Roth IRA maxed for first year in 2020!

[FIREarly]

Yes, this is an excitement post and not intended to brag at all. I am SUPER excited to have maxed out my Roth IRA for 2020 in January (chose 2020 for tax year to complete it)!!

This is amazing and so much fun. $500/month = $6,000/year AKA MAXED OUT!! This is not to talk about the stock/stock(s) purchased in the Roth IRA but I am so happy to have completed/maxed out my 2020 Roth IRA!!

My age: 37 (usual story, wish I did this sooner)
My expected "retirement" date: I'm bad and did not set it but want it to be by 50 years old because of "impressive" spending habits. In 2020, DW (and I) got:
-new Hyundai Palisade (loan: 3.75%... NOT cash but under 4% so not rushing to pay it off vs the return from the market; not Dave Ramsey's plan)
-Peloton (paid off in cash and $40/month... less than Lifetime Fitness, canceled it)
-Puppy (DW's desires, I love the dog and take care of him. It's a good thing... keep saying that waking up to the puppies alarm clock)

These expenses were afforded and still able to max the 2020 Roth IRA due to DW and my combined income and having a plan. I read the book "I will teach you to be rich" by Ramit Sethi and believe in the thoughts and processes in this book. They helped me with multiple banks accounts (at the same bank) so I have an account for:
-Long term savings
-House savings (modifications/down payment for new home; invest this money and it's going well)
-Annual water bill ($710/year)
-Vacation fund
-Gifts
-Donations
-Stimulus money (temporary; this account changes names)
-Leftover expenses

Adding a title to each account mentally helps me/you/us not spend the money because we feel that it is for whatever the title is. It works for me and was described in the book. Thank you Ramit!

There is probably more to write but this is a good start to express my excitement for maxing out my 2020 Roth IRA for the first time!! Woot Woot!!

Next goal is to max out the 401k (currently at 7% of salary)
One reason this may or may not happen right away is because my retirement account and HSA are outperforming the options in my 401k, beyond the tax savings (HSA is an AMAZING retirement plan, possibly beyond medical needs, but that is for another post)!

Any thoughts are always appreciated.

One more time, I MAXED OUT MY 2020 ROTH IRA FOR THE FIRST TIME!!

 

[VanWinkle]

Keep up the good work, it will pay off in the future!! Congrats!!!

VW

 

[FIREarly]

Keep up the good work, it will pay off in the future!! Congrats!!!

VW

Thank you!
It already feels very good. One more dance...

 

[pjm-7]

Keep at it! It seems small but it does compound over time. I am one of those people that for the first dozen years of my working life I had neither a pension or a 401(k). 401(k)s had just started in the 1980's and the restrictions to get in were ridiculous (three years with employer and only could get in twice a year). So, my only retirement plan for years was $2000 into a traditional IRA. I tried to believe that anything would help. That compounding thing truly works.

 

[SnowballCamper]

Good Job! ...should pay yourself first, each paycheck, by contribution to that Roth IRA. Dollar cost average into low cost index funds. It starts slow, but the inflection point is when the growth exceeds the contribution limits, and then it really makes you smile.

 

[FIREarly]

Good Job! ...should pay yourself first, each paycheck, by contribution to that Roth IRA. Dollar cost average into low cost index funds. It starts slow, but the inflection point is when the growth exceeds the contribution limits, and then it really makes you smile.

Can't agree more, Dollar Cost Average (DCA) is amazing!

Right now, monthly DCA due to getting paid once per month. Occasionally have funds for random other buys.

Will you provide example of when growth exceeds the contribution limits?

 

[SnowballCamper]

Sure, easy. Lookup VTIVX (Vanguard target date retirement 2045) and see that it averaged 10.7% returns for the last three years. The 2021 contribution limit is $6000. So if you start 2021 with $56,075=6000/.107 and get 10.7% return, your earnings will be about the same as your contribution (actually slightly more, depending on contribution timing) and you'll have about $68,075 at the end of the year, twice as much more as you contributed. Psychologically I found this point to induce a lot of confidence/stress reducing.

 

[FIREarly]

SnowballCamper, thank you for the well written post. It is helpful!

 

[The Cosmic Avenger]

Nicely done, FIREarly! That's about the age when I started to max out, too! I'm now 50, and FI but will probably RE in 3 years, when there are no more tuition payments. And we also started keeping separate savings accounts around that time, like when we paid off our cars we kept 75-90% of the payment going into a "new car fund" account, and now we're ready to pay cash to replace our 2006 car.

Definitely inch up the 401(k) contribution. Ours lets you set it to go up by X% per year, they suggest 1%, and of course if you don't have that you could do it manually. And nice work on the HSA, we just started one, and it will definitely help you bridge the years between ER and Medicare eligibility.

 

[FIREarly]

 

[GalaxyBoy]

Yeah! I felt very similarly.

Even better is when you turn 50 and can add even more.

 

[FIREarly]

Yeah! I felt very similarly.

Even better is when you turn 50 and can add even more.

Great post, appreciate your feedback and hope to increase investments until 50!

Go team!

 

[teetee]

For your kid's benefit ( if you have any), mark on the calendar to help them create a Roth IRA account and set up auto annual contribution / invest as soon as they hold a job. Some may be before college.

Me too started max contribution around age of 37. That is at least 15 years too late!

