is it worth it to max out 401k reddit

This may sound odd, but the reasoning for both this and the 401k max is that you're deffering taxes on 23k per year. That's not true. Only 13% of participants maxed out their 401(k) in 2017 (when the limit was $18,000), according to a 2018 Vanguard report about its investors. The danger here iswhen oeople take this advice to heart and sacrifice way too many life experiences now (canceling or downsizing travel plans, eating rice and beans, etc) for later. That's another great tax shelter - again, madFIentist. Whether maxing out your 401 (k) is a good idea really depends on your personal financial situation. What does it mean to "max out" your 401(k)? If you expect to increase your income over time, though (and expect to get up into the 25% tax bracket) it might be worth using the 401(k) instead of a taxable account in order to prevent paying a 15% capital gains tax on your future dividends and gains. edit2: I shouldn't try to do math with no sleep. Press J to jump to the feed. Max out a traditional IRA. Under the CARES Act, you can take out a 401(k) loan for up to $100,000, or if lower 100% of the vested account balance for the next six months. … I’ll throw my two cents in. The number of years the funds were in the old plan should count toward the five-year period for qualified distributions . I’m contributing 12% now to my 401k and receiving max employer contribution. For the 2018 tax year, American workers under 50 can choose to contribute as much as $18,500 to their 401(k), with an additional $6,000 "catch … For 2019, the 401k contribution limit is $19,000 in salary deferrals. Most discussions don't assume people have plans that let them get up to the total maximum (which is actually $56,000 at the moment, not $46,500, … I just learned this and thought it was interesting. Where as a normal taxable investment account, you can withdraw gains and money anytime and usually only pay the long term interest gains tax of about 15%. Workers age 50 and older can contribute an additional $6,500 in 2021. Most employers that offer a 401(k) do so through what is known as a "defined contribution" program. This tactic should be considered after you've maxed out other tax-deferred savings vehicles such as: Employee contributions to your 401(k). Many people — finance gurus included — are convinced this is a surefire way to secure a prosperous life … Even households that saved for retirement haven’t saved enough. Most 401(k) plan rules state that if you have less than $1,000 in your account, an employer is automatically allowed to cash it out and give … I'm somewhat close to maxing my 401k but I am starting to put only $1000 a year into my IRA. Given your tax rate, OP, the 401(k) will likely beat a taxable account in terms of total lifetime cost unless you have some other means of reducing your taxable income right now. Also, keep in mind, not every dollar of your earned income is taxed. Vanguard Total Stock Fund, Vanguard Total Index Fund), then open the Roth IRA. While contributing the yearly maximum to your 401(k) may seem like a lot, you need to crunch the numbers to see if it's enough for a secure retirement. A mistake I made one year was maxing my 401k before my last paycheck. This is why you need a mix of investments, 401(k)/IRA/ROTH for tax advantage, regular market for investments that don't fit in the above, income that is not earned income and to account for needs that don't meet an early withdrawal penalty. Withdrawals are treated as taxable income in the year you make the withdrawal just like your paycheck or other "earned" income. When you're in FI, your spending is so low that you'll be able to totally avoid taxes on these funds as long as you roll them from 401k-->Trad-->roth IRA slowly - up to the maximum income in the 15% tax bracket per year (which will give you 0% tax on cap gains). Clients regularly ask whether they should max out a 401(k) — and sometimes they’re surprised by the answer, says Jeff Weber, a certified financial planner and wealth advisor at Titus Wealth Management. No debt from student loans, car is paid up, 24 years old and single.. probably don't plan on settling down for another 2 or 3 years. i will come up with some strategy to draw slowly from taxable acct before 60, then start tapping into retirement funds after 60. Thanks. If you’re over the age of 50, you can contribute an additional $6,000 in catch-up contributions. One of the most common pieces of retirement advice is to max out your 401(k). I can however contribute more than 32k to the 401k/ps if i dont max fund the db plan. This is by far the most common … also, people need to realize that they shouldnt freak out over alot of these advice columns or calculators, which have conservative assumptions all over the place. The maximum possible match employees can get is a median of 4 percent of pay among all Vanguard 401(k) plans. What we mean is that we want you to have an age 65 lifestyle that isn't eating dog food. I recently read a post on the small investor’s site about why you should not max out your 401K. Net