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I recently accepted a position with a new company, and negotiated a signing bonus to make up for the 401k match that I'm going to miss from my old employer (it's only paid out yearly at the end of the year).

How should I invest the signing bonus for the best long-term tax advantages? Here are the options I'm considering

  1. Redirect a huge chunk of my final paycheck into my old company's 401k to stash what I would have received in a match. I will then roll it over into an existing Rollover IRA

  2. Invest the signing bonus funds in my Roth IRA (but at my income level I might be ineligible to contribute the full Roth amount for this year)

  3. Just invest the cash in a normal taxable account

Any other options I'm not considering?

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  • You can contribute to a Roth IRA at any income level with a backdoor Roth IRA contribution. You would have to not roll the 401k to IRA because the backdoor Roth IRA contribution process depends on not having money in a Traditional IRA.
    – user102008
    Oct 30, 2015 at 0:13

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I've left a comment for some further details, but I will take stab at this with limited information.

You certainly could dedicate a large portion of your final paycheck(s) to the old company IRA. I like this because, presumably, you will be moving this 401K from your old employer to a self directed IRA. Then you will typically have lower fees, and better fund choices. At most one is typically limited to 25% of one's paycheck.

You could also "super-fund" the new company's 401K and use the bonus to make up any shortfall of income. This would be very attractive if the new company has a match that you do not plan to max out. Otherwise, eh.

You could also save the money, and later contribute to a Roth for this year. This is contingent upon not hitting the income limit. You have until 15 Apr 2016 to do so.

Your last option is to invest in a normal taxable account. This might be the best option. It depends on you goals and if you own a home or have interest in owning rental properties.

So, as usual, it depends on a lot of factors not mentioned in the original question.

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  • Thanks. My goals are to let the money grow as much as possible until retirement (~25-30 years). I do own a rental property as well. My new company will match 401(k) contributions up to 5% and I don't anticipate having any problem maxing that out.
    – Greg
    Oct 29, 2015 at 13:09

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