401k

[Muddybuddy]

Thanks for the report....wait there wasn't one!

Anyways, he's removed, and IP's logged. Thank you.

Pretty sure there was!

 

[emp1953]

My question is - why do you want to hit your max through company contributions? Do you need the tax savings from your paycheck to offset some other tax situation? It often sounds like a great idea, which if you need the tax savings, it can be but most people do not change tax rate % based on their 401k contribution.

Many advisors will coach to be mindful when putting more $ in than the company match. This is dependent on type of plan and how the plan invests the dollars. Many employer plans would not be classified as aggressive or customized to the client, they are boiler plate. So you may be contributing to a plan that receives lower growth rates than benchmarks. Are you familiar with how your $ are invested?

Is your 401k traditional or roth? Does your employer offer Roth option for single filers under a 150k magi or 230k as a couple? If so, I would put all you can into the plan so that you get tax free growth and tax free withdrawals after 59 1/2. If it makes sense.

If traditional, there may be more appropriate ways to increase retirement income outside of your employer plan with the difference in $$ amount

Do you have any other investments? Any whole life? Any self directed investments? May want to see and advisor and maximize and diversify your tax situation.

Typically your 401k contributions along with the company match are "PRE-TAX" dollars. You are not taxed on those dollars until you start withdrawing money from the 401k. Then you are taxed at the current tax rate for the year you start withdrawals and at the percentage that your income level puts you at. Leading up to retirement my company's employees had access to their 401k account and could move investments around within the scope of the plans offerings. I took the list of available investments to my financial advisor and he set up the allocations and the 401k did well. Better than most of my fellow workers. My financial guy asked that I provide him with an updated list of investment options in the plan every 6 months, so he could suggest changes. It worked out really well. I always put in the max that the company would match, why throw away free money? Also when raises came along I always put half of that percentage into the 401k. Don't avoid an advisor, they do their thing all day long. you don't have to worry about it, but.... find a good one.

 

[ntsqd]

Well, we've got the topic opened up, may as make good use of it.

My experience is that I got started really, late. My whole employment history is very non-typical. When I did finally land a position that offered a 401k it was an aggressive one that we could choose the aggressive/conservative balance of our investments. Employer matching up to some fixed amount. Max monthly contributions totaled together would exceed the max annual ('04 time frame). Being late starting I maxed out the monthly figuring that more, sooner was better in the long run. Get the percentages turning into growth faster. I'd typically hit the annual limit about mid October. The thing that I noticed was that my pre-tax contribution was a lot more than the ~$100/paycheck increase that I got those last ~2.5 months each year. And the timing couldn't have been better, I got a $100 'bonus' each paycheck right in time for Christmas!

 

[Model19Man]

Thanks for the report....wait there wasn't one!

Anyways, he's removed, and IP's logged. Thank you.

I still see Nash643 is a member - I think he is the one who started this?

 

[RUFFIAN R - NY]

Have had many a 401K plans with different Houses. Walston & Co-PW - White Weld- Mother Merrill - Morgan Stanley never had a problem only wished I put away the max at them depending on where one stood at the firm and the year end dollars !!! some years were super other were so-so, Was better than any bank at the time,

 

[ntsqd]

That was the turning point for me. Tend to look at the pre-tax contribution dollars as coming directly out of your actual paycheck when that's not completely true. It is not a 1:1 relationship. Everyone's tax & income situation is likely to be unique, but my experience has been that the hit my paycheck takes is less to far less than my contribution.

 

[Huntaddict]

Typically your 401k contributions along with the company match are "PRE-TAX" dollars. You are not taxed on those dollars until you start withdrawing money from the 401k. Then you are taxed at the current tax rate for the year you start withdrawals and at the percentage that your income level puts you at. Leading up to retirement my company's employees had access to their 401k account and could move investments around within the scope of the plans offerings. I took the list of available investments to my financial advisor and he set up the allocations and the 401k did well. Better than most of my fellow workers. My financial guy asked that I provide him with an updated list of investment options in the plan every 6 months, so he could suggest changes. It worked out really well. I always put in the max that the company would match, why throw away free money? Also when raises came along I always put half of that percentage into the 401k. Don't avoid an advisor, they do their thing all day long. you don't have to worry about it, but.... find a good one.

I am aware of all of that. That was not my question

You are not throwing away free money, if you match the match only. Anything after that is YOUR money that you can decide through what instrument you are best investing. Investing automatically within the company 401k is not ALWAYS the right answer, especially if you have other interests or your benefits from the company do not cover all of your needs. You would be potentially placing it in an underperforming account or you may want to diversify it within other accounts. Potentially tax deferred or even tax free accounts for your retirement and protection; yes there are tax free investments but you probably know that.

Your financial "guy" ought to have mentioned that and should be doing more than just QCing your choices. But it sounds like you already know all the ins and outs, which makes me wonder why you even asked.

 

[Okanogan]

I know the origins of this thread seem to be in question but it appears some folks are taking it seriously so I'll contribute based on my experience but what options are available depend on what your company allows with their 401k.
I started off contributing pre-tax to the limit of the companies match. As my income grew, I contributed the max pre-tax allowed by the IRS which is say 20K+ and maybe 5k more if you're older. Later I switched to Roth 401k which had the same limits annual as the pre-tax contributions. Eventually I increased my contributions to also max out the after tax 401k limits in a addition to the tax advantaged contributions. I was told this was stupid because the after tax contribution could have just gone into an independent brokerage account. However, after I retired and converted the 401k money to both a Roth IRA and normal IRA, I was allowed to roll all of the after tax excess 401k contributions directly into the Roth IRA. This basically allowed me to bump my post retirement Roth IRA holdings by 25k/ year for all the years I had been maxing out my additional after tax 401K contributions.
Having now been retired for almost a decade, I can say my favorite retirement fund is my Roth IRA. No federal or state taxes, no impact on my Medicare premium and no RMDs in the future. Tax rules may change in the future to prevent this kind of backdoor funding of a Roth but for me it worked to significantly increase my Roth IRA account well above what I could have achieved in the traditional fashion.