34 y/o f, divorced, playing retirement planning catchup

[metaole]

34 years old, female, solo mom to a 2.5 year old (her dad has her one day a week), divorced at 32 and starting from almost scratch when it comes to retirement planning as my ex did most of it and when we split, I got the house equity ($350k) and he kept his retirement savings ($175k). I’ve since repurchased a home in north county San Diego, California.

How do I maximize playing financial catchup so I’m ready for retirement in 25-30 years?

Income:
- Salary: $150k/year (hoping for a promotion in the next 2 years to get me closer to $180/190k)
- Child support: $36k/year
- Spousal support: $25k/year (ends April 2026)

Balances:
- HYSA balance: $68k ($60k is emergency fund, $8k is in my home renovation fund)
- Savings/checking balance: $12k
- IRA: $27k
- 401k: $13k
- Deferred Compensation: $25k
- E*Trade brokerage account: $1,500
- My new house is valued at $1.05M (I purchased for $920k in late 2022 and did a bunch of renovations using my dad who is a contractor). I owe $630k.

Current savings amounts monthly:
- $800/ month into my HYSA for future home renovations or repairs
- $500/month E*trade brokerage account
- $1200/month pre-tax money into deferred comp
- $280/month pre-tax money into HSA
- $580/month into Fidelity traditional IRA

I have no credit card debt, no student loans, and one car payment ($445/month low interest so I’m
Not paying that off early.)

I can no longer contribute to my company’s 401k since I am considered a “high income earner” and $150k is their threshold for that, which is why I qualify for thejr deferred compensation plan instead. I’m putting the minimum amount (10% of my income) in there to qualify for the company max (free money): 50% of the first 6% contributed and 100% of the next 4% contributed.

What else do I need to do? How else can I maximize my savings? Where is the best place to put my money once I max out my IRA (this is why I opened my E*trade brokerage account so I’m assuming here?). Do I have a chance at growing these retirement accounts enough to retire comfortably? I assume I will remarry and have a partner but I’m not counting on anyone else’s income again

 

[breety]

@metaole Is the 27k all in traditional IRA or is it any of it in a Roth IRA?

If all traditional where did it come from? It is from an old rollover or from prior year contributions?

You’re not getting a deduction on those traditional IRA contributions given your income and having a retirement plan through your employer

https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2023 - this is for 2023, the numbers are a little higher for 2024 but I haven’t found the nice table view yet like that that’s been updated for the new year)

Curious what your monthly expenses look like given your income relative to the mortgage and car payments

 

[metaole]

@breety The $27k is a few different employer IRAs that were all just recently rolled into one. They kind of just sat there for years without being looked at. Very dumb. Finally just consolidated them into the one traditional IRA account. Since I make more than the $138k a year it was my thought I couldn’t do a Roth, unless I looked into a back door Roth. This is all new to me so I don’t even know where to start with that.

Monthly expenses, roughly:
Daycare: $1800
Mortgage: $4300 + $140 HOA
Car Payment: $448
Car Insurance: $170
Utilities: $250
Cell phone: $90
Groceries: $600
Gym: $150
Restaurants: $200
Gas: $300
Amazing/miscellaneous: $250

 

[breety]

@metaole For backdoor Roth it’s preferred to leave old employer accounts where they were rather than rolling over, as having pre tax dollars in IRAs makes backdoor Roth tax inefficient and thus not typically recommended in that case - look up the pro rata rule - covered in the Cautions section of this wiki page - https://www.bogleheads.org/wiki/Backdoor_Roth

Can’t undo that at this point, but if your employer plan allows for reverse rollover of the IRA you could do that to clear out the pre tax dollars so you can do backdoor Roth - if you’re contributing to a single IRA that you rolled everything into then you’ll need to calculate out how much is pre tax from the rollovers vs post tax from the nondeductible contributions and only reverse rollover that pre tax amount - this post and the comments have an example with some basic numbers that may help clarify what I’m saying

Either way, I’d focus on adding more to your employer plan for retirement savings and pause the traditional IRA contributions because either a) you can do the reverse rollover and restart IRA contributions after or b) if you don’t do the reverse rollover it’s not tax efficient to continue contributing to the IRA

 

[metaole]

@breety Lots to look into.. thanks for taking the time to reply! I’ll check out those links you posted. Appreciate it!!!