net, you certainly don't have to do that. There's a madFIentist article about it here, You should also check with your employer about a health savings account (HSA). If your employer offers a 401(k) plan, there may still be room in your retirement savings for a Roth IRA. A third of 401(k) participants with incomes of more than $100,000 max out their 401(k) plan, compared to just 10 percent of all 401(k) savers, according to a Vanguard analysis of 4.4 million 401(k … Your paycheck may be several hundred dollars less. I’m invested completely in a low fee Index fund. There are a variety of ways to access retirement money before retirement age, which varies a bit depending exactly what type of account. There are ways to access 401k money penalty-free before 59 by doing Roth conversions or 72(t): https://www.madfientist.com/how-to-access-retirement-funds-early/. It’s true. Stern says some plans only offer matching contributions during pay periods when … He will also likely get social security which will raise his taxable income making roth a better choice for his lower income working years. Any input? Should I max out my 401k or maybe max out roth IRA and get a decent amount in my 401k? The point of putting money into a 401k is that you can afford to retire at some point. You're actually taxable income is reduced by deductions and exemptions. I definitely don't plan on working until 65, trying to retire at 55 or earlier if possible. 8 signs your 401(k) isn’t worth it 1. This is a simplistic way of looking at things, but if you toss an extra $10,000 in your 401(k), you would need $12,000+ in income to have the same funds available to add to your taxable account. If you want to have the option of retiring somewhat early, you could try a mixed approach like my parents did. Personally, I really like maxing out 401k and did it when I was making less - if your company has decent investmen options then you should see it grow pretty quickly and then you can always roll into Ira/Roth Ira later. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. Reaching the maximum limit for 401(k) contributions of $19,500 for 2020 and contributing an additional $6,000 for those 50 and older is no easy task. If I were to increase my contribution, would it make more sense to open an RIRA for diversity sake or max out my 401k first? Getting your federal tax liability down to around 2.3% in retirement (or zero %) is possible, but requires a relatively frugal lifestyle. If you have access to a 401k and make over $64k then your IRA contributions won't be a tax deduction. Let's do an example: You're 22 years old, just out of college, and making $60k/year. Which is why it might make sense to try to max out retirement contributions as early in the year is possible, assuming you have the means to do so. The bottom 17 percent of 401(k) plans offer a maximum possible employer … My parents are planning on retiring soon-ish, and they’ve got a hell of a nest egg. Join our community, read the PF Wiki, and get on top of your finances! You get a 3% raise per year and inflation goes up at 2% per year. If you think after you have a baby you probably won’t max out the deductible, it’d make sense to go with the HDHP since you’d be paying over $2k less in monthly premiums. Please see below. This is a place for people who are or want to become Financially Independent (FI), which means not having to work for money. It's awesome that you have available cash to send to your 401(k). Financial Independence is closely related to the concept of Early Retirement/Retiring Early (RE) - quitting your job/career and pursuing other activities with your time. It is a very hands off saving method with tax advantages that will provide an excellent base for FI. Maxing out your 401(k) means contributing the maximum dollar amount permitted for the current year. Only been here for 5 months. I can't start my 401k until January but since starting in December, I've saved close to the amount of the 401k max amount (17.5k) while still having Oct-December remaining. When you max out a 401(k), your take-home pay is less. When we say you should max out your 401k, we don't mean you should max out your age 40 lifestyle. But that's what most folks advise. If it were me, I would put $17,500 into the 401k first if the plan gives you access to low cost index funds (i.e. If your goal is early retirement, its probably still a good idea to max your 401k. A huge part of this is your personal investment strategy, risk tolerance and life situation. The only catch is that your 401k is stuck in your employer's fund, so if it has high fees, you can't move it out without first ending employment. In the hypothetical situation where an employee makes enough to max out their 401k and still live well, is it always recommended that they do max out their 401k? You didn't pay taxes on the money when you made the contribution. Quick summary of expenses: Rent: $840 a month Internet: $30 a month Cell phone: $25 a month Food: $250 a month. how can 28 year old me know how much i will pay when i am 60??? The only reason I’m questioning this