30% Higher Net Worth in Just One Year

Guinea Pig - Year 1

I’ve been looking forward to writing this article for a long time.

As you know, we’ve been running an experiment here to see how all the strategies I write about can actually impact someone’s journey to financial independence.

The Guinea Pig experiment follows two people with identical incomes and identical spending on their journey to financial independence, using real-time decision-making and market returns.

This is the first annual update of that experiment and due to the way taxes were computed, it is the first apples-to-apples comparison since the experiment started at the beginning of 2014.

To see the latest Guinea Pig numbers, head over to the Guinea Pig Experiment homepage!

Year One Summary

Net Worth

Optimized GP: $40,159
Normal GP: $30,602

The Optimized GP has nearly $10,000 more than the normal GP after just one year, even though both had exactly the same amount of spending money, invested in the exact same fund, and had the same salary!

This is why I don’t understand when people spend a bunch of time and energy trying to “beat the market” (while increasing their risk exposure significantly in the process) but completely ignore taxes! Both the Normal and the Optimized GP were invested in the same fund, and therefore had nearly identical risk but the Optimized GP had 31% more money by the end of the year!

Graphs

Here are the FI Laboratory graphs for the two scenarios in 2014.

If you haven’t started tracking your own progress yet, sign up for a free Personal Capital account to automatically calculate your net worth, monthly spending, etc. and then plug those numbers into the FI Laboratory to see if you can keep up with the Guinea Pig.

Normal Scenario

Normal GP - Year 1

As you can see, the Normal GP did a great job this year and has built up a portfolio that could provide over $100 of passive income every month, potentially for the rest of his life! Not bad for one year of savings!

Optimized Scenario

Optimized GP - Year 1

The Optimized GP did even better! He will reach financial independence over two years sooner than the Normal GP, all thanks to the smart moves he made throughout the year!

Breakdown

Since I record all of this information in a custom spreadsheet, it was easy for me to run some calculations to see how much each of the strategies utilized by the Optimized GP affected the total returns.

Speaking of spreadsheets, I just cleaned up the spreadsheet that I’ve used on my journey to financial independence so if you’d like to check it out and use it on your own journey, click here!

Let’s take a look at how this 31% increase was actually achieved…

401(k) Match

The first thing that the Optimized GP did was take advantage of his employer’s 3% 401(k) match. This may seem like an obvious move to many of you but according to following graph from the World at Work survey, there are still a lot of Americans leaving employer money on the table.

401(k) Match Graph

This one move resulted in an additional $2,871 by the end of the year for the Optimized GP, or an additional 9.38%!

401(k) Max

The Optimized GP also decided to max out the rest of his 401(k). If you’re thinking to yourself that maxing out the 401(k) is a stupid move since the GP will need to access that money long before traditional retirement age, check out this post I wrote over at my buddy Jim Collins’ site. There’s a nice and easy way for early retirees to tap into that money early without paying any fees (or taxes, if you plan properly).

This move resulted in an extra $4,109 by the end of the year, or an extra 13.43%! Since investing the extra $15,340 in his 401(k) lowered his taxes, the Optimized GP was able to invest those tax savings throughout the year and therefore increased his net worth instead of giving the government more money.

Health Savings Account

After reading my Ultimate Retirement Account article, the Optimized GP decided to max out his Health Savings Account. As described in that article, the HSA is actually best used as a retirement account so how much of a difference did this move make?

Contributing $3,250 to his HSA resulted in an additional $989, or 3.23%.

Traditional IRA

Thanks to my Traditional IRA vs. Roth IRA article, the Optimized GP decided to max out his Traditional IRA as well.

This move resulted in an extra $1,455, or 4.75%, by the end of the year.

Front-Loading

As I described in my Front-Loading article, it makes sense to max out your retirement accounts during the beginning of the year so that your tax savings have more time to grow. This won’t be beneficial every year but since the market’s overwhelming long-term trend is up, it’s beneficial more often than it’s not so it’s a good long-term strategy.

Since the market just marched upwards again last year, 2014 was a perfect year for front-loading and it resulted in an additional $133.

I can hear many of you scoffing at an additional 0.44% return but to put this in perspective, I got berated on the forums after I suggested in this article that the automated rebalancing and tax-loss harvesting Betterment provides may be worth the additional 0.15% annual fee they charge.