 

[rtyaerstq3cfdsqvwvvwrtbh]

@metaole Funding the brokerage account before fully funding the 401k seems a bit inefficient in terms of a concentration towards retiring. I’d focus on maxing 401k first (will also help reduce e taxable limits to access ROTH as your income increases), and focus on brokerage later - once your income increases.

Edit: sorry, missed part where you noted that you can’t contribute more to 401k due to company rule. Honestly, otherwise - you are doing amazing here. That level of house would personally make me uncomfortable based on the size of mortgage, but you seem to be making it work well.

 

[metaole]

@rtyaerstq3cfdsqvwvvwrtbh To add to this.. I work from home, and have a two year old and two dogs, so if I were to rent locally instead, I’d be looking at around $4k minimum for a less updated, smaller house here in San Diego with a yard, so even though my mortgage is more, at least I’m gaining equity is the way I’m looking at it. I think the stability of a family home is valuable in my opinion having a child.

 

[metaole]

@rtyaerstq3cfdsqvwvvwrtbh Thanks for the reply! Ya unfortunately contributing to the deferred comp plan is my alternate employer account since I can’t do the 401k. I can’t change my contributions till next January, so I’ll remain at the 10% of my salary level. Maybe next year I should plan to double that, so that more of my income is going to that tax deferred account vs splitting it between the IRA, Brokerage and Deferred Comp.

I don’t know what I’m doing to be honest, just trying to save as much as possible!

The mortgage payment doesn’t scare me, especially if rates go down and I can refinance into a payment around $3900 (anything under $4k just FEELS better!).

 

[rtyaerstq3cfdsqvwvvwrtbh]

@metaole You are honestly doing great! Only other suggestion I have (which you are probably already doing) - try and save as much the spousal support as you can to try and avoid it adding to any lifestyle creep, so that it is as painless as possible when it disappears.

 

[metaole]

@rtyaerstq3cfdsqvwvvwrtbh Eek. I know. That one is rough lol. I will miss it! Luckily daycare fees should go away as my daughter goes into kindergarten right after that but always a good reminder.

 

[matt5]

@metaole I’d increase 529 funds with the child support once daycare is over. Your child is unlikely to get need based aid and you’d hate to have to take out parent plus loans. Anything over 6000 a year they need to borrow, your child will need a cosigner. Which means they’re your loans. I’d look at your state’s college tuitions and plan accordingly. Hopefully your ex will save as well. So much more tax advantaged to save this money in a 529 than brokerage.

 

[metaole]

@matt5 Luckily her dad is a Purple Heart veteran so she can go to college for free at certain state schools. Would you still recommend?

 

[matt5]

@metaole I’d save something. Dorms, books. Not as much though. Just throw $50 a month in.

 

[janedoe123]

@metaole No advice just in awe, I WISH this is where I was and I’m a year older than you

 

[hopeful4610]

@metaole How do you get $61,000/ye in child/spousal when you make $150,000.

Sorry off topic and not judging just genuinely curious.

Financially obviously you’re in good shape.

 

[metaole]

@hopeful4610 My ex made substantially more than me… so the calculation for spousal support is based on the standard spousal support calculator (I think it’s a state of California thing) and is meant to make me “whole” for half the length of my marriage (so for 4 years since we were married 8).

Child support is also based on the fact he makes much more and I have primary physical custody of our daughter 85-90% of the time… and then there’s $900/month built into the child support numbers to cover half of monthly daycare fees.

 

[matt5]

@metaole Id do your taxes early and figure out if your MAGI is under the Roth limit for 2023, you’re close. Too bad you can’t lower it with 401k contributions. Ask your employer if they’ve thought about doing a safe harbor plan.

I’d also see if they’d let you put your Ira into your 401k plan as a rollover so you can still do backdoor Roth.

You could also look at the tax implications of making your Ira into a Roth account. You’d pay taxes now, but the balance isn’t that high and it seems your income is only going higher.