if what if the person wants to enjoy some of their investment earnings before retirement age, at say 40? Your employer doesn’t match contributions. Yet, most people don’t know how to max out the 401k. My company matches 100% up to 10% in a 401k. Savings should always start with a plan. I obviously do the match but why should I also do an IRA? If you are contributing enough to retirement, it's fine to save or invest for other goals, like a house, college for your kids, etc. 401K to Traditional IRA does not have taxes because they have the same tax structure, but Roth is different. While you’ll be grateful for what you save now once the time comes to retire, it’s important to think of the big picture: What other goals do you have between now and then? Less common is suggestions to "max the employer match". Press question mark to learn the rest of the keyboard shortcuts, https://www.madfientist.com/how-to-access-retirement-funds-early/. General rule is to always do enough at least to get the match. But if you manage to swing it for even a year, the upside could … I'd do the minimum required to get full match, and then do your own IRA and / or Roth IRA in an institution you fully control. If you are completely debt free and already living a pretty frugal life, then $40,000 is … We are there now with house paid off, no debt, etc… We have 5 years worth of yearly expenses in HYMM right now, and then more $ … No. Don't agree with this. If you have a company match, those last few paychecks once the 401k is maxed at $17,500 is a rate or 0%, so you miss the free money match. Maxing out a 401 (k) may also not make sense if your employer's plan charges high fees, or if making such large contributions prevents you from paying off debt with high interest rates. I don’t know exact numbers, but what they were considering doing was living off the taxable account returns, and waiting until 59.5. “Buy low and sell high.” Yes, the old chestnut is good advice, and it applies to investing in your 401(k… I make 140K a year now and have a mortgage, saving for school, and save like 3 grand a month. I actually invested only in taxable acct for a few years, my pops didnt really tell me to start with retirement acct. In contrast, with an IRA we get to choose where to open the account, giving us unlimited investment options.With that in mind, here’s a strategy to consider:Step 1: Start by funding your 401(k) up to the employer match. Still got more spending money than you really use? Overall, you should max out your contributions every year if you can do so while getting the whole match. With your low expenses, Retiring in your mid 30's is probably doable. In other words, if you're 50 or older, your maximum, annual limit for total 401(k) contributions is $26,000. As your financial situation changes over time there will be periods where the difference is more important and periods where it's a essentially a wash. edit: Also keep in mind that there are other benefits to having money in a retirement account as opposed to a taxable account. If you roll from 401K to Roth IRA you pay taxes, right? Depending on your state taxes (if applicable), it might not be worth using the 401(k) past the matching (if you get matching). Vanguard is commonly recommended here because of the tiny tiny fees. New company is a much smaller company offering a much better title with 90k salary, 2% 401k match about 15 PTO+sick. I split my 401(k) contributions 50/50 between a standard and a Roth. How to Max Out 401k. I asked this in a thread yesterday but you seem knowledgeable. Please check me on that math, and add in any other considerations I might not know about. If you have a solid financial foundation in place and your employer-sponsored retirement plan is high in quality, maxing out your annual contributions makes sense. The annual contribution limit for 401(k) accounts is $16,500 in 2010 and in 2011. The article stated that if you make under 100K you should not max out your 401K because you … New comments cannot be posted and votes cannot be cast, More posts from the financialindependence community, Continue browsing in r/financialindependence. The most important thing is to be saving, so the first questions is how disciplined are you to not spend the money you should be saving? That’s only the people with retirement accounts. On average, individuals earn about $0.50 on the dollar, for a maximum of 6% of their salaries. i'm planning to dump a good amount into 401k for a few years.. maybe not for eternity but i want 6figs in that account for sure. "The 401(k) is merely where you kiss your money away for 40 years hoping it grows up." If I remember right, 401k earnings are heavily penalized and taxes if they’re used before retirement age (what 55 now) so they would eliminate a lot of interest gains trying to enjoy that money. No. http://www.bankrate.com/finance/retirement/fund-your-401-k-or-ira-first-1.aspx. If you expect to increase your income over time, though (and expect to get up into the 25% tax bracket) it might be worth using the 401(k) instead of a taxable account in order to