Max out our Traditional IRAs
- The rule of thumb suggests Roth for folks early in their careers.
- Traditional tax-deferred accounts (IRAs and 401(k)s, etc.) for folks later in their careers.
- But, if you’re retiring early, you are later in your career.
Max out the HSA
Max out the Wife’s 401(k)
Set up and Max out a Solo(k)
That Savings Rate
For 2018, we’ll be saving:
- $6,900 into an HSA (done!),
- $11,000 into IRAs (done!),
- $38,500 in 401(k)s – assuming a $2,000 employer-contribution (in progress),
- $1,200 into a Betterment account (just for fun)
- roughly $5,000 in home equity
This means hitting a 54% savings rate – assuming an income of $120,000 for the year. (That’s a yet unknowable figure. We won’t know that until 2018 comes to a close, given unknowable business income, how much a raise the wife will get a work, etc.)
According to MMM, hitting a 50% savings rate means being able to retire in 17 years. Or from the lense of Fisker, it means only having to work every other year.
Maxing out these accounts should pull us from the 22% tax bracket (formerly 25%) into the 12% (formerly 15%) Federal tax bracket. This almost halves our marginal tax bracket – which is fantastic. For the state of Taxifornia, we should also be decreasing our marginal rate as well. Since taxes one of one of the biggest line items in our household budget, this is a big win.
Aligning Savings and Spending
However, just because we’re putting money into a tax-advantaged account, does not necessarily mean that we are going to spend less money. So, focusing on reducing spending is critical to the success of this plan.