 

[FIREarly]

For your kid's benefit ( if you have any), mark on the calendar to help them create a Roth IRA account and set up auto annual contribution / invest as soon as they hold a job. Some may be before college.

Me too started max contribution around age of 37. That is at least 15 years too late!

No kids, wish I started sooner but it is what it is and I'm happy to be where I'm at now. I'm genuinely blessed to be able to have made such positive progress in life and am striving to continue the positive progress.

Just heard about the Millionaire Fastlane book, via Bigger Pockets interview, and after my current class will buy and read it. I am happy making it to the slow/medium lane and excited to switch to the fastlane!

If you're not familiar with the book more info about it here: https://thepowermoves.com/millionaire-fastlane

 

[teetee]

I am not sure I would follow Bigger pockets suggestions. They are leaning towards using debt as leverage for business. I may check out the book if it doesn't tell me to take out the loan and use my cash to invest and those risk exposing nonsense.

 

[pb4uski]

+1. They lost me at:

The Millionaire Fastlane teaches readers that the most touted way of getting rich, such as saving and investing, is a sucker’s choice.

Looks like the author made his millions with an internet site and not investing.

 

[skyking1]

I am not sure I would follow Bigger pockets suggestions. They are leaning towards using debt as leverage for business. I may check out the book if it doesn't tell me to take out the loan and use my cash to invest and those risk exposing nonsense.

What teetee said here.
You are so far ahead of things now and it is not about how you invest, but the fact that you are doing it and committed to consistent investment.
You do not need to hang your assets out in riskier schemes to make up for supposed lost ground.
You put time on your side.

 

[RxMan]

Congrats! I started maxing my Roth around your age or maybe a year or two younger. I’m so thankful that I did. You will be surprised at how it will grow. This is a powerful addition to a traditional 401k plan for a total retirement savings plan.

One note of caution. Don’t forget to work on building assets outside of your retirement savings accounts if you have plans to retire around age 50. You will need funds that you can access penalty free for the years until you reach 59.5 years old.

You are well on your way to a successful retirement that will be on your terms. Congrats and good luck!

 

[FIREarly]

Congrats! I started maxing my Roth around your age or maybe a year or two younger. I’m so thankful that I did. You will be surprised at how it will grow. This is a powerful addition to a traditional 401k plan for a total retirement savings plan.

One note of caution. Don’t forget to work on building assets outside of your retirement savings accounts if you have plans to retire around age 50. You will need funds that you can access penalty free for the years until you reach 59.5 years old.

You are well on your way to a successful retirement that will be on your terms. Congrats and good luck!

Thank you!

I'm on path to max out my Roth IRA again and try to contribute another $500/month to a standard brokerage account. My 401k currently gets 7% of my paycheck (+/-$530) with 6% matched at the end of year, automatically 100% vested.

 

[ArmchairMillionaire23]

Definitely inch up the 401(k) contribution. Ours lets you set it to go up by X% per year, they suggest 1%, and of course if you don't have that you could do it manually. And nice work on the HSA, we just started one, and it will definitely help you bridge the years between ER and Medicare eligibility.

I used to contribute a percentage. When I started my first job with a 401(k) I started out at 10%, then 12, 15, 18, 20, 22, 25, 28... up to about 33%. But one year I hit the federal limit before the end of the year so I stopped increasing the contribution amount. After that, even after switching jobs and working my way back up, I had to keep a watchful eye to make sure I didn't go over the limit.

A few years ago a coworker suggested contributing a fixed dollar amount every paycheck based on how much I wanted to contribute for the year and that turned out to be a much easier way to go.

You can pick your dollar amount, and if you just divide your yearly amount by the number of pay periods in a year it makes it easier to keep up with.

I'm 50 now, so my 401(k) contribution limit is $26,000 and I get paid weekly so $26,000 ÷ 52 = $500 per week.

My IRA contribution limit is $7000 ÷ 12 = $583.33 per month.
My wife's limit is $6,000 ÷ 12 = $500.00 per month.

I divert $250 a week from checking into savings to cover the IRA contributions.
($7000 + $6000 = $13,000... $250 x 52 = $13,000)

And my H.S.A. limit is $3300 a year (employer kicks in $300)
so $3300 ÷ 52 = $63.46 per week, bumping up to $63.54 for the final week.

I don't know if your w*rkplace offers fixed dollar amount contributions but for me it's been easier just knowing how much is going in every week and not having to worry about exceeding the federal limits.

Good luck hitting those goals!

 

[FIREarly]

@ArmchairMillionaire23

Great post!

I'm reading it from the car while the puppy is in the vet. I'll come back to read again and look into the #'s with my once/month paychecks from w*rk.

 

[The Cosmic Avenger]

<snip>
I don't know if your w*rkplace offers fixed dollar amount contributions but for me it's been easier just knowing how much is going in every week and not having to worry about exceeding the federal limits.

Believe me, I gave our plan manager grief about that a long time ago! We can't pick a specific amount, but luckily, our contributions automatically cut off at the limit, so while I've been adjusting my percentage down every year to stay just over the limit, my spouse has been leaving it, and getting bigger paychecks for the last month or two of the year, which they consider a nice holiday "bonus". What's interesting is that we're at different companies, with our 401(k)s with different firms (Fidelity & Vanguard).