Taxes

Thanks to his smart moves, the Optimized GP was able to pay over $6,500 less in taxes than the Normal GP.

GP Year 1 - Taxes

Contributions

These tax savings, combined with the employer 401(k) match and the additional dividends received, resulted in nearly $9,000 in extra investment contributions during the year.

GP Year 1 - Contributions

Conclusion

I’m sad we weren’t able to do any Tax-Loss Harvesting in 2014 but I’m extremely pleased with how the year turned out for the Optimized GP and was actually a bit surprised by how much of a difference the optimizations made. The Optimized GP was able to reduce his time to FI by over 2 years and increase his net worth by an extra 31%, just by being a Mad Fientist reader!

I’m excited to see what 2015 holds for the Guinea Pigs and I look forward to researching additional optimizations to apply to these scenarios!

How About You?

How did you compare to the Optimized GP in 2014? Were your FI Laboratory graphs as impressive?

Related Post


Want to achieve FI sooner?

  1. Sign up for a free Personal Capital account to start tracking your net worth, monthly spending, etc.
  2. Enter those numbers into the FI Laboratory and begin charting your progress to financial independence
  3. Download the spreadsheet I used on my own journey to financial independence to determine which expenses are delaying your progress the most
  4. Reduce or eliminate those expenses and achieve FI even sooner!

84 comments for “30% Higher Net Worth in Just One Year

  1. B
    January 26, 2015 at 9:27 am

    I have a somewhat unconventional arrangement that I’d like some input on. My employer doesn’t offer a 401(k), or any type of retirement plan, but I do get $693/wk in untaxed money as a stipend along with my meager $400-800 paycheck which I pay regular taxes on. I’m thinking it’d make the most sense to max out a traditional IRA with a pre-tax payroll deduction, and then max out a Roth and HSA with my stipend (untaxed) money, and then put everything else in a regular taxable VTI account. Any ideas? I feel like I could really take advantage here, I just have to figure out how.

    • January 26, 2015 at 10:42 am

      If this is the only income you are receiving, it would put you in a very low tax bracket at the end of the year. I would lean toward putting everything in your Roth (or at least maxing it out first) since you will probably not pay a lower tax rate on the funds later.

    • The Mad Fientist
      January 26, 2015 at 12:15 pm

      Hey B, since I don’t have a complete picture of your income, I’m not exactly sure what would be best for you but as FMM said, a Roth may be a good call if you don’t have to pay much tax as it is.

  2. Mrs. Healthywealth
    January 26, 2015 at 10:10 am

    Congrats on hitting 1yr with the GP, time seems to have breezed by. You made me a believer in front loading last year, and I’m very grateful I looked into the odds of it being a better option, at least 2/3 of the time. This also helps validate all the money I’m pouring into my 401k, 457 and Roth’s. What also helped was your article on the Roth Ladder. I’m excited because 2014 was the first year I maxed out our taxable accts, except for the 401k, but that’s cause my wife went to part time so that she could be a stay at hm mom (40% loss in income, but we still can do this, and we aren’t rolling in dough, just frugal).

    • The Mad Fientist
      January 26, 2015 at 12:19 pm

      Glad I helped you become a believer in front loading! As I’m sure you already realized and as I mentioned in the post, 2014 was a great year for it :)

      Congrats on maxing out so many tax-advantaged accounts in 2014 and good luck doing the same or better in 2015!

  3. Randomguy
    January 26, 2015 at 10:18 am

    I’m a little confused as to how his traditional IRA created so much additional value even though he has a 401k and is ineligible for the tax breaks. Can you explain?

    • The Mad Fientist
      January 26, 2015 at 12:28 pm

      Since the Optimized GP maxed out his 401(k), his modified adjusted gross income was low enough to qualify for the tax breaks associated with a Traditional IRA.

      • Justin
        January 26, 2015 at 12:33 pm

        I’m confused, how does investing $17,500 in his 401k and $3,300 in his HSA put him below $70,000 income? By my calculations he still has an AGI of $79,500, which would still mean he doesn’t receive any tax deduction for a Traditional IRA

        • Justin
          January 26, 2015 at 12:34 pm

          *$79,200 rather

        • The Mad Fientist
          January 26, 2015 at 12:49 pm

          Hey Justin, the GPs only make $6,000 per month (so $72,000 annually).

