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re: 401k - Putting in more than the company match pros and cons
Posted on 6/21/22 at 8:53 am to Im4datigers
Posted on 6/21/22 at 8:53 am to Im4datigers
quote:
If I’m going to be in a lower tax bracket when i retire, why not keep putting the 12% in?
the ONLY reason I can think of is that your 401k investment options are just that crappy. Otherwise, I agree with you.
I am doing that same thing. I am maxing my 401k so I have something accessible at 55, will have lower income in retirement, AND my 401k is essentially a full brokerage account with no limits on what stocks, funds or commodities I can purchase.
1
Posted on 6/21/22 at 9:03 am to notsince98
Thanks everyone. Makes a lot of sense to keep putting it into 401k due to the accessibility. I don’t plan on retiring early, but shite (health) happens and having access to it early makes a difference
I’m very familiar with real estate, but just don’t have the 20% down on a lot of these properties I would actually be interested in buying.
I’m very familiar with real estate, but just don’t have the 20% down on a lot of these properties I would actually be interested in buying.
Posted on 6/21/22 at 10:28 am to Im4datigers
This is the order I'd do:
1. Get company match in 401k with whatever % you need
2. Max out an IRA (ROTH if you can, I guess anyone really can with backdoor still); the investment options are just better here than a 401k
3. Increase 401k as you see fit, but also have a brokerage account that you're balancing with that as you see fit so you can have some non-retirement only money building up too
I'd also max an HSA before step 3 honestly if you have one available to you.
1. Get company match in 401k with whatever % you need
2. Max out an IRA (ROTH if you can, I guess anyone really can with backdoor still); the investment options are just better here than a 401k
3. Increase 401k as you see fit, but also have a brokerage account that you're balancing with that as you see fit so you can have some non-retirement only money building up too
I'd also max an HSA before step 3 honestly if you have one available to you.
This post was edited on 6/21/22 at 10:29 am
Posted on 6/21/22 at 12:50 pm to thunderbird1100
I'd meet my company match % to the 401K, go max out a Roth IRA for you (and spouse), and then put in max to a HSA ($7,300 this year). The HSA is tax free and can be invested (at least mine can). My issue is that I have a health issue that I spend more than the $7,300 a year on medical bills so I don't get to invest it, but I still get the benefit of it being tax free money. After that, if you have any money left, go put it into the better of an IRA or 401K for which one has the better investment options.
This post was edited on 6/21/22 at 12:51 pm
Posted on 6/21/22 at 1:08 pm to TIGERSby10
quote:
My issue is that I have a health issue that I spend more than the $7,300 a year on medical bills so I don't get to invest it, but I still get the benefit of it being tax free money.
Pay out of pocket if you can swing it, then save those receipts and you can reimburse yourself anytime you like (even years later).
Posted on 6/21/22 at 1:57 pm to Im4datigers
personally, I dont have the discipline to sock away the money that I should've put into my 401K so I keep mine at 12%. It may not the be best financial decision but its the best psychological decision for me.
Posted on 6/21/22 at 2:43 pm to Im4datigers
Pro - potential earlier retirement date
Posted on 6/21/22 at 2:44 pm to Im4datigers
quote:
The only thing I’d like to do is buy some investment real estate but that takes a while to save up for the equity contribution.
The equity contribution won't happen unless you start saving now. Yes, you're missing out on earnings and growth in the market but you'll get cash return on RE decades before you see a penny from a 401k. Make an investment plan that's diversified and that you trust and put the wheel's in motion.
Posted on 6/21/22 at 3:27 pm to Im4datigers
quote:
My company puts 4% in, I’m putting 12% right now which gets me to the annual IRA max by mid year since bonuses are paid in march.
Are you sure you're getting full match even after hitting employee contribution limit early? Some employers offer "true up" at end of year. Others only match during pay periods you contribute so maxing early in year could mean losing out on full year's match.
Posted on 6/21/22 at 3:38 pm to Im4datigers
Are you funding a traditional or Roth IRA as well? If not, I'd fund and IRA (and spouse IRA if applicable) before exceeding 401k match. Your post refers to both 401k and IRA but reads as if you may be mixing up the terms.
An IRA will give you more flexible investment options and often lower fees than a 401k.
You may also benefit from zero long term capital gains rate if your retirement income falls in lower brackets. If so, having some investments in taxable brokerage might be good. Another advantage to taxable is it can be used as assets to qualify for mortgage and you can even borrow against brokerage at very favorable rates if you have a large enough balance.
An IRA will give you more flexible investment options and often lower fees than a 401k.
