401(k) Contribution Limits Have Increased For 2018

The start of a new year brings with it many things and I’m not just talking about a bunch of resolutions you will break before February first rolls around. I’m talking about important stuff - stuff that will alter your paycheck.

Your Paycheck Is Going To Change

New tax rates go into effect at the first of the year, so you’ll likely notice the amount you have withheld in taxes changes. You could end up with a slightly bigger or smaller paycheck in 2018.

One change in 2018 that people may overlook is an increase in the contribution limit to 401(k) and 403(b) plans. The maximum amount you can contribute to these plans has increased by $500. The new maximum is $18,500. Few people actually reach that maximum, but if you were one of those people in 2017, you can now add a bit more to your savings in 2018.

As a side note, this is the first time this limit has increased since 2015.

If you are 50 years old or older in 2018, the catch-up contribution limit remains unchanged at $6,000. So if you will turn 50 years old in 2018, your maximum 401(k) contribution is $24,500.

Others Changes Are Also Happening

There are also changes to the amounts you can contribute to traditional IRAs. The phase-out income limits for who can contribute to Roth IRAs also changed. See this page at the IRS website for a list of all the retirement savings-related changes for 2018.

Make Changes, But Do So Carefully

If you are one of the lucky ones that is able to max out their 401(k) contributions, be sure to increase your contributions in January. But when doing so, please keep in mind that if you increase your contribution too much, you may end up missing out on some company matching. See my previous article here about this.

Option Writing For Passive Income Part Two

Back in August, I wrote about making passive income by selling cash backed naked puts. If you haven't read that post, I suggest you first go back and do that now. After four months of doing this, I thought I'd post about how it's going so far.

I made four trades total, each time selling 5 or 6 contracts with an expiration date three to four weeks out. Details of three of those trades can be found at these two posts. The fourth trade ended the day I am writing this (Dec. 15) when the options expired out of the money. Last week, Realty Income stock dropped and I thought there was a pretty good chance I would be called and have to buy the stock. However, the stock rallied 2 points this week to close at just over $57. My $55 options expired out of the money. This investment netted me a 9.11% annualized ROI. 

Compare This To Straight Out Buying The Stock 

The total amount of money I have received from trading naked puts since August is $899.70. How does this compare to if I had just bought the shares outright?

I sold my first puts on August 10. At that time, I sold 5 contracts, which translates to 500 shares. My other three trades were for 6 contracts, or 600 shares. So for this comparison, let's assume I bought 500 shares on August 10 and another 100 shares when I sold my second put - October 6.

Realty Income also pays a monthly dividend. If I owned the stock, I would have received this money, but, as an option writer, I do not. Furthermore, the company also raised the dividend during this period. So this comparison needs to include any dividends I might have received. (For the sake of simplicity, I'm going to assume I would not have reinvested the dividends and instead just took them as cash.)

The closing price for the stock on August 10 was $57.02. This would have been my cost to buy 500 shares. The closing price on October 6 was $56.48. This would be been my cost to buy an additional 100 shares, bringing my total shares to 600.

Had I bought the shares outright, my total gain would have been any price appreciation of the stock between when I purchased it and today plus any dividends received. Since my last batch of options expired today, we'll take today's closing price of $57.40 as a sell price for this comparison. My options figures include commissions, so we'll also take those into account for the stock purchase scenario.

Here are two tables showing the calculations. This first shows gains from the stock price going up. A negative price indicates a purchase, a positive price, a sale. The second table shows the dividends I would have received. The Dividend Record Date is the date I have to own the stock in order to be eligible to receive the dividend. The Dividend Payment Date is when the dividend is paid.

A Hefty Increase

As you can see, had I bought the stock outright, I would have made $733.30.

By selling naked puts, I earned $899.70.

I made 23% more by selling naked puts!

It Gets Better

And let's look at this another way to see how it can get even better. Assume the stock closed below the option strike price ($55) today and my options were called. I would be forced to buy the stock at $55. But don't forget, I've already been paid $0.40 per share to sell the option in the first place. Now let's also take into account the money I received from the previous three times I sold puts that were NOT called ($.55, $0.30, and $0.40 per share), that means I've already received a total of $1.65 per share. So if I had to buy today at the option price of $55, my actual net cost would be $55 - $1.65 or $53.35 per share. That means I would only have lost money if the stock closed below $53.35 per share. That's quite a bit of downside protection built in!

