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How to save when most income comes through a year end bonus

Started by Behemoth, February 16, 2019, 06:03:33 AM

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I really like Gillian_Seed's post about his savings strategy so I will post mine in a similar format. Would love to get feedback from the community. I have another thread on the debt paydown ratio (I'm using Sam's debt paydown ratio to pay 50% of my savings on the loan) so I want to solicit feedback on my savings plan.

Goal: Save for retirement, kid's school, world travel
Age: 30
Marital Status: Married with kids
Gross Income: $150,000 base with 80-120% year end bonus
Debt: $120,000 in student loans at ~5%

Savings Plan:

Here is where I need some help. I have no 401k matching and I am above the Roth IRA limit. The tax advantage accounts I can use are a traditional IRA, 401k, FSA ($2,500 yr max), commuter account ($250/month).

I'm in a high COL city and in order to max every account, I can't dollar cost average throughout the year. What I'm thinking now is I spread the 401k, FSA, and commuter account through the year, and then I use my bonus to max my IRA at the end of the year (plus use the rest of the bonus to fund my accounts with no tax shield like my dividend portfolio, 529, and pay a % down on the student loan)

Fat Tony

Backdoor Roth IRA if you're above the limit.

If you're liquid, front-loading somewhat in the year is generally beneficial, but it sounds like you're paying down debt so it's fine - the difference is mainly psychological on a $6K chunk. I think if you take your risk-free rate as 4.5% you can run your math on your own risk tolerance and Modern Portfolio Theory and determine what your paydown vs. investment ratio is, especially if you have high risk tolerance. Actually a pretty interesting question. Considering 30-year mortgages are near 4.5% nominal, and expected equity returns are probably a hair above that (two percentage points?). What I do think though, is that you should be investing in very little bonds, because doing so is quite inefficient.


Thanks for the link - I need to do some additional reading on the backdoor roth