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HENRY (High Earning Not Rich Yet)

I'm 37, single, and only in the last two years have I really gotten serious about saving.

Current 401k balance is $28,000

I'll probably make about $125,000 Gross this year. My job has a 401(k) (Prudential) and they match 20% of whatever I put in. They also just added for this year a Roth 401(k) option if that matters. I put in 16,500 last year and plan on 17,000 this year. I also plan on opening a Roth IRA and putting in $5,000 before 4/15/12 for 2011, and then putting in $5,000 more in the Roth IRA over the course of the rest of 2012. (MAGI limit is $110,000 for Roth for 2012 so I believe I'll slip in underneath)

I do have $35,000 in student loans still to pay, but they are at 2.0% interest so i'm currently just paying the minimum payment.

Car is paid off. Credit card paid off. Renting and fine with that. If you put a gun to my head, i'd buy a condo in the city I'm in for $100-$200,000 tops instead of renting one from someone else, but I otherwise have no home owning desire and definitely value the flexibility and not being anchored like so many of my friends turned out to be in their homes bought in 2005/6.

Basically because I expect low interest rates through the end of 2013 at least, I feel no real hurry to pay off the student loans faster or lock in a mortgage now.

My plan is basically to use the Roth as an emergency fund until I save up (6 months or so of take home pay) separately in a bank account which I maybe can do by the end of 2012 in parallel while doing all of the above. Once that's done, then switch that money to a car replacement and/or house down payment account.

I like my job and don't mind the work so i don't feel the need to try and "retire early" because it wears me down or anything. I guess I'm interested in relative financial freedom at some point so that I could work as much or as little as I want and be able to travel, do charity work, etc.

Question is, am I missing anything and what do I do next? I'm assuming in 2013 if I exceed the MAGI for Roth I'll just open an IRA and do a max contribution to it and then immediately roll it over to my Roth while still fully maxing my 401k at work? And then just start plowing into a brokerage account? Continue for the next 20 years and hope I didn't start too late?

  • Great question. I like my job and don't mind the work so i don't need to try and "retire early" I guess financial freedom so that I could work as much or as little as I want at some point and be able to travel, do charity work, etc. – TetonSig Jan 26 '12 at 17:53
  • added my comment/context to my question – TetonSig Jan 26 '12 at 18:15
  • You need to talk to a financial planner. If you had a number goal I could plug some things into a calculator for you. But not having a number in mind you need to talk to a planner to determine what that number is. – user4127 Jan 26 '12 at 20:25
  • That's fair. Thx – TetonSig Jan 26 '12 at 20:26
  • >I'm assuming in 2013 if I exceed the MAGI for Roth I'll just open an IRA and do a max contribution to it and then immediately roll it over to my Roth while still fully maxing my 401k at work? Just as there are MAGI limitations for contributing to a Roth, there may be MAGI limitations on converting to a Roth. There used to be such limitations, anyway, though there were some changes in recent years (temporary, and expiring soon, as I remember) which allowed anyone even with large MAGI to convert a Traditional IRA to a Roth IRA and pay the tax over two years. – Dilip Sarwate Feb 25 '12 at 0:21
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As far as broad principles, I think that you are on track.

The only suggestion I would have is to look into HSAs. They are another great tax-advantaged account, accessible to those with high incomes.

  • Sorry, Jeremy, the HSA is only allowed when tied to a high deductible health insurance plan. Either his company offers such a plan, or it doesn't. It's not the worker's choice. Most employers offer a FSA which can help turn his out of pocket expenses to be pretax. – JoeTaxpayer Apr 26 '12 at 0:43
  • That's a good point, Joe. I should have mentioned that. For healthy people, though, I think that moving to a high-deductible insurance plan (if possible) is a great move, and a great tax-advantaged account. – Jeremy Apr 27 '12 at 6:05

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