          I remember when I started the experiment I wanted them to earn $100k but then I was overruled by the vote so maybe that’s why you are thinking they earn $100k?

          • Justin
            January 26, 2015 at 12:56 pm

            Ahh, yes! I even looked back at the first GP post to verify the income, but that was just the survey results post. Thanks!

          • The Mad Fientist
            January 26, 2015 at 1:07 pm

            Sure thing! I figured that’s what happened :)

      • Randomguy
        January 26, 2015 at 8:02 pm

        Got it – thanks MF.

        I checked and if anyone was wondering the range is MAGI of $60,000 for individuals and $96,000 for couples to qualify for this.

    • Justin
      January 26, 2015 at 12:28 pm

      Yes, I am also confused about that, since I’ve always thought you needed to do a Roth IRA (and then eventually a backdoor Roth) once you pass the income limits of the tax deductions on a Traditional IRA.

  4. January 26, 2015 at 10:31 am

    MF, fantastic experiment. I’ve enjoyed reading along.

    Quick question: I’ve been hesitant to try to front load my 401k since any extra compensation from my company (e.g. – a mid-year bonus) will throw off my calculations, and potentially have me leave matching funds on the table due to the way they match (a 4.5% applied each paycheck that I put funds into the 401k, so long as I put in 6% each 2 weeks).

    Do you think the advantage of front loading is enough to accept the risk of potentially leaving some matching funds on the table in Q3 or Q4?

    • The Mad Fientist
      January 26, 2015 at 12:32 pm

      Yeah, that’s a bit tricky. I’d hate to leave any matching funds on the table so I’d probably give front-loading a miss if I was in your situation.

      Glad you’re enjoying the experiment!

    • Mrs. Healthywealth
      January 26, 2015 at 4:02 pm

      I calculate it out to make sure I get the remaining match. So my withdrawal from pay checks is significantly higher in the first few months of the year, it then decreases to whatever the percentage is for me to get the match. I want that extra money :)

    • Tom
      February 15, 2015 at 7:59 am

      @Done – If I understand the other posts correctly, what you could do is once you Maxell the traditional contributions, you can switch over to after-tax contributions and still get the match. Then, you can do the mega backdoor Roth, and extract the after-tax contributions and immediately apply them to a Roth IRA. @MF – Makes sense?

      • Tom
        February 15, 2015 at 8:00 am

        That should have read max all, not maxwell. :)

      • The Mad Fientist
        March 30, 2015 at 1:22 pm

        That’s an interesting strategy, Tom. You’d have to make sure your plan allows for after-tax contributions but that could be a good way of doing it!

  5. January 26, 2015 at 10:36 am

    Im not shocked that the optimized GP had more at the end of the year, what I’m shocked by is how much more he had.

    As a question for you on how to optimize my personal situation, I dont have a 401k (I have a SEP-IRA at work), and my employer makes contributions on my behalf. I also fully fund a traditional IRA throughout the year. I dont get an HSA either. Should I contribute most of my funds to a taxable account, or should I have my wife increase her 457 account contributions.

    Also, I own my own business, and can open a 401k through that – should I do that as well to reduce my liability?

    • The Mad Fientist
      January 26, 2015 at 12:42 pm

      Yeah, I was pretty shocked by how much as well. Hopefully I’ll be able to utilize even more strategies in 2015 to see if I can beat 31%!

      If your wife has access to a 457, that’s probably where I’d start. I’m not sure how big of a hassle it is to open up a 401(k) for your personal business but if it’s not too painful, that may be a good idea. I just opened up a SEP-IRA for my side business in 2013 (it was really easy to do) so I’m hopefully going to be able to pump a good amount of money in there for 2014. It’s great because the SEP limits are in addition to all of my other personal contribution limits (e.g. 403(b), HSA, IRA, etc.)

      • Frugal_canuck
        January 26, 2015 at 6:29 pm

        I really enjoy your site and thanks for taking the time to update the GP. I really wish you were Canadian so you could help me hack a few years off FI, however I’m attempting to apply the same principles for rrsp and tfsa’s.
        One question and maybe I just missed reading this: in terms of front loading, are we to assume that the GP had the funds sitting in savings to max out his tax advantaged accounts at the start of the year? or is he simply applying his investments to those accounts and then moving on to taxable accounts.
        I’ve had around 20k in room to catch up on in my rrsp’s (essentially 401k) so I’ve spent my money on maxing that this year but would like to apply the front load strategy next year.

