Last year I was funding a traditional 401k from my paycheck. Today I got my first paycheck after having switched from funding the (pre-tax) traditional 401k to an (after tax) Roth 401k.
My net bi-weekly paycheck has remained almost exactly the same, at about $1204! I thought I would net much more because I reduced the overall contribution from 25% to 22.5%. Yet I'm paying an extra $350 in taxes each paycheck just because I'm having to pay taxes upfront on the Roth 401k contributions..
I was paying just $476 in taxes per paycheck with the traditional 401k contributions as opposed to $825 now!
Still, I'll be netting $2709 a month in pay and with my expenses sometimes as low as $2,000, I should have sufficient cushion.
I wanted to put more money into a Roth account as I am quite top-heavy now with much more $ in traditional IRAs, and after having read a number of articles about withdrawal strategies that minimize taxes, I know I need more money in Roth accounts to do that.
Say you know you'll need to withdrawal a certain amount a year for living expenses in retirement, like $40,000. By being aware of tax bracket cut-offs, you could make sure you stay completely in a lower tax bracket by simply withdrawing whatever excess you need over the lower tax bracket limit from your Roth account. (In this case, the 15% tax bracket peaks at $37,450, so you'd withdraw the overage of $40,000, or $2,550, from your Roth.) So by withdrawing a combination of both traditional and Roth IRA/401k monies, you can minimize your taxes; over the years, it could become a significant amount. Of course, it also depends on where your income needs fall in the bracket and how much you need to live on. I mean, the 25% tax bracket goes from $37,451 all the way to $90,750. For me, knowing my annual income needs are right around $40,000, perhaps up to $45,000 if I travel, I would want to have some Roth money to withdraw to avoid bumping myself into a higher tax bracket on anything over $37,450.
Now I suppose MonkeyMama or Dido will tell you you'd be taxed at the 15% bracket up to $37,450 and only the $2,550 would be taxed at the higher 25% bracket. But if my income needs were higher, say $45,000, then we're talking paying 15% taxes instead of 25% on $7,550. A little extra attention to details would be worth it to me.
Around the holidays I bought myself a very nice mug from Stash Tea. I'm a big tea drinker so my mugs are important to me. This one had a rabbit in a woodland on the outside, and the image was repeated in miniature on the inside.
Well, I just don't know what happened to this mug. I've looked absolutely everywhere for it. At one point I had brought this mug in to the office and kept it there as my office mug. Now it's possible I left it on the desk before I locked up my drawer at the end of the work day; it's where I usually store personal possessions. So while I think it's unlikely it was stolen (becus I've left out so many other more valuable things) it's the only conclusion I can come up with, simply becus i can't find this mug anywhere.
I spent more time thinking about it than probably was worth it, but since i got out of work at 3 today, I had to scoot over to a gift shop in town where I had seen the same mug. I was hoping they might be having an after-Xmas sale and I could just buy it again. Turns out the mug wasn't on sale, but i bought it anywhere, plus the matching mug with a fox on it. (I like woodland animals I see in my own backyard.)
Although they weren't cheap, they cost about the same as they would have cost on the Stash Tea website, after you factor in shipping. So I got 2 mugs I really like. Murphy's Law being what it is, I will probably find the original bunny mug, but maybe not. Maybe someone took a liking to it and made off with it. I hope that's not the case and i sure would like to know one way or the other. I need closure.
I was delighted to fill up my oil tank today to the tune of $2.15 a gallon for 166 gallons. I haven't paid less than that since March 2009. I charged it on my new AARP card, easily hitting the $500 spend target (I only had $200 more to go), thereby earning the $100 credit.
Happy Friday!!!!!!
My incredible shrinking paycheck
January 16th, 2015 at 10:32 pm
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January 17th, 2015 at 09:18 pm 1421529512
What I meant was that my minimum essential expenses are about $2,000 a month, but that's the bare minimum.
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January 18th, 2015 at 09:34 pm 1421616885
I see how it could create a lot more flexibility and allow me to not get too hung up on when I will file, although i have it in my mind that i won't want to wait til age 70 to begin collecting, because I'm afraid I'll be too old to really enjoy the extra money.
I figured 66 and 10 months (almost age 67) was about as old as I'd want to get before getting the benefit of the higher monthly checks.
To err on the side of conservatism, i usually use the age of 95 when i use various online calculators as to how long my money will last. My mom's 80 and dad's 81 so I figure I'll do at least as well. Neither of them are vegan, and I do believe that will keep me healthy even longer.
January 19th, 2015 at 02:32 am 1421634776
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My mother, who is 80, still is pretty well diversified in stock and bond mutual funds. I have tried to tell her she should minimize her risk more (given her age) but she doesn't want to.
A good friend of mine, on the other hand, is 67 and has all his savings in CDs. But he has terminal prostate cancer and has been told he may have another 5 years at most, so he doesn't care about growing his money any more. He's given most of it away to his niece already.
January 19th, 2015 at 02:50 pm 1421679030