early because I kept getting anxious about forgetting to renew it
  • Photos for my passport renewal
  • $46 Medical
  • $20 Eyebrows
  • $12 Toiletries [average so far this year: $14, average last year: $33] – over the counter medicine
  • $177* Shopping – some food storage containers, a speaker, and a case for my new sunglasses (that were covered by insurance 100%!)
  • $24 Fuel [$63 so far this year, $0 at this time last year]
  • Travel – booked flights and an Airbnb to go to a friend’s wedding later this year

* indicates expenses that were in the joint account. I calculate my expenses by tallying up all of my individual expenses for the month, adding in my mortgage payment, and adding in half of the joint expenses.

Gah, things really added up this month. My estimate for April is to have net expenses of only $500 after the mortgage payment, HOA dues, and property taxes. (That figure assumes a bunch of returns of the clothing purchases this month.)

Savings: $61,900 (up $19,700)

These funds are spread across a checking account that gets free ATM fees anywhere in the world, my new and old health savings account, a savings account at my credit union, and a bit of a buffer in my credit union checking account.

Transferred a good chunk here from my paychecks this month! I was pretty excited to do that first savings transfer this month!! :D I think that was my first transfer to savings/mortgage/investments from income since November.

Investments: $176,200 (down $300 or -0.2%)

This includes my 401(k) from my former employer: Roth, Traditional, and employer matching (fully vested!), my Roth IRA, my taxable investments including stock index funds and Series I Savings Bonds.

The change here comes from:

  1. Q1 dividends
  2. Some healthy losses in the stock market
  3. The first contribution to my new 401(k)

My old 401(k) happily stayed above $100,000. I’m going to roll my old Roth 401(k) to my Roth IRA, but my new 401(k) should possibly still be above $100,000, assuming that the rollover manages to happen all within the month of April.

At the beginning of April, I will initiate the rollover of my old 401(k) and my new 401(k) will see a strong influx of new cash from my paychecks as well. I’ll also see my first employee stock purchase plan deductions happen in April.

Mortgage: $140,800 (down $700 or -0.5%)

Some statistics here:

  • 2.5%: the interest rate on my 5/1 ARM
  • January 2018: when the interest rate on my mortgage is set to reset, possibly to 7.5%
  • 0: months of payments eliminated with this month’s pre-payments
  • $0: extra payments made on the mortgage this month
  • $0: interest this month’s extra payments will save me on the next regular payment
  • 28.7%: portion of my regular payment went to interest (originally was 59%; down 0.2 percentage points)
  • 60.7%: amount of equity in my condo, assuming purchase price (up 0.2 percentage points)
  • 50.8%: amount of the mortgage I’ve paid down (up 0.3 percentage points)
  • $24,500: amount extra remaining to pay to be on track at the end of 2015 to pay the mortgage off before the rate resets in 2018

I’m just letting the regular, automatic payment go for now, until my cash savings is at the level I want and my 401(k) is fully maxed out.

TOTAL: $556,600 (up $22,800 or +4.3%)

I ended 2014 with a net worth of $531,600, so I’ve seen a change of +$25,000 or +4.7% so far this year. I’m going to set the y-axis on this graph to $650,000 so we can see how my net worth grows towards that throughout the year.

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Frontloading my 401(k)

I’ve often thought about front loading my 401(k), i.e. contributing the full amount at the beginning of the year in as few paychecks as possible, but never done it.

Why? My former employer, although they did a true-up match the following year, would only contribute the matching money each paycheck if you contributed at least X%. So if I front loaded my contributions, then I would possibly not get the full matching money if I was no longer employed with them when they did the true-up.

With my new employer, I can maximize the 401(k) match even if I front load my 401(k) contributions.

Why do I like the idea of front loading my 401(k) contributions? I like going through my list of savings goals for the year and checking off one at a time, only concentrating on one goal at a time.

1. Get my savings account up to $60,000. done with mid March paycheck
2. Contribute the full $18,000 to my pre-tax 401(k). will be done with end of May paycheck
3. Contribute the maximum I can to my after-tax 401(k) and then transfer it to my Roth IRA. will finish with a September paycheck
4. Contribute the maximum I can to the Employee Stock Purchase Plan. ongoing
5. Pay down the mortgage by $28,671.79. this one probably won’t get done, but I’m forecasting I’ll get 75% of the way there.

I used to not like the idea of the small paychecks, but it has grown on me since I have a nice cash buffer now. I plan to use the BrokerageLink feature of my new 401(k) to set up a three fund portfolio and I can’t set that up to automatically put money into a specific allocation like I can with the regular funds in the 401(k) plan, but by front loading my 401(k) contributions, the money will only be sitting in cash for ~2.5 months if I let it sit there until all the money is there and then invest it. If I wasn’t front loading, I would feel a need to log in more often and set up the money.

Why have I always wanted to do this? Over the last few years, I’ve often wanted to leave my job before the end of the year and it would have been nice to have already maxed out my 401(k), be on the path to get the maximum match, and not worry about that while I was contemplating quitting my job.

Front loading also means I don’t have to worry about getting the contribution % exactly right to max it out with my last paycheck of the year or worry if my last paycheck will actually come in the following year or if there are more paychecks than expected.