        • The Mad Fientist
          January 26, 2015 at 8:39 pm

          No, the Optimized GP started with $0, just like the Normal GP, so he just had to front-load gradually with whatever was left over from his paycheck every month (check out the other articles in the series to see how it all went down).

          • Frugal_canuck
            January 27, 2015 at 2:21 pm

            Ah, thanks that makes sense.
            Keep up the good work !

      • February 11, 2015 at 3:18 pm

        I have heard the 401k’s are a bit trickier to open as a solo entity, but allow you a TON more tax savings (You can contribute up to 53k in 2015). You also can not have more than one SEP IRA (and my day job offers one).
        MY plan is to figure out revenues for the year, then jeff (the employee) can max 401k up to 18k per year, and then Jeff (the business owner) can make a contribution of up to 25% of jeff’s salary to the 401k.

        • Danny MoreBucks
          April 19, 2015 at 5:49 pm

          You should check out 1500days.com , he just became self employed and opened a 401k and also “hired” his wife to reach $50k in tax deferred savings.

    • Mrs.+Healthywealth
      January 26, 2015 at 4:11 pm

      If your wife has a 457b, the awesome thing is she can withdraw money without the 10% penalty prior 59 1/2, after leaving your job. Here’s more info on it–

      http://www.457bwise.com/faqs/

      • The Mad Fientist
        March 30, 2015 at 1:23 pm

        Yeah, the 457b is a great account so I’m sad I’m not able to contribute to one :(

  6. January 26, 2015 at 10:39 am

    I am maxing out my HSA every year after taking advantage of my employer match. This is done before adding any additional dollars to my 401k savings. Thank you for pointing out the huge tax savings by going this route. Your payroll taxes (social security and medicare) you can never get back….but you can avoid them by contributing to your HSA. And the HSA can be used like a 401k when you hit 65 years old in addition to be used to pay for medical expenses up until that point.

    • The Mad Fientist
      January 26, 2015 at 12:54 pm

      Absolutely! That’s why I consider it the Ultimate Retirement Account! Too bad the contribution limit is so small though.

    • January 27, 2015 at 6:14 pm

      My company is up for open enrollment in April, and I will be seriously considering the HSA option for my wife and I this go round. I think I will have to go over and read the “Ultimate Retirement Account” article that you wrote.

      I think there is more to know about these accounts than I currently understand.

      Cheers!

      • The Mad Fientist
        January 28, 2015 at 3:32 am

        It’s definitely worth looking into!

  7. Joe (arebelspy)
    January 26, 2015 at 11:26 am

    I love this experiment, it’s so powerful. Thanks for doing the legwork.

    • The Mad Fientist
      January 26, 2015 at 12:57 pm

      Good to hear from you, Joe! I’m really happy with how this experiment is progressing so far so I’m glad you’ve been enjoying it too.

  8. January 26, 2015 at 12:01 pm

    Important ? have you ever considered giving the guineau pig a name, I mean it only seems natural.

    Also big fan of the series, I’m excited to put these tactics more into use in the upcoming year, thank you.

    • Justin
      January 26, 2015 at 12:35 pm

      How about “Glenn Powers”?

    • The Mad Fientist
      January 26, 2015 at 1:02 pm

      I’ve used “Optimized GP” and “Normal GP” so much, I think it’d be hard for me to switch to something else. Saying that, I kept having to correct myself in this post because I kept putting Optimize GP instead of Optimized GP for some reason.

      If I do eventually name them though, I’m definitely going with Justin’s suggestion!

  9. bogie d
    January 26, 2015 at 12:16 pm

    I looked for several places and none of them allow me to invest my HSA in anything but cash. Any idea where can i put my HSA money so i can invest them in VTI or anything vanguard please ?

    • The Mad Fientist
      January 26, 2015 at 1:04 pm

      My HSA is with Fidelity and I have some good investment options. Check out the comments in this post and this post for some good HSA custodians that other readers recommended.

    • Amanda+M.
      February 9, 2015 at 4:23 pm

      When I opened my HSA, I couldn’t invest in the market until I hit a certain amount (governed by the company). It wasn’t obvious how I could go about the investment, but like a brokerage trade I closed on some index funds of the S&P 500 in a day or two. One thing to note is that any money that you invest is no longer available to pull out through debit until it is sold and back in cash.

