Front-Loading and a $12 Pay Check

Winter Carnival – Quebec City, Canada

Since Max OOP doesn’t need much cash from my paycheck these days, I figured I would continue my front-loading strategy for 2019. My 403(b) retirement bucket can hold $19,000 in 2019.

Front loading is basically paying myself before the federal government by deferring taxes now instead of slowly all year. It gives me more time in the market. The Mad Fientist can explain it much better than I can here.

Trust me, if I can do it, you can do it.

My fourth paycheck of 2019 hit 2/15/2019 and I purchased another large section of the US economy. I grossed $3,882 on that check and I front-loaded 87% of my pay into my 403(b).  How did I do it?  I simply ran some numbers and asked my HR department if they would increase my 403(b) contributions to 87% of my paycheck. Oh, and a reasonable standard of living and over a decade of an extremely high savings rate helped as well.

Why only 87%?

87% seems to be as high as I can go while still having enough left over to pay my voluntary Medical Premiums and non-voluntary Medicare and Social Security “premiums”.  These tax deferred accounts only defer/shelter federal taxes, not FICA (Social Security/Medicare) taxes.  Left me a whopping $12 for my checking account. Yeah, I needed some cash for happy hour at my favorite pub – that is about 3 beers worth.

Here is where the rest went:

So I took $3,377 of my pay (87%) and purchased 13.35 units of VINIX at the price of $253.01. This fund contains 507 of the nations largest stocks and basically tracks the S&P 500.

Normally you would need $5 million in assets to be able to invest in a fund like this but thanks to my company’s 403(b) options, I can get in for much less.

Expense ratio is a paltry 0.035% for an annual expense of $1.18. I would say that is a low barrier of entry to own some of the best companies on the planet.

$3,377 X 0.035% = $1.18

Max Out of Pocket for next year = ~$1.18.

What 403(b)/401(k) index fund options does your company offer?

*If you plan in implementing a strategy like this yourself, make sure you understand your employer “match” requirements and leave room if necessary to capture the match.

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