I had forgotten about this idea, even after thoroughly reading my new job’s 401(k) plan’s Summary Plan Description (SPD) in detail to learn as much as I could about the after-tax contributions and how the matching worked. But then I read Mad Fientist’s blog post on why you should front load your 401(k) and I was hooked!

Readers, have you ever considered front loading your 401(k)?

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An Ode to My Old 401(k)

When leaving a job, there are a few actions one can take with their old 401(k):

  1. Do nothing and leave it where it is, paying any fees your employer charges you now that you’re no longer with them
  2. Withdraw the entire balance, paying a 10% penalty and regular income taxes (ew, this would cost me about $40,000) based on the current balance
  3. Roll it over into the new employer’s 401(k) plan
  4. Roll it into an IRA

I definitely don’t want to withdraw the balance with how much that would cost in taxes and the fact that I would then lose the tax-deferral on my ~$100,000 for another 34+ years! I also don’t want to roll it into an IRA as then I would lose my ability to do a Backdoor Roth IRA. So there rules out half of my options!

The choice between the other two options depend on what the options look like in the new 401(k) compared to my existing one. My employer will charge a small quarterly fee that basically equates to a ~0.04% additional fee with my balance, which is actually a decent chunk considering that the funds in the new plan are cheaper than the equivalent funds in my old one.

When I first started investing, I posted a portfolio review on the Bogleheads forum and got some helpful feedback. Since then, I haven’t requested any feedback from them, but I still use their format to do a periodic review of my investments. I find it’s a great way to take an overall look at my portfolio. I follow the format right down to the questions asked. Here is the questions I asked myself this time around as I was figuring out what to do with my old employer’s 401(k):

  1. My old 401(k) will start to charge a quarterly fee at some point (turns out this kicked in last week) that equates to about 0.04% annually of my current balance. I don’t want to roll my old 401(k) to an IRA since that would cut off my access to the Backdoor Roth IRA, but should I roll it into my new 401(k) plan? The only catch I can see here is that if I roll the old 401(k) out of the plan, then if I were to return to that employer in the next few years, I would have to start the vesting period over again.
  2. My new 401(k) plan allows me to contribute after-tax in addition to pre-tax. It also allows me to do an In-Plan Roth conversion or I can instead move the money to my Roth IRA. Which is a better option?
  3. The international stock index fund I have access to in my new 401(k) doesn’t include small-caps, but the one in my old employer’s 401(k) does. Is that a deal breaker to me?
  4. I see a few options here:
    a) roll old 401(k) into new 401(k), do in-plan Roth conversions to keep things simple
    b) leave old 401(k) where it is until I don’t need it any more to keep my international stock allocation out of the new 401(k) and then roll it into the new one (move after-tax 401(k) contributions to Roth IRA)
    c) roll old 401(k) into new 401(k), but move after-tax 401(k) contributions to Roth IRA
    d) leave old 401(k) where it is and do in-plan Roth conversions

I then made a huge spreadsheet to compare options A, B, C, and D for question 4. B was much more expensive than A or C due to the fee my old employer will start charging soon, so I didn’t make a spreadsheet for option D at all. C ended up being cheaper than A for the first several years and then eventually A became cheaper, but not by a huge margin either way. This makes it a strong vote in favor of option C.

I’m about two months’ away from Vanguard telling me my 5 year return (it’s the small, psychological things…) and if I roll my old 401(k) out before then, I won’t see that number on Vanguard’s site…

I also decided that since the international stock index fund I have access to in my new employer’s 401(k) plan isn’t as complete as the Vanguard one, I’m going to try to keep as much of my international stock allocation as possible in my taxable and Roth IRA accounts. It’s currently the only fund in my taxable account, so I’ll do some rearranging in my Roth IRA at some point.

This also answers question 2, suggesting that I should move the after-tax money to a Roth IRA instead of doing an In-Plan Roth conversion. I’m going to see about rolling the Roth portion of my old 401(k) into my Roth IRA and otherwise, I’ll wait until early May to roll the pre-tax portion to my new 401(k).

I’ve started investigating how to do the rollover. I called the old 401(k) plan administrator and they said that I can roll the Roth portion into my Roth IRA and the pre-tax portion into my new 401(k), so long as I do it all at once. I can initiate leaving the old plan online and the funds should get to my Roth IRA within 2-3 business days. The new plan required me to request some papers to be mailed to me, which will take 3-5 business days, and then I’ll take a look at things again. The telephone rep from the old plan told me that the new plan will most likely require a check to get mailed to them, which will take about 2 weeks. My boyfriend and I were both pretty amused/confused at how much mailing was involved in this process despite the fact that it is 2015…

Yay for a plan (though still with some details to fill in) on this at last! It was stressing me out quite a bit to be unsure what to do with this, especially since my old 401(k) is worth about $100,000, which is about 55% of my overall investments.

Here’s a graph of my old 401(k) balance over the last ~5 years, as an ode to it. It has been a good 401(k) to me over the last five years and I will miss it. (I also refused to shred my old health insurance card. It’s with my previous health insurance card. Yes, I am a bit of a hoarder…) You can see that I didn’t contribute as much in the first year, but I started maxing it out partway through 2011 and it has grown quite nicely since then!

Ode to my old 401(k) balance

Readers, what do you usually do with your old employer’s retirement plan when you leave?

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