  10. bogie+d
    January 26, 2015 at 12:35 pm

    For HSA accounts where you can invest and have a debit card i found http://healthsavings.com/ but they are charging $45 and a percent based on the amount , like 0.0008 per quarter times account balance (80 cents per $1000). So for 3000 you pay 45+80cents*3=$45+$2.40. For 10k ( 3 years of HSA) you pay $45+$7.2. It sounds like it is worth it

  11. ME's. Maroon
    January 26, 2015 at 3:49 pm

    Awesome experiment. I’m excited to see the results after the full year. Thanks to your advice for how to get access to the money in retirement accounts before the generally-accepted retirement age, we are eagerly maxing out 401k and Roth accounts this year. I was terrified to do this last year, but am ready to go for this year! All other savings will go towards mortgage payments. Yet another way for us to avoid taxes – invest in a house we know we will sell to have tax-free cash to buy the next one outright!!

    • The Mad Fientist
      January 26, 2015 at 8:41 pm

      Excellent idea and glad to see you’re going to take the plunge this year with tax-advantaged accounts!

  12. marvin mcdude
    January 27, 2015 at 12:44 am

    MF, just want to thank you for this series and your website.

    My wife and I are going to follow it to a “T”. In 2015, we’ll be maxing out the HSA, a 457, and a 401(k). Not too shabby on gross income of 100K when we’re paying for daycare. And once we earn a bit more, we’ll also try to max out an additional 403(b). You have changed our financial lives.

    Thanks, dude!!!

    • The Mad Fientist
      January 27, 2015 at 9:23 am

      Not too shabby at all! Great work maxing everything out and thanks a lot for the comment (it’s very motivating getting comments like yours)!

  13. Marshall
    January 27, 2015 at 5:15 pm

    Hi! I am relatively new to the idea of FI but luckily have a pretty good amount stocked away in my 401(k) thanks to an old boss who wisely encouraged us to contribute as much as possible. However, I am a bit nervous about some of the approaches that you are advocating regarding retiring off tax-advantaged funds. Specifically, I worry that socking most of my money away in tax-advantaged retirement accounts leaves me VERY open to a change in government laws completely destroying any chance I have at early retirement. If suddenly the Roth IRA ladder mechanism becomes illegal I’m stuck with a big chunk of change sitting in account I can’t access for another 25 years (I realize you can SEPP payments or something but those wouldn’t meet my spending from the cursory research I’ve done). I’m not sure this necessarily seems likely but you can never tell what politicians might decide to do – see Obama’s sudden distaste for 529 plans.

    Any thoughts? Do you think I am being too cautious? I love the idea of saving more money faster by utilizing tax advantaged accounts but I’m very worried about being poorly diversified as a result.

    • The Mad Fientist
      January 28, 2015 at 3:39 am

      Worst case scenario, you pay a penalty to access that money early. It’s worth the risk, in my opinion, but you should just do whatever makes you most comfortable.

      I try not to spend too much time worrying about a future I can’t predict or control so I just make the best decisions using the information I have available and currently, the best decision for me is to max out these accounts every year. So far so good!

  14. January 27, 2015 at 6:19 pm

    I have been maxing out my 401K for years now, and I like the idea of front loading. But doing it 2015 just doesn’t seem like the right move for me this year. Stocks are at all-time highs after a magnificent 6 year run. Will you still front-load when risk/reward at these levels favors the downside?

    Cheers!

    • The Mad Fientist
      January 28, 2015 at 3:44 am

      Absolutely I’ll still front load! I have no idea what the market is going to do this year and neither do you! You could have made a similar comment at the beginning of last year or even the beginning of the year before but as you know, front-loading would have been a great thing to do in both years since the market just marched upwards.

      Trying to predict what the market’s going to do is not a winning strategy so I just do things that are beneficial over the long run, no matter what the idiots on CNBC are forecasting.

  15. Dave
    January 28, 2015 at 11:02 am

    In principle, I think the front-loading idea makes sense, however, for many 401k plans, it would jeopardize the match since match funds are dispersed by the bi-weekly, bi-monthly or monthly pay periods and not as an aggregate amount at the end. In other words, if I contribute $4500/pay period for the first four pay periods of the year, I will capture my 5% match for only the first four pay periods of the year. That match amount is the same whether I contribute $1000/pp for 18 periods or $4500/pp for 4 periods (as long as it’s over 5%). So, if I front load over four pay periods, I only capture a total of $900 in match for the year since I will have hit the IRS limit so early in the year; effectively stopping future contributions. In contrast, if I space out the contributions in equal amounts ($18,000/26 pay periods), I capture the match all year or 26*$250 for a total of $6500. Obviously, it varies plan by plan, but we always get a warning not to front load too much since we’ll miss matching contributions at the end of the year.

