Increased Income - Calculating our retirement goal

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Topic Author
Enjoyingthemiddle
Posts: 8
Joined: Mon Jan 23, 2023 8:59 am

Increased Income - Calculating our retirement goal

Post by Enjoyingthemiddle »

My husband and I have increased our income quite a bit in the last year or so. Can anyone help me calculate our retirement using these new parameters?

Husband: 136K plus 50K RSUs
Contributing 12% to 401K plus 3% match

Me: 78K
Contributing 10% to 401K plus 8% match

We aren’t sure what we’ll do with the RSUs when they vest at the end of the year, I was thinking maybe we sell them and move the money into a brokerage account earmarked for additional retirement savings. Our home will be paid off in less than 13 years and is at 2.625%. We have 40K in an emergency fund.

Current retirement balance is 300K.

Back when we made 175K combined my goal was to save 40K per year and retire in our mid 50s with 3M and a paid off house.

I’m trying to get an idea of where we’ll be at in 18 years if we strictly save in our 401Ks as stated here and add the RSUs (after taxes?). Can we surpass my goal of 3M/retire sooner?

Side note: We can also add a lot more to a brokerage annually from our base income, however we’re currently using it to travel and enjoy life with our daughter who is in elementary school. We are fine overall with retiring in our mid 50s.
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Increased Income - Calculating our retirement goal

Post by KlangFool »

OP,

1) At your income level, it is a no-brainer to max up your Trad 401K and Roth IRAs. Then, you can use the Roth IRAs' contribution to pay for your daughter's college education.

"Our home will be paid off in less than 13 years and is at 2.625%."

2) What is the point of paying off the house and then take a more expensive student loan for your daughter?

3) Cash out your RSU when it is vested.

4) At your income level, there is no reason why you cannot do (1) and spend enough. If you do not do (1), you would be paying a lot of taxes for your additional expenses.

5) Do you plan to pay for your daughter's college education?

6) 401Ks and IRAs are not retirement accounts. They are tax-advantaged accounts. You can get the money out tax-free and penalty-free before 59 1/2 years old.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
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sailaway
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Joined: Fri May 12, 2017 1:11 pm

Re: Increased Income - Calculating our retirement goal

Post by sailaway »

If you don't have tIRA accounts, you might want to consider backdoor Roth contributions.

And/or, look at each of your 401k plans to see if they allow non Roth after tax contributions and either in plan conversion to Roth or in service rollovers that would allow you to move the money to a Roth IRA. This process is known as the mega backdoor Roth.

Whether or not any of this reaches your goals sooner depends on what you are invested in how those investments do over the next 13 - 18 years. At the end of 2021 we were so close to our stretch goal that contributions would be enough to put us over the top. Instead, even with contributions we have slipped backwards a bit. On the other hand, if you can keep your jobs through your planned time period, any stock market dips will help propel you to new highs as the market rises again.
Topic Author
Enjoyingthemiddle
Posts: 8
Joined: Mon Jan 23, 2023 8:59 am

Re: Increased Income - Calculating our retirement goal

Post by Enjoyingthemiddle »

KlangFool wrote: Tue Jan 24, 2023 6:07 pm OP,

1) At your income level, it is a no-brainer to max up your Trad 401K and Roth IRAs. Then, you can use the Roth IRAs' contribution to pay for your daughter's college education.

"Our home will be paid off in less than 13 years and is at 2.625%."

2) What is the point of paying off the house and then take a more expensive student loan for your daughter?

3) Cash out your RSU when it is vested.

4) At your income level, there is no reason why you cannot do (1) and spend enough. If you do not do (1), you would be paying a lot of taxes for your additional expenses.

5) Do you plan to pay for your daughter's college education?

6) 401Ks and IRAs are not retirement accounts. They are tax-advantaged accounts. You can get the money out tax-free and penalty-free before 59 1/2 years old.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
We just have 13 years left on our mortgage, we’ve owned it for 10 years and refinanced to a 15 year to get the 2.625 rate two years ago.

You’re right, we both absolutely need to max our 401Ks now that we’re at this income level.

We do plan on paying for her college by cash flow, our typical monthly expenses are just 6K so we have a lot of money to work with each month. No student loans for her is the goal.

Thank you for that, I have been using the wrong terminology!
Topic Author
Enjoyingthemiddle
Posts: 8
Joined: Mon Jan 23, 2023 8:59 am

Re: Increased Income - Calculating our retirement goal

Post by Enjoyingthemiddle »

sailaway wrote: Tue Jan 24, 2023 6:11 pm If you don't have tIRA accounts, you might want to consider backdoor Roth contributions.

