Mortgage Killer Accelerator

Strategy 45 of 107

Run childcare and commuting through pre-tax workplace benefits

Most predictableFrom new cash flow, not your paycheck

What it is

If you already pay for daycare or after-school care, enroll in your employer's dependent care account; the money comes out before tax, up to the yearly limit.

Steps

  1. If you already pay for daycare or after-school care, enroll in your employer's dependent care account; the money comes out before tax, up to the yearly limit.
  2. Do the same for transit passes or work parking through a commuter benefit, if your employer offers one.
  3. Spending stays the same. Raise nothing; the tax you no longer pay goes to principal each month.

Repeat: Each open enrollment.

Measure: Monthly tax saved (pre-tax amount times your tax rate).

Try it in the calculator Enter its amount in "Monthly non-income amount to principal". Add a payoff goal of 5 years to see what is still needed.

Risks

  • Unused dependent care money can be lost at year end; elect only what you will spend.
  • You cannot claim the child care credit on the same dollars.

Who it fits

Average household, Married couples, Newlyweds, Single, Higher earners, No college degree

Needs

Any homeowner with a mortgage.

How predictable

Most predictable: once in place, the payoff date is arithmetic

A worked example (hypothetical, not guaranteed)

Picture a hypothetical household (average household). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.

They follow the steps: if you already pay for daycare or after-school care, enroll in your employer's dependent care account; the money comes out before tax, up to the yearly limit.

Suppose it brings $600 a month on principal from this strategy, not from the paycheck. The loan would be paid off in 16 years 3 months instead of 30 years, saving about $196,219 in interest. To finish in five years, they would still need about $3,374 a month more from other strategies. That is why the five-year sequences stack several at once.

The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.

Sequences that use it

  • Tax refund harvest: Claim what you are owed this year and the last three, then stop overpaying going forward. Every refund goes to principal.

Sources and more information

Where to get help

Related strategies

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