Smart Reasons to Save, Use and Invest Money

Use ESPP Money To Fund My Roth IRA

After re-reading my article called “Roth IRA Unusual Benefits“, I decided to start focusing on contributing to my Roth IRA again because the benefits are just too incredible!

It’s been a hard path for me because I’ve been participating in my employer’s ESPP (read “Getting Over 15% Return By Saving Money In An ESPP“).  So in the ESPP, I been contributing 10% of my salary into it so that I could get the instant 15% discount in the purchase price that the program offers every quarter!  I then sell the company stock I buy with the ESPP.  It has been a great way to make a cool, extra 15% on 10% of my salary a year!

Cash in Hand

But now I think I want to take that extra $1000 that I gain from participating in the ESPP and use my ESPP money to fund my Roth IRA.  The ESPP money would include both my contributions and earning from the plan.

Using my ESPP to fund my Roth IRA will make the ESPP a friendly, but (almost) forced saving program for funding my Roth IRA.  In fact, the ESPP is a perfect instrument for this, and I regret not thinking of it earlier!

Why is ESPP such a great instrument to fund a Roth IRA?

  1. Once I sell the shares in the ESPP, all of what I sold is taxable.  So since it’s already taxed why not use it to fund my Roth?
  2. It’s a painless way to save the money up slowly throughout the year.  The idea is to contribute at least $1,000 per quarter directly into the Roth IRA as the amounts become available.
  3. Most of the ESPP money would go into investments anyway, so why not buy investments in a Roth that won’t be taxed EVER again?
  4. Knowing that the ESPP is special money that is to be used to fund my Roth IRA, makes it easier to use for the Roth IRA.  This is a mental trick of course, but it works.

So now you know my future plans for the money I save and gain in a ESPP.  Do you use any special money trick or tips to fund your Roth IRA?

My ESPP planning keeps getting better and better the more I think about it!

Don

6 Responses to Use ESPP Money To Fund My Roth IRA

  1. Josh says:

    I’m doing the same thing. Another added benefit is it prevents your company stock from becoming too large a percentage of your portfolio because you are now forcing yourself to sell some to fund the Roth.

    • Don says:

      Great point on the company stock percentage! Too often people believe “their” company stock is different, but so did the folks at Enron.

  2. Funancials says:

    I love the 15% match (or discount) on the ESPP. Not nearly enough people take advantage of it. The only difference (from the sound of it) between mine and yours is that once I withdraw from it, I cannot contribute for the next 6 months. It’s kepte from withdrawing multiple times.

    Tricks I use- I get paid 26 paychecks and budget around 24 so I use money from those two checks to fund the Roth.

  3. Not bad at all. I’ve been pretty good at maxing both my and my wife’s roths. It’s a huge priority for me since I know we are at the bottom of our income (compared to future income and tax brackets). I do need to get better at regulating our expenses and spreading out the investments throughout the year.

  4. Don says:

    That’s awesome that you are fully funding both! My wife has a neglected Roth that desperately needs attention. I figure first I’ll try to tackle mind and then focus on hers…

    Great job! I truly believe Roth IRAs is the best think to come out of the government with respect to retirement plans!