And/or, look at each of your 401k plans to see if they allow non Roth after tax contributions and either in plan conversion to Roth or in service rollovers that would allow you to move the money to a Roth IRA. This process is known as the mega backdoor Roth.

Whether or not any of this reaches your goals sooner depends on what you are invested in how those investments do over the next 13 - 18 years. At the end of 2021 we were so close to our stretch goal that contributions would be enough to put us over the top. Instead, even with contributions we have slipped backwards a bit. On the other hand, if you can keep your jobs through your planned time period, any stock market dips will help propel you to new highs as the market rises again.
Thank you for the reply. We opened Roths three years ago and maxed them the first two years. We did not contribute to them last year. Need to look into the back door option. I do not believe either of our plans allow for mega back door.
Jack FFR1846
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Re: Increased Income - Calculating our retirement goal

Post by Jack FFR1846 »

Something little to consider is to overpay federal income taxes (you want to with RSUs anyways) to be at least $5k over. Then take the $5k refund as paper iBonds.
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Topic Author
Enjoyingthemiddle
Posts: 8
Joined: Mon Jan 23, 2023 8:59 am

Re: Increased Income - Calculating our retirement goal

Post by Enjoyingthemiddle »

Jack FFR1846 wrote: Tue Jan 24, 2023 6:28 pm Something little to consider is to overpay federal income taxes (you want to with RSUs anyways) to be at least $5k over. Then take the $5k refund as paper iBonds.
Thank you for the iBonds suggestion. Can you explain more about why to overpay when it comes to RSUs? We’re new to this.
sailaway
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Joined: Fri May 12, 2017 1:11 pm

Re: Increased Income - Calculating our retirement goal

Post by sailaway »

Enjoyingthemiddle wrote: Tue Jan 24, 2023 6:30 pm
Jack FFR1846 wrote: Tue Jan 24, 2023 6:28 pm Something little to consider is to overpay federal income taxes (you want to with RSUs anyways) to be at least $5k over. Then take the $5k refund as paper iBonds.
Thank you for the iBonds suggestion. Can you explain more about why to overpay when it comes to RSUs? We’re new to this.
You will actually likely be fine at your income level. However, RSUs are generally withheld like bonuses at a flat supplemental rate of 22% for federal. If your marginal rate is higher than that, this can result in a shortfall. The more RSUs and bonuses, the bigger the shortfall. If your marginal rate is less than 22%, you end up with a big refund.
livesoft
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Joined: Thu Mar 01, 2007 7:00 pm

Re: Increased Income - Calculating our retirement goal

Post by livesoft »

Enjoyingthemiddle wrote: Tue Jan 24, 2023 6:23 pm Thank you for the reply. We opened Roths three years ago and maxed them the first two years. We did not contribute to them last year. Need to look into the back door option. I do not believe either of our plans allow for mega back door.
You have until April 2023 to make your 2022 IRA contributions.
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Topic Author
Enjoyingthemiddle
Posts: 8
Joined: Mon Jan 23, 2023 8:59 am

Re: Increased Income - Calculating our retirement goal

Post by Enjoyingthemiddle »

sailaway wrote: Tue Jan 24, 2023 6:34 pm
Enjoyingthemiddle wrote: Tue Jan 24, 2023 6:30 pm
Jack FFR1846 wrote: Tue Jan 24, 2023 6:28 pm Something little to consider is to overpay federal income taxes (you want to with RSUs anyways) to be at least $5k over. Then take the $5k refund as paper iBonds.
Thank you for the iBonds suggestion. Can you explain more about why to overpay when it comes to RSUs? We’re new to this.
You will actually likely be fine at your income level. However, RSUs are generally withheld like bonuses at a flat supplemental rate of 22% for federal. If your marginal rate is higher than that, this can result in a shortfall. The more RSUs and bonuses, the bigger the shortfall. If your marginal rate is less than 22%, you end up with a big refund.
Ok good to know. I expect my husbands income will continue to increase over the next few years.
Topic Author
Enjoyingthemiddle
Posts: 8
Joined: Mon Jan 23, 2023 8:59 am

Re: Increased Income - Calculating our retirement goal

Post by Enjoyingthemiddle »

livesoft wrote: Tue Jan 24, 2023 6:35 pm
Enjoyingthemiddle wrote: Tue Jan 24, 2023 6:23 pm Thank you for the reply. We opened Roths three years ago and maxed them the first two years. We did not contribute to them last year. Need to look into the back door option. I do not believe either of our plans allow for mega back door.
You have until April 2023 to make your 2022 IRA contributions.
Thank you!
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