What is your Savings Program?

[ziggy29]

It looks like my "program" is going to change next year. We probably won't be maxing out my 401K next year because we're becoming HSA eligible through Megacorp's new benefits program next year. Since HSA contributions are not only pre-tax, but also taken out before SS and Medicare taxes when taken through payroll deductions, it makes sense to contribute fully to an HSA next year before adding to non-matched 401K contributions which are subject to SS and Medicare taxes. This is similar to how other payroll deductions for health care (insurance premiums, dental and vision) are treated in a qualified cafeteria benefits plan.

That's a loophole I expect to see closed in the future (perhaps as early as 2009 or 2010), but for now, I'll take it. If we have enough left over to max out the 401K even after maxing out the HSA and two Roth IRAs, great. If not, we're still better off not taking that 7.65% hit on some of the money.

[dusk_to_dawn]

Automatic 403b for me and 401k for dw each pay period. Manual full contribution to roth ira for me and dw at first of year. Skim off excess from checking account to vanguard or high interest savings. It's worked pretty good so far.

[Maurice]

Hmmm... not sure if I qualify as a young dreamer but I'll post here anyway.

My pay is bonus driven. My bonus comes in February and represents the majority of my income. I live on my base salary and invest the majority of the bonus, which is also when I do my rebalancing. I say 'the majority' because some is paid in stock with a small vesting period, and I usually make a largeish mortgage payment out of it as well.

I also fully fund my 401k for the year out of my bonus (well, the bonus plus the first couple of checks between Jan 1 and bonus time).

The only other time I invest new money is Jan 1 - we write checks for both T-IRAs at the earliest possible moment. I do this out of my checking account, not my bonus.

So all of my savings occurs between January 1 and the end of February.

[Meadbh]

Earlier in my career (when I really was a Young Dreamer) I used DCA to pay into my RRSP. That was when all my earnings were salaried. Nowadays my salary accounts for only 1/3 of my total; 2/3 is corporate earnings. My RRSP maximum is less so I pay into it once a year in April, when I know what my upper limit is for that tax year. I always fully subscribe.

Corporate earnings are taxed at a lower rate but will be subject to additional taxes when I withdraw them as dividends after RE. I live on my salary and save all surplus corporate earnings. I have three accounts: checking, high interest savings, and investment account. Each month, $5K flows automatically from checking to investment. Expenses are paid from checking. When the balance in checking is high, I transfer it to high interest savings or to investment, depending on how I'm feeling about market trends. During the recent market correction I was glad to have that cash buffer.

I accumulated a chunk of after tax savings earlier in life and an inheritance substantially boosted that to the extent that I could probably live cheaply on an SWR of 4%. Currently if I manage to save anything from my salary after tax, I regard it nice to have for discretionary items (new car, etc) but not part of my automated RE savings program.

Current wisdom suggests that I draw on the after tax portfolio early in RE to enable maximum compounding of the taxable assets for later use.

[Ronstar]

Not sure if we are young dreamers, but my wife and I each have auto deposits to 401k's. We live off base salaries with my income from corp profits invested quarterly.

[accountingsucks]

For my work plan, I automatically contribute 7% with 5% employer match. In Canada we can contribute 18% of our salary to our Registered Pension Plan (like 401K). Normally my year end bonus is about 6% of salary and I instruct my employer to also deposit that into my RRSP so it is tax free. As far as my non RRSP, I do not automatically have my investments made. Normally around the 15th of each month I invest in whatever appears attractive at the time. If nothing does, then I just stick it in some index or low fee mutual funds. I aim to save 55%+ of my gross salary as my home is paid off.

[EarlyRetiree1978]

Max out 401K (15.5K). Also put additional amount aside each month in taxable (cant do Roth due to Income constraints)

[jnojr]

With every paycheck, I use direct deposit to:

1) contribute the employer match max to my 401(k)

2) contribute 1/26th of the yearly max to my Roth IRA

3) deposit a certain amount to a mutual fund money market

The result is that I wind up living well below my means. I just have to live on what's left, period.

[growing_older]

I set everything I can on automatic. 401k is automatically deducted from paycheck. Rest is direct deposited into checking. Amount is stable and predictable, so two days later the autopay from the bank pays the bills and transfers a set amount into savings. There's a bit left over in case I want some walking around cash or to cover irregular expenses. I check every so often and see if it looks like the cushion in the checking account has grown or shrunk. If it's bigger, I'll sweep some into savings. If it smaller, I'll tighten belt or adjust autopay for a month or so. With everything on automatic I can ignore as long as I want (months even) or check and adjust as often as I like.