    • January 30, 2015 at 9:52 am

      Yes I have the same situation with my pre tax employer accounts. Just like you mentioned if you can afford it, you have to calculate the 18,500 minus the match, then divide that by your pay periods to get the full advantage of the match. The benefits will be greater overall, with less taxes, maxing out the 401K, but you will have less $$ every paycheck.

    • Dan
      February 16, 2015 at 3:54 pm

      My plan only matches once per year, and I figured if I “averaged” 6% over the year, I would be safe. I was wrong, the employer still did the paycheck per paycheck calculation, and this one mistake cost me over $500 in 2013 matching. A mistake I will not make again.

  16. DanB
    January 30, 2015 at 9:41 am

    Thanks for the spreedsheet! I made a few changes to it for my scenario, but I had a question.
    So, Currently, “Starting Balance” in the FI tab, includes “Home equity”. Can you explain why this number is included in the “Inflation-Adjusted Growth”. I was under the impression that home equity had much smaller growth.

    Here is my spreedsheet. You have to click the “Down arrow” to download and view in excel
    http://goo.gl/yyynyu

    • The Mad Fientist
      March 30, 2015 at 1:29 pm

      Hi Dan, just pick a growth rate that takes into account the home equity. So rather than picking 7% like you would for a stock portfolio, pick 5% or something, depending on how much of your money is tied up in your home.

  17. January 31, 2015 at 10:03 am

    Welcome back. Good to see some data reinforcing what we know works.

    I need to see these charts and calculations every now and again because most people seem to ignore the data when talking about finance. All the groups I’m joined to seem to be stuck on speculation mode, even though there is data that doesn’t work. It’s almost like The Emperor’s New Clothes, you can’t believe people aren’t doing what is tried and tested.

    Keep it up.

    • The Mad Fientist
      March 30, 2015 at 1:30 pm

      Thanks for the kind words, Adam! Data is the only thing that matters; everything else is just noise.

  18. January 31, 2015 at 11:48 am

    For sure do the math in order to maximize the employee match. I think that companies should do a true up at the end of the year for the last match contribution. So that way if you did decide to completely front load your 401K, you would still get the match.

    But since that is not the case you just have to make sure that you make the minimum monthly contribution to get your match. Lets say you make $100K/year and your company matches 5% of your income. That is $5,000 for the year or a minimum contribution of ~$417/month. Now you take the maximum contribution of $18,000 (2015 limit) and subtract the $5,000 and you are left with $13,000 to front load in your 401K.

    Now I think you are allowed to contribute up to 80% of your income per pay period. So on $100K you will be grossing approximately $8,333/month. So in month 1 you can contribute $6,666 to your 401K, in month 2 another $6,666, and then in month 3 you will contribute $915, and then from month 4-12 on you will contribute $417/month.

    Month 1 = $ 6,666
    Month 2 = $ 6,666
    Month 3 = $ 915
    Month 4 = $ 417
    Month 5 = $ 417
    Month 6 = $ 417
    Month 7 = $ 417
    Month 8 = $ 417
    Month 9 = $ 417
    Month 10 = $ 417
    Month 11 = $ 417
    Month 12 = $ 417

    Total = $18,000

    Cheers!

  19. Dave
    January 31, 2015 at 3:17 pm

    that certainly works as well. I like Value Cost Averaging with my wife’s solo 401k because it’s really easy to do with Vanguard since all transactions are individual based on when I want them to occur. Changing up contributions with my employer 401k gets to be a bit tedious and all deposits are made on a dollar cost average basis. In the end, I’m not sure how much value you really get by front loading especially when the IRS limits you to $18K/year. E.g if you invested all your 401k contributions in January; you’re already down 3-5% for the year and will spend several months probably waiting for your investments to get back into positive territory for the year. Investing a large lump some like $500K would clearly make a far more significant difference over time than 401k contributions.

