Frontload Accounts to Increase Returns
This entry was written the last week of April. Publishing was delayed because sometimes life has other ideas.
Frontloading accounts means two things.
Frontload accounts early in life to allow compounding interest the maximum time to work.
Frontload tax-advantaged accounts early in the year to maximize tax-advantaged gains.
I advocate for investing early, but this entry is about the latter. I achieved my 2025 short-term investing goal. Locum work and conservative tax withholdings afforded me the ability to fulfill such a goal.
The goal…fill tax-advantaged accounts by the end of April. 4 months into the year, I wanted to have the IRAs, HSA, and Solo401(k)s filled. A total of $162,550 loaded into tax-advantaged accounts to start the year.
Backdoor Roth IRAs - $14,000
HSA (Family) - $8,550
Solo401(k) Traditional - $93,500
Solo401(k) Mega Backdoor Conversion - $46,500
Contributions were a mix of surplus funds set aside for 2024 taxes and earnings from 2025. I only have 1-year of 1099 taxes, so I was quite conservative with my withholdings. I didn’t want any surprises come Spring. Regardless, it feels good to have these accounts squared away for 2025.
To clarify, I would have fully funded these accounts for 2025. Frontloading allows for more tax-advantaged growth. It’s mathematically advantageous to fill tax-advantaged accounts before taxable accounts.
If I were to fill these accounts over 12 months (which is common in default W-2 settings), January deposits would have 11 months of tax-advantaged growth while December deposits would have weeks of tax-advantaged growth in 2025.
How I frontload these accounts?
I’m self-employed, meaning I control employEE and employER retirement contributions. I’m maximizing the advantages of being self-employed. I do it because I can.
I earn a solid income. I have dollars to invest. It becomes a matter of which vehicle to use when investing. I utilize taxable and tax-advantaged accounts. They each have their place. I’m fortunate to have a financial balance allowing me to contribute significantly to both.
I have a high savings rate. My gross savings rate is 60%+ and my net savings rate somewhere around 90%. All of the money not set aside for taxes basically goes into investments.
I’m nerdy and care about the little things. An extra 8+ months of tax-free growth on my annual contributions every year for life is worth paying attention to.
Why it doesn’t matter all that much:
8% of $162,550 is $13,000 of expected growth annually. I’m maximizing the tax-deferred and tax-exempt portions of that growth.
Unrealized gains in equities wouldn’t be realized until I sold the equity. Clinically speaking, if I invest in equities (which I do), the tax differences year-to-year will be minimal if not negligible.
I’m saving taxes on a couple small quarterly dividend payments from these investments. If investments were high dividend funds, REITs, or a money market account, that’s where taxation becomes more significant.
Over the course of a career, one could argue that an additional 8+ months of tax-advantaged growth on each year’s contributions would be clinically significant.
For various reasons, over half of this investment is in tax-deferred accounts, so I will pay taxes on the growth eventually. My Financial Cocktail involves early retirement thus significantly less earned income upon utilization of my 401(k). A net win based on my plan.
It’s a psychological win that if I’m going to fill these accounts in 2025, I might as well maximize the advantages.
Reasons to adopt this strategy and fill your tax-advantaged accounts early:
Your ego welcomes the challenge. Goals provide motivation and progress recognition. It’s vitally important to have short and long-term financial goals. Even arbitrary goals such as filling these accounts by April. There is no reason for selecting the end of April other than I would have 2024 taxes settled and I thought I could do it.
You acknowledge the slight financial edge in doing so. This is my attempt at a “work smarter, not harder” piece. Early investment leads to maximal compounding growth in tax-efficient accounts. The tax benefits begin immediately, so why not contribute early in the year?
You feel great about the investing progress early in the year. It’s peace of mind knowing I have filled my 2025 tax-advantaged accounts. None of the, “oops, it’s December and I forgot to XXX.” Or wondering how quickly my check will clear with Fidelity.
This is just an item on my checklist, and it feels great to cross it off. Deadline stress eliminated.
When I held a W-2 job, I was able to change my retirement contribution online. Under the “pay portal” there was a dropdown indicating percentage of paycheck going towards my 401(k). The max allotment was 75%.
75% of my pretax paycheck could go towards retirement up to the annual 401(k) employEE contribution limit. This becomes relevant when starting a job later in the year.
Reasons to AVOID doing this…
Your employer match may stipulate your contribution timeline. This may require 401(k) contributions to be spread evenly throughout the year to see the match. No match = no fun.
As a W-2 employee, the 3-6% employER match is a serious perk. The CRNA compensation packages I have reviewed typically range from $30,000 to $60,000. Earning $250,000 annually, the employER match could be $7,500 to $15,000 of that total.
You may not have the cashflow. No shame in that. It isn’t common to have a savings rate above 25% or significant cash sitting around for tax time.
You may not utilize tax-advantaged accounts. Tax-advantaged accounts are like being in a Limited Partnership with the government. There are up-front benefits, but red tape on the back end.
If you are 401(k) heavy and looking to retire early, you may forego tax-advantaged accounts for a taxable brokerage account. A bridge account is essential to retire early.
If you are a real estate investor (among other investments), you may forego tax-advantaged accounts for other investment avenues.
Final Thoughts…
The goal-setting aspect of investing is great, especially when it’s an area of investing I can control (unlike annual returns). I can control account contributions.
For the duration of my locum work, I look to continue utilizing the early filling of tax-advantaged accounts. This will become an annual goal to strive for.
Because I’m a heavy index fund investor, the relevance of 8+ extra months of tax-advantaged growth on $162,500 remains unknown. Again, it’s about doing everything in my power to create the optimal situation psychologically and mathematically.
I’d love to hear your take on the matter. Worth doing or not so much? Thanks for reading.