[ziggy29]

Wow. Between the HSA, 401K and Roth IRA, and including the employer match on the 401K, we'll be able to deposit $35,300 next year (if we can afford it) into those respective accounts. There should be no dearth of options to "save" next year, and it's looking like it will be a good year to load up...

[Alex.]

Can you guys explain what you mean when you are paid corporate earnings?

Is that like you guys getting compensated outside your base salary in a tax advantaged way, like stock options or something?

[Meadbh]

Quote:

Originally Posted by Alex. Can you guys explain what you mean when you are paid corporate earnings? Is that like you guys getting compensated outside your base salary in a tax advantaged way, like stock options or something?

Paging Dr. Meadbh.....Dr. Meadbh calling, how can I help you?

Dr. Meadbh has a professional corporation. Let's call it the Dr. Meadbh MedCorp. It's a legal entity that employs one person, Dr. Meadbh, who provides clinical services for which the corporation gets paid. Federal income tax on corporate earnings is ~18%, significantly lower than the personal tax rates. If Dr. Meadbh is willing to wait for her money (i.e. to save within the corporation), the corporation can invest the corporate earnings and at some later time, can pay them out to Dr. Meadbh as dividends. The dividends are now taxed in Dr. Meadbh's hands. If Dr. Meadbh is now an ER, she will benefit from very low marginal tax rates on her dividends. Meanwhile, the deferral of dividend ;payouts facilitates the miracle of compounding within the corporation's portfolio.

Dr. Meadbh can also employ her spouse, kids, or anyone else to do necessary corporate work, e.g. bookkeeping. If said spouse or kids are in a lower tax bracket, total family tax burden is significantly reduced. Further, the corporation can establish a personal health plan for its employees. It can reimburse them for health expenses not covered by Medicare. These health expenses are expensed to the corporation, rather than being personal expenses paid with after tax dollars.

Other professionals, e.g. engineers, accountants, lawyers, who are independent contractors can do this too. Legislation varies by province but it's all perfectly legal provided there is no employer-employee relationship. The only glitch for medical corporations is that the corporation retains liability for the physician's professional mishaps. There is some expense involved in setting up and maintaining the corporation, and it only makes sense if Dr. Meadbh can LBYM.

Best forced savings plan ever!

More info at: MD Financial Solutions

[Alex.]

Quote:

Originally Posted by Meadbh Paging Dr. Meadbh.....Dr. Meadbh calling, how can I help you? Dr. Meadbh has a professional corporation. Let's call it the Dr. Meadbh MedCorp. It's a legal entity that employs one person, Dr. Meadbh, who provides clinical services for which the corporation gets paid. Federal income tax on corporate earnings is ~18%, significantly lower than the personal tax rates. If Dr. Meadbh is willing to wait for her money (i.e. to save within the corporation), the corporation can invest the corporate earnings and at some later time, can pay them out to Dr. Meadbh as dividends. The dividends are now taxed in Dr. Meadbh's hands. If Dr. Meadbh is now an ER, she will benefit from very low marginal tax rates on her dividends. Meanwhile, the deferral of dividend ;payouts facilitates the miracle of compounding within the corporation's portfolio. Dr. Meadbh can also employ her spouse, kids, or anyone else to do necessary corporate work, e.g. bookkeeping. If said spouse or kids are in a lower tax bracket, total family tax burden is significantly reduced. Further, the corporation can establish a personal health plan for its employees. It can reimburse them for health expenses not covered by Medicare. These health expenses are expensed to the corporation, rather than being personal expenses paid with after tax dollars. Other professionals, e.g. engineers, accountants, lawyers, who are independent contractors can do this too. Legislation varies by province but it's all perfectly legal provided there is no employer-employee relationship. The only glitch for medical corporations is that the corporation retains liability for the physician's professional mishaps. There is some expense involved in setting up and maintaining the corporation, and it only makes sense if Dr. Meadbh can LBYM. Best forced savings plan ever! More info at: MD Financial Solutions

Thank you Dr. Meadbh.

[Bimmerbill]

I have 18% per paycheck deposited into my TSP (gov't 401K), plus I do the FSA for medical expenses (just finished paying off my braces).

I've been dragging my feet on setting up an automatic Roth deduction, so maybe I'll do that soon. Don't think I can afford the full amount tho.

Also, my job provides a pension, based on longevity. So just working adds 1% per year to my pension.