- Maxing out my 401K. This means that my full 2015 contribution will be invested in the market in January, giving me additional time in the market (that could be a blessing or a curse). I'll receive my full employer match in January as well. So, that will take care of $18,000 of the bonus.
- I'm not sure how the taxes will work, but I'll assume another $20,000 towards taxes.
- All of the rest, into savings. Approximately - $10,000.
I also feel like now is the time to confess that I did splurge a bit. I bought four lipglosses, and a wrinkle cream. Grand total of $60. I've been feeling kind of drab lately, so hopefully this helps. I love the new lip gloss, and it has SPF! Bonus, as my lips have been freckling quite a bit in the California sunshine.
It will take quite a bit of discipline to ensure that I'm saving the correct amount each month for our yearly categories. I'm excited to get the contribution out of the way early on. Has anyone else ever done this? Drawbacks? Advantages?
We pay almost everything monthly - even our savings accounts. We set up a group of savings in Ace Money and it gets transferred to the different categories. For example, one time per month, we set aside money for college, homeschool, auto repair, HOA fees, car insurance, taxes on our property, etc. it is done like a bill, but moved to a savings account as one chunk, then I track on my own, what categories each goes to. A little bit of work, but it is working like a dream!
ReplyDeleteI really like your plan. My bank doesn't allow multiple accounts (well, they do, but I don't want to worry about all of the minimum balances & fees), so I typically track my various categories in a spreadsheet. The money is constantly in flux - we may have zero car expenses for six months, and then blow through the entire budget at once.
DeleteIf I remember correctly, your bonus will be $48,000. Your 401k contribution is before tax. Therefore, you shouldn't owe $20,000 in taxes. Prob more around $13-14,000.
ReplyDeleteDon't feel guilty for a $60 splurge. I splurge on myself plenty.
Taxes are the bane of my existence. ;-) I'm so happy we're using an accountant this year! I'll put any of the allocated non-tax money into our 2014 tax savings account & see how much we owe. (Fingers crossed, hopefully it's not much more).
DeleteIs the $20,000 coming off the bonus before it gets deposited or are you saving it for future taxes?
ReplyDelete& I've heard amazing things about those lip glosses! Nice to treat yourself every once and a while :)
Well, in the past, my bonus has always been taxed at around 50%, when you include federal, state taxes, all of the other fees, plus our standard deductions. I think this year will be less, as the 401K will reduce the taxable income. Whatever is left will get saved for taxes, either our 2014 taxes, or our 2015 taxes, depending on what's needed. We're using an accountant this year, so should start to get some more predictability in our tax planning.
DeleteThe lip glosses are amazing!! :-)
I think conventional wisdom would be to take advantage of dollar cost averaging with regular contributions throughout the year instead of a lump sum. Maybe if you plan to keave within the year or something it would be best to make a lump sum? Is that something you could ask your accountant or financial planner? I am guessing it won't make a huge difference in your portio either way. We used to max out our IRA contributions at the beginning of each year with bonus money (despite conventional wisdom) - it was kind of nice to make the lump sum & consider it done for the year. One year we did run into a wrinkle when our income unexpectedly exceeded Roth income limits and we had to recharacterize at tax time, but that was the only time I found myself regretting the initial deposit. Now it is not an option b/c we don't have bonus money and have to make monthly contributions.
ReplyDeleteWe didn't plan properly and maxed out DH's 401K a paycheck early this year ... and I am kind of looking forward to the extra take home pay this week.
If anyone knows about the 401K, I think I am now an expert. We made the move to the Roth IRA because all the money is already minus taxes, so when you need to take a few dollars off the table it will not hurt you like it does in a traditional IRA. Take a look at a Roth, you will love it.
ReplyDeleteWanda Hanson @ Tax Tiger