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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 have been contributing 10% of my salary into it so that I could get the instant 15% discount on 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!

But now I think I want to take that extra money 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?

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? 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. 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? 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 an 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