  20. CSmith
    February 1, 2015 at 10:28 pm

    Great write up! I’ve been following the experiment since the beginning and have been very interested to see how much of a difference each optimization made.

    I recently started a new job that doesn’t have the option of a high deductible health insurance plan and was wondering if it made more sense for me to shop around for a plan with a HSA? Or how I could go about figuring this out?

    Thanks!

    • The Mad Fientist
      March 30, 2015 at 1:34 pm

      I’m pretty lazy so I doubt I would go out searching for a new plan if my employer didn’t offer an HDHP but you could take a look to see if it’s worth it. If not, don’t worry about it…just keep pumping money into your other retirement accounts and I’m sure you’ll be fine :)

  21. February 4, 2015 at 1:12 am

    Nice experiment! I think I’m a little blind, but could you remind us what exactly is your overall net worth? Or is the $40,000 your net worth?

    Hope all is well!

    Sam

    • The Mad Fientist
      March 30, 2015 at 1:36 pm

      Hey Sam, the net worth values in this post are just for the make-believe guinea pigs that I created for this experiment (see this post for more info).

  22. Jolly Josh
    February 4, 2015 at 8:42 am

    New reader here, I am catching up on your articles and the Guinea Pig idea. Your articles and info are very well done and informative.

    I saw a discussion about the possibility of naming the Op GP and Norm Gp. Perhaps their Names could be “Opie” and “Norm.” :)

    • The Mad Fientist
      March 30, 2015 at 1:39 pm

      Welcome, Josh, and thanks for the nice compliment!

      Haha, Opie and Norm are excellent suggestions so if I do decide to name them eventually, I think those names would be the frontrunners :)

  23. February 4, 2015 at 12:03 pm

    MadFientist,

    It is startling how many people do not take advantage of employers match programs or tax efficient accounts. Contributing to my tax efficient accounts for the last six years has generated me a tax-deferred return of roughly $50,000. That is an extra $50,000 which grown significantly and has been compounding and generating dividend distributions. Which will continue into the foreseeable future.

    Optimizing my investment situation over the years has now created the possibility to reach financial independence before my 28th birthday.

    Thanks for sharing.

    • The Mad Fientist
      March 30, 2015 at 1:57 pm

      Wow, congrats on being able to achieve FI so early in life!

      It is crazy how many people don’t utilize tax efficient accounts but I’m trying to change that, one article at a time!

  24. BonnieC
    February 5, 2015 at 9:07 pm

    Thank you for doing such great research and explaining things so clearly! You opened my eyes to the benefit of HSAs and that’s why we started one this year. I was shocked at how drastically different the outcomes were in just one year.

    I’d like to see if there’s a way to further our tax savings. I’m a contractor and maximize my Roth IRA and SEP IRA. Would it be possible to also contribute to a solo 401k? And if so, what is the max I could contribute?

    • The Mad Fientist
      March 30, 2015 at 2:20 pm

      Hi Bonnie, I don’t think you can do both a SEP IRA and a Solo 401(k) at the same time.

  25. February 10, 2015 at 9:34 am

    This makes me seriously reconsider my Roth IRA contributions, that is crazy how much more is paid in taxes.

    • The Mad Fientist
      March 30, 2015 at 2:21 pm

      I was actually quite surprised the gap was so big already!

  26. February 18, 2015 at 6:19 pm

    Great way to save. I put 75% of my salary into my 401K. Plus the max my employer will let me into my HSA. Typically I max out he 401K by mid-March, including the over 50 part. And I put my $6,500 in my IRA in early January.

    Learning to LBYM is key to a solid FIRE plan.

    • The Mad Fientist
      March 30, 2015 at 2:22 pm

      I decided to go to 98% this year because I’m currently sitting on too much cash!

  27. Montanaguy
    March 31, 2015 at 12:03 pm

    Love the gp. Did you give any thought to having the optimized gp minimize his monthly taxes by claiming 9 dependents, investing the extra money then paying the feds in the next april for all the taxes he delayed? Seems like that could further decrease the time to fi along the same lines as front loading.

    • The Mad Fientist
      March 31, 2015 at 1:09 pm

      It’s a nice thought but the IRS doesn’t like giving interest-free loans to people so that wouldn’t be a successful long-term strategy, sadly!

  28. Ravis
    April 1, 2015 at 2:18 pm

    Hey MF… I found your site via Jim Collins and I recently posted a question for him and in addition to his thoughts, he suggested I ask you… so here goes!