You may also benefit from zero long term capital gains rate if your retirement income falls in lower brackets. If so, having some investments in taxable brokerage might be good. Another advantage to taxable is it can be used as assets to qualify for mortgage and you can even borrow against brokerage at very favorable rates if you have a large enough balance.
This post was edited on 6/21/22 at 3:44 pm
Posted on 6/21/22 at 4:07 pm to TorchtheFlyingTiger
quote:
Are you sure you're getting full match even after hitting employee contribution limit early? Some employers offer "true up" at end of year. Others only match during pay periods you contribute so maxing early in year could mean losing out on full year's match.
Yes, even after I hit my max contribution, they still do the 4% every check.
On the IRA, I do have a separate IRA and a regular brokerage account that I dabble with. Probably under $100k combined. I've never put much effort into the IRA for either myself or wife as our AGI is over the max limit to get any kind of deduction on taxes. So it's been an afterthought really.
I'd rather put the money into the brokerage account as I can access it in extreme emergencies with only paying taxes on the gains vs the IRA withdrawal of 10% plus the gains. Unless I'm missing something there.
Posted on 6/21/22 at 4:43 pm to dat yat
quote:
I hear this loathing of the RMD a lot. It doesn't hit until age 72ish
I read 1 article this week that the govt may extend that age since mortuary tables show people living longer.
Posted on 6/21/22 at 5:51 pm to Im4datigers
quote:
Unless I'm missing something
We're over AGI for deduction as well but max ROTH IRA anyway (TIRA recharacterized to ROTH).
Investments compounding for 30+ years w/o taxes due on withdrawal is a no brainer, regardless of current tax benefits or lack thereof
Posted on 6/21/22 at 6:18 pm to jamiegla1
quote:
personally, I dont have the discipline to sock away the money that I should've put into my 401K so I keep mine at 12%. It may not the be best financial decision but its the best psychological decision for me.
Amen. 75% of these people who act like you can make more money by not doing additional contributions past match and paying extra on house note, never actually use that money towards that theory. I’ll take the guarantee everytime.
Posted on 6/22/22 at 7:53 am to Im4datigers
I have heard that you should always invest at least 7% into your 401k, because it will not change your net income. I know this rule of thumb will not always work, but could it serve a general guideline?
I max out my 401k, but the old man in me tells younger workers to invest at least that a,isn’t even it exceeds your employer’s contribution.
I max out my 401k, but the old man in me tells younger workers to invest at least that a,isn’t even it exceeds your employer’s contribution.
Posted on 6/22/22 at 8:13 am to Tomcat
quote:
I have heard that you should always invest at least 7% into your 401k, because it will not change your net income. I know this rule of thumb will not always work, but could it serve a general guideline?
Yeah, it's all about incremental bumps each year. A 1% bump each year isn't going to even make a noticeable difference in your pay.
Usually when I get a raise, I "take" half the raise home and then bump my 401k by the other half. Just wish I would have started doing this in my 30's instead of my 40's.
Posted on 6/22/22 at 8:35 am to Tomcat
quote:
I have heard that you should always invest at least 7% into your 401k, because it will not change your net income. I know this rule of thumb will not always work, but could it serve a general guideline?
I should have clarified better. Continuing 7% versus contributing 0, would give you about the same net income. My point was that if you contribute 7%, it’s like free money that you can invest. You should invest at least 7%. I also realize that it’s silly for those not taking advantage of the 401ks.
Posted on 6/22/22 at 9:25 am to Im4datigers
quote:
Usually when I get a raise, I "take" half the raise home and then bump my 401k by the other half. Just wish I would have started doing this in my 30's instead of my 40's.
This is what my wife and I do basically. Whenever we get a raise/promotion take the 401k % up a certain amount depending on the raise amount.
For example a small raise like 3-4% we raise 401k by 1-2% typicaly. If it's a bigger raise, like say 10-15%, maybe take up a few more percentage points, like 3-5% increase. We've only been doing this for a few years and in our mid 30s wish we started in our mid 20s doing this
Basically can always "feel" the raise but also continue to contribute more to 401k to ultimately max it out 1 day but not break your back in doing so trying to go from like $5k-$10k in contributions to $20k in contributions in 1 swoop
This post was edited on 6/22/22 at 9:30 am
Posted on 6/22/22 at 3:42 pm to Im4datigers
Is your 401K a regular one or does it have a Roth option? Before hanging my shingle, I always maxed out the company match, then maxed out a roth, then returned to the 401K for any additional retirement savings.
Posted on 6/22/22 at 3:54 pm to Im4datigers
I would contribute to 401k up to the company match maximum, then max out an IRA, preferably ROTH IMO but personal preference, and then once that is done, increase 401k as much as you still can.
This post was edited on 6/22/22 at 9:34 pm
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