Upping my 401K Contributions

I just decided to up my 401K contributions. The reason I’m doing this is because: I’m going to be ending employment with my company shortly. My division is being purchased by another company. I’m not sure if I’m going to be going to the new company, but either way I will have a new employer since if I don't go to the new company, I'll be laid off.

I hate participating in multiple 401K plans. Also I’m not even sure who my new employer is going to be and they might not have a 401K plan (then again, I might be giving up a great employee match with my future, yet-to-be-determined, employer.

So I just decided to up my contributions to 50% of my salary per paycheck, which is the max my plan allows. If I stay with my company until the mid July, I will put the full $16,500 maximum in for this year. If I get to the end of June. Which is when the sale is supposed to go through, I’ll have put in about $500 less than the max for this year. Not sure what to hope for, but more savings for retirement has to be good!

Today is the LAST Day to Fund Your IRA for 2007

Today I took the opportunity to fund my Roth IRA for 2007. Why did I wait so long? Well if you saw my earlier post on taxes, you know we just finished them over the weekend. I wanted to make sure C and I didn't exceed the income limit to make the full contribution. Once we had our AGI figured out, I knew that I should fund my Roth ASAP. But I made the mistake of not having enough money in my BofA checking account nor directly with Schwab, where I have my Roth. I had all the money in my ING account and I could have sent a check from it, but I felt more secure transferring the money to my BofA checking account so I could make the deposit in person. I ended up starting these transfers last Thursday. The money was fully transferred into my BofA account today with no holds, so I was free to deposit that check!

Yippee!!

The one lesson I learned here is it's good to not cut things so closely. There were some online transferring options that I wanted to do, but it would have taken too long for the money to clear and become available hence I had to go with the in person option.

Monthly Savings Needed for My Early Retirement Goal

I used this nifty savings calculator at one of my favorite financial websites, Bankrate to determine what my monthly savings needs to be in order to hit my $25,000 early retirement goal for 2008.

The calculator is great since it allows you to play with the interest rate.

I inputted in the amount I have today, my goal of $25,000, my time horizon, and tried out different interest rates. The calculator tells you how much you need to put in to be on track. I found that even with a 9% interest rate, I still need to accumulate $1,212 a month! Yikes, that is a lot of money!

So far I have added $425 to the account, but most of that is spill over from December. I need to be really serious in order to make this a success!

Why I Want to Retire Early

One of my lifelong goals is to be able to exit the full time workforce early - in just 7 years at age 35. My husband and I are planning on having kids in a few years and I would like to have the freedom to stay home with them. In my opinion, how you were raised makes a big difference in how you want to raise your children. When I was growing up, I never felt like I had much support from my parents, despite the fact that neither worked the long hours that my husband and I work (they both normally got home by 6 pm). We even had the dinner together as a family most of the time. Of course, my parents were always there providing for my basic needs, I just felt like I didn't get to spend much time with them.

Thus it's very important for me to be able to spend time with my children. In order to do so, I'm trying my best to think about how I can sacrifice now to spend time with them in the future, when they exist.

I came up with a goal of having $25,000 in my early retirement account by the end of this year. Of course, I'll need much more than this to retire early. My husband and I estimate that we would need at least $60,000 in annual income in addition his salary coming from non-retirement accounts. The details are still fuzzy, but I know I need to acquire as many assets NOW. I came up with $25,000 since I thought that was a do-able goal without taking too much from the joint goals my husband and I have. My husband and I are still planning on saving as much as we can for our home down payment, contributing the max to our regular retirement accounts, and fully funding a Roth IRA, if we're eligible. There's a good chance that we may exceed the income threshold and be unable to contribute next year.

Here's where I'm hoping that $25K will come from:

$9,000 current balance (give or take a few hundred, depending on the market)
$1,200 salary contribution ($50 each paycheck)
$4,000 per diem contribution (Allowance when traveling, mentioned here
$2,000 from online endeavors
$1,000 investment gains (anyone have advice on where to put this? Right now it's in the S&P 500, which is not doing so hot)
$3,000 bonus (this is a stretch - my group is doing great, but my company is not)
$2,000 gym bonus (I have worked out a deal with my husband where he will give me bonuses for going to the gym more than twice a week - this dovetails nicely with my goal of running a 1/2 marathon)
$22,200 Total

The question for me is where is that other $2,800 going to come from? And if I don't get the $3,000 bonus, where is that $5,800 going to come from?

One potential source of additional funds is going to the gym more, but I need to be honest - I don't like to exercise that much. That's why my husband agreed to the incentive!

I'm hoping to increase my online income more than $2,000, but that's pretty difficult. This is an area where I think it takes a lot of effort in the beginning with little or no payoff. In the end it can really have a snowball effect. Right now I can imagine myself getting a tutoring job, knowing that I could probably clear $25-$45/hour. But that would really cut into my free time and it would require one of my most dreaded words "commitment". My job is somewhat unpredictable. Some weeks will be slow and I'll only work about 30 hours, but that's pretty rare. On average, I think I work 50-55 hours, so I don't want to commit myself to something that may impede my primary income.

Does anyone else have ideas of where I can come up with "additional" income? Be on the lookout for a future post on some of my ideas for online income (this is going to be pocket change for most of you, but I think starting small helps).

Thoughts on the Roth 401K and AMT

Recently my company announced that they would be offering the Roth 401K to all employees. I was very excited about this since I had contacted HR asking if they could make this offering available. At first I thought that there was no question that I should contribute and contribute the max to the Roth 401K. Now here are some things I'm considering. I don't have any of the right answers, so if anyone out there has experience or more information on this topic, I would appreciate it.

1. Contributing to a Roth 401K vs. a regular 401K would reduce my take home pay since the regular 401K is a pre-tax deduction while the Roth 401K is an after tax deduction. I should calculate how much this will reduce my take home pay since C and I are aggressively saving to buy a home.

2. Since a regular 401K is an pre-tax deduction, this reduces our overall AGI (Adjusted Gross Income). Does this have implications on whether or not we will have to pay the AMT (Alternative Minimum Tax)? The AGI is your adjusted gross income which is what your federal taxe are based on. The AMT is a tax that was originally supposed to be levied only on the wealthy, but the salary guidelines were not inflation adjusted, hence it's starting to affect more and more middle class taxpayers (I consider my husband and I upper middle class). Some good links to the AMT are here and here.

I don't know what to do and I have no idea how to figure out if the AMT will affect us in 2008. I guess if we have to pay AMT in 2007, that would be a sign that we may need to pay it in 2008, although I expect our income in 2008 to be $30K-$44K higher (I received several pay raises in 2007, but my overall pay in 2007 was probably $10K-$15K less than my ending annual salary plus I should get another pay raise for my overall 2007 performance and C received a higher than expected salary increase). I don't think we will have to pay AMT this year since we don't have a lot of deductions (I think we donated less to charity than the standard deduction), so I'm hoping we'll be safe!