    My wife and I have maxed out our 401Ks and due to a company funded relocation last year, our AGI is too high to add money to our Roth IRAs for 2014. I don’t have a traditional IRA, so i’m going to add money to my existing Roth IRA via the “back door” method. My wife however already has a deductible-IRA, so we can’t do the “back door” method into her Roth without incurring some tax impact.

    Only option I see left for her is to add the $5500 into her deductible-IRA, but it will now become a mix of deductible and non-deductible money… the downside of course is this means more complexity, most of which I don’t fully understand all of it!

    On one hand, I’d like to put away as much money as possible so at least something will earn tax-free.

    On the other hand, I don’t want to over complicate things.

    We have the $5500, so the question is… put it into her IRA (and deal with the complexity) or just keep it simple and add the $5500 to our taxable account?

    Thanks!

    Oh yeah, if you are curious, my post and Jim’s reply is on this post:
    http://jlcollinsnh.com/2012/05/30/stocks-part-viii-the-401k-403b-ira-roth-buckets/

    • The Mad Fientist
      April 2, 2015 at 8:42 am

      Hi Ravis,

      In your case, I think I’d probably choose simplicity. If you thought that every year you’d have $5,500 you’d want to contribute then it may make sense to go for it but it sounds like you don’t normally max out your 401(k)s so it’s probably not worth complicating things just for one year of contributions.

      You should do the math though and see how much less tax you’d have to pay and then determine if the extra complexity is worth the savings!

      • Ravis
        April 4, 2015 at 1:19 pm

        Thanks MF… actually, we max out our 401Ks every year, but had an higher than normal AGI because moving expenses my company paid on my behalf were counted as income, so that pushed over the roth IRA limits.

        Though, now that I think about it my wife is getting a new job which will increase her income so that might push us over the limit this year as well… will be close.

        After doing a little more reading/research I’m thinking we might go ahead and do it as it seems we might have this problem in future years as well.

        Thanks again!

        • The Mad Fientist
          April 8, 2015 at 11:45 am

          My pleasure!

          Good luck sorting it all out and if you learn anything interesting along the way, come back and share what you learned with the rest of us :)

  29. Danny MoreBucks
    April 19, 2015 at 6:04 pm

    This is one of my favorite ongoing series. Real time stock trades add to the validity of the experiment.

    2014 was the first year my eyes were really opened to tax efficient savings. I maxed my 401k, IRA, and HSA, and initially thought I had run out of time and funds to put the last $5,500 into my wife’s IRA. Then I learned you can declare your contribution amount on your tax return prior to contributing. That meant uncle Sam sent us an extra $825 to jump start the race to putting the $5,500 in by April 15th (completed by February). We’re now on track to fund all 3 again this year and we paid over $3,000 less in taxes than the year prior while earning more. It really works!

  30. sam
    May 19, 2015 at 8:53 pm

    My one concern is that the deferred tax bill on the 401k and IRA are not taken into account. I understand that you have a Traditional-to-Roth conversion scheme that is designed to minimize or eliminate those taxes, but I think just claiming that taxes that will need to be paid on 401k/IRA distributions will be zero is a little optimistic. It makes the optimized scheme sound much better than it is, unless a complicated conversion ladder is actually achieved.

    Or does the spreadsheet take into account deferred taxes?

  31. Ram
    March 10, 2017 at 2:27 pm

    I am in in my late 30s. My employer stopped making a 401k match last year. I used to contribute till upto the match amount and invest the rest in index funds in taxable account. Now I stopped contributing completely to the 401k and put the total 18k to kind of simulate the maxout in my taxable account.
    I have been in dilemma lately, if I should to invest in retirement accounts at all the immigration updates. I wanted to stay away from the retirement accounts for now and put in taxable acounts.

    Do you think this is a good option? My taxable is in Vanguard Total Stock Market.

  32. Ram
    March 22, 2017 at 3:38 pm

    Update: We recently decided to invest in Traditional IRA as my wife employer does not provide a 401K. Invest the rest in taxable account which we do on a monthly basis anyways.

    • Ram
      March 22, 2017 at 3:39 pm

      Update: We recently decided to invest in Traditional IRA as my wife employer does not provide a 401K. Invest the rest in taxable account which we do on a monthly basis anyways.

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