The more astute of you will realize that the more times I sell puts that are not called, the greater my downside protection becomes.

What's The Catch?

So why doesn't everyone do this? That's a good question. My overall profit was helped by one big factor - my options were never called. I was never forced to exercise the options, so I maximized my investment. I'd like to think this is because I'm a fantastic stock picker, but I'm not. In the long run, no one is. I happen to know this stock fairly well because it's been my main investment for over a decade.

The market is still volatile and things could have gone differently. If the the stock experienced a rally, I would have missed out on it. The price could have dropped a lot and I might have been forced to buy at a price over market value.

But here's the thing: I'm completely OK with my options being called. I wouldn't mind paying slightly over market value for this stock. Obviously, I would prefer my options are not called - I'll take that extra 23%, thank you very much - but I like the underlying stock and I would have no problems owning it. So this is pretty much a risk-free investment for me: If the options aren't called, I keep the money and do it again the following month. If they are called, I buy the stock and hold on to it. I'm happy either way.

I'm trading earning extra cash and getting a higher ROI now for the possibility of missing out on a big price increase. By only selling options with 3 or 4 weeks until they expire, I'm also minimizing this risk somewhat.

Make Some Extra Cash Before You Buy

Not everyone is in my position. This won't be a suitable investment strategy for many people. However, if there is a stock you are looking to buy, it might be worth your while to investigate this investment tactic as a way to pick up some extra cash as you buy the stock.

Cryptocurrency Update

Back in July, I wrote about how some people are putting their retirement savings into cryptocurrencies like Bitcoin or Ethereum. This is incredibly risky and stupid. However, if you have some extra money you can afford to lose, gambling money, if you will, it might be fun to experiment with cryptocurrencies. As I mentioned in that post, that is what I did.

My Experience With Cryptocurrencies

I initially purchased $200 worth of Ethereum around the time I wrote that previous post. Approximately 3 weeks later, the exchange rate fell and I bought another $200 worth. I used Coinbase as my vendor. I signed up using a referral link like this one, which gave me a free $10 worth of Bitcoin when I bought $100 worth of any cryptocurrency Coinbase supports (which currently is Bitcoin, Ethereum, and LiteCoin). You'll get the same deal if you use that link to open an account.

I opted to buy Ethereum because it was cheaper than Bitcoin and I felt it had more potential for growth. When I bought, I was credited $10 worth of Bitcoin for the referral bonus, which worked out to about 0.003697 Bitcoin. Doing the math, you can see that one Bitcoin was worth $2,704.90 at the time. Today, one Bitcoin is worth about $16,000 (after peaking at over $17,000 today). My $10 had grown to about $60.

I purchased a total of 1.38918114 Ethereum for the sum amount, including the Coinbase commission, of $406. One Ethereum was trading for about $287.94 at the time. As of this writing, one Ethereum is worth $462.07. I sold my coins and received $623.20 after commissions.

To keep the math simple, let's assume I bought all my Ether at the same time - 160 days ago. My ROI then works out to 53.5% in 160 days. That gives an annualized ROI of 122.04%!

My ROI on Bitcoin is infinite, since I got that money for free.

Not too shabby!

I'm Getting Nervous - Time To Exit

As I said, this was gambling money for me. I was prepared to lose it all. I thought about selling just enough Ether to recover my initial investment and letting the rest ride, but in the end, I decided against that, for the following reasons:

I am hearing all sorts of stories now about how Bitcoin is in a bubble. Personally, I think it is, as are all cryptocurrencies. I think they were when I bought some. Nevertheless, I bought some as a gamble to see what would happen. I'm not adverse to bubbles and it is possible to make money in them. The trick is being able to get out before they burst.

Although I believe Etherium is a more stable currency long term (and thus, less susceptible to huge value crashes due to its ability to run programs in the blockchain) right now, its value is closely tied to Bitcoin and they tend to move somewhat in sync. So if Bitcoin crashes, I think Ether will as well.

Over one million dollars worth of Ethereum, approximately 15% of the Ethereum network traffic, is being used to run a Pokemon-like game called Cryptokitties.  Farmville, anyone?

Bitcoin has reached a level of mass inroads into the general financial markets. Mutual funds that trade cryptocurrencies have been formed. Wall Street  hedge funds are investing in it. The Chicago Board Options Exchange has started selling Bitcoin futures.


The potential for Bitcoin price manipulation seems credible.


Keep in mind, these are virtual currencies. There is NOTHING underlying Bitcoin or Ethereum to give it its value.

To me, all of this adds up to a bubble.

I decided not to be greedy. The run-up may continue for quite some time. However, news of problems, such as hundreds of millions of dollars in lost digital currency, wallet providers getting hacked and closing down,  and cryptocurrency hard forks has made me very nervous. I decided I was happy with my 122% ROI and cashed out.



Note: Two days after I sold my Ether, Coinbase suspended all trades in Ether and Litecoin when a rally caused prices to spike. Ether was trading at over $630 - almost $200 higher than when I sold two days ago - but if you can't trade, the run-up does you no good. This unreliability of the trading platform is another thing that was making me nervous. And it's not just Coinbase. Other virtual currency wallet companies can do the same thing. There is very little regulation of these companies right now.

Goal Update: End Of November, 2017

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of November, 2017
Current value: $37,550
Change from last Month: +1,385
Percent of Goal:  34.53%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

My SQL courses on Udemy generated $96.64 of income. One of my courses was selected to be part of the Udemy for Business program. This means Udemy will be including the course in a package of courses that they sell to businesses. I will earn income based on minutes viewed for courses in this program rather than earning a flat fee per course sold. There seems to be great potential for a large number of students with this program.

And speaking of getting paid per minute viewed, I received my first payment from SkillShare. I made $11.14. Not bad considering I only have 5 students there and they have only watched about 200 minutes of my courses so far. Next month is looking better: I'm up to 11 students and 300 (additional) minutes already.

Cash Backed Naked Put Update

As I mentioned last month, Realty Income stock took a bit of a dip and I was able to sell some cash backed puts at what I felt was a very safe strike price. I received $231 for selling puts with a strike price of $52.50. Sure enough, the price rebounded and when the options expired, the stock was trading at $56.48. This means I keep the $231 I received and was not forced to buy any stock. This three week investment netted me a 10% annualized ROI.

I turned around and made pretty much exactly the same trade on November 22 - I sold 6 puts for $0.40 for a net income of $231. This time, the strike price was $55 with an expiration date of Dec. 15. I have a feeling my options might be exercised when that date rolls around and I'll have to buy the shares. As of this writing, the stock is trading at $55.55. It has to stay above $55 for 2 more weeks for the options to expire worthless (which I want). My mistake, if you can call it that, was that I miscounted the weeks remaining in this option when I sold it. I normally like to only have about 2-3 weeks until the option expires but this time, I sold options 4 weeks out. That gives me a little more exposure than I like.

Assuming the options don't get called, I'll have made a 9.11% annualized ROI. If the stock closes on Dec. 12 below $55, I'll have to buy 600 shares at $55 each. I'm not opposed to that. I like the stock and have no problem owning it at that price. It's just that then I'd be earning a 4.66% ROI from the monthly dividend instead of roughly double that by selling options each month. We'll have to wait and see how this one turns out.

In other news, I've changed jobs! Starting yesterday, I'm now working for a new company based in the Washington area. Although not the reason for the change, the new position did come with a 28% salary increase, plus a significant signing bonus. There was one drawback, but I'll get into that next week. Once I know what my regular paycheck will be, I'll be re-figuring my budget. I expect I'll be able to up the amount I put in the Tesla fund each month!

Net Worth Update

Our net worth increased by $9,922 over last month. This is more or less just a reporting adjustment. Mint finally resolved their issue with accessing my 401(k) account, so that figure finally got updated after a couple of months. (Note there is no more red dot next to the Investments" category.) I did pay about $10,000 in a repair bill for the new house, but the check has not cleared the bank yet, so that's not reflected in this month's numbers.

October 2017

November 2017

If you have any questions or suggestions for topics, please drop me a line in the comments section!