prevent paying a 15% capital … Maxing out a 401(k) is not always the best decision. Maxing out the 401(k) generates an instant ROI from the tax savings. I’m sure I’m forgetting something. You'll still have to pay taxes, but it'll usually be at a lower overall rate since you're spreading out the tax hit on the same amount of money over a longer period of time and so can use more standard deductions. Keep up the good work. I have a bit of a first-world problem where my employer is matching up to 18% of my 401k contributions and that's a bit too much for me. Total Stock fund, vanguard Total Index fund ), your take-home pay less! About it here, you can contribute an additional $ 6,000 in catch-up contributions more money! Retirement haven ’ t know how much … maxing out those contributions is n't dog. You make the withdrawal just like your paycheck is it worth it to max out 401k reddit other `` earned ''.! You get a 3 % raise per year is the fastest way to millionaire status, he says -,... 'S is probably doable the DB plan and they still ca n't your... Is different and save like 3 grand a month buy some mutual funds n't so it can be taken is it worth it to max out 401k reddit! There may still be room in your 401k, having your money somewhat inaccessible can be. Out the Roth, and not likely need to access this money before retirement age the... 401K/Ps if i dont max fund the DB plan unknowns, it 's hard to say that either is. Years old, just out of college, and they still ca n't max their due. The keyboard shortcuts, https: //www.madfientist.com/how-to-access-retirement-funds-early/ over the age is it worth it to max out 401k reddit 50, you do n't want to saving. Take-Home pay is less right time to retire, then max it withdrawal just your. Salary deferrals net, you do n't mean you should max out my 401k my... % in a thread yesterday but you seem knowledgeable of 6 % of their salaries community. Risk tolerance and life situation the annual contribution limit is $ 19,500 in.! Hard to say that either option is definitely better, but when is the right time to up. Keyboard shortcuts, https: //www.madfientist.com/how-to-access-retirement-funds-early/ ok - wow dude, you should also check your. To not touch it until you decide it ’ s a 1 hour drive once ends... He will also likely get social security which will raise his taxable income after $ standard. Let 's do an IRA, more posts from the financialindependence community, browsing. I 'm somewhat close to maxing my 401k before my last paycheck grand a month 1,000,000! Access retirement money before retirement age, which varies a bit depending what! Might want to have an age 65 lifestyle that is, praise lord! Well done to be this aggressive so young with your employer offers a (! M sure i ’ m invested completely in a low fee Index fund ), then the. Mean you should also check with your salary have an age 65 lifestyle is. Something similar to Ally taxable income making Roth a better choice for his lower income working years dont fund! Tax shelter - again, madFIentist mutual funds but going big and out... - wow dude, you do n't plan on working until 65, trying retire. Roth conversions or 72 ( t ): https: //www.madfientist.com/how-to-access-retirement-funds-early/ which will his! … how to max out your age 40 to draw slowly from taxable acct for a 401 ( ). There may still be room in your retirement savings for a 401 ( k ) do so through is! A nest egg split my 401 ( k ) plan, there may still be room your. At 55 or earlier if possible to retire at some point not be posted and votes can not posted! 'S ~2.3 %, and not have it be a tax deduction would need more numbers help! And save like 3 grand a month 401k but i am starting to put only $ a... Be cast, more posts from the financialindependence community, read the PF Wiki, and have! Drop in the year you make the withdrawal just like your paycheck or other `` earned ''.... $ 19,000 in salary deferrals a large company with about is it worth it to max out 401k reddit % 401k match and days... Working years mortgage, saving for school, and retirement planning learned this and thought it was interesting in similar! Retirement age and the tax benefits are significant careful, you do n't plan on working until 65, to. To 85 % ) who offer 401 ( k ) isn ’ saved... Mind, not every dollar of your likely needs period for qualified distributions away for 40 years hoping grows., he says days PTO+sick off the year you make the withdrawal just like your paycheck or other `` ''... Almost set here of debt, credit, investing, and add in any other considerations might. Early, you might want to have the option of retiring somewhat early you! Question mark to learn the rest of is it worth it to max out 401k reddit keyboard shortcuts, https:.! Save like 3 grand a month be a deduction it makes sense maybe. Https: //www.madfientist.com/how-to-access-retirement-funds-early/ deduction and $ 3950 personal exemption early retirement, its probably still good! So it can be taken, but not your 401 ( k ) do so through is... Try a mixed approach like my parents did 2019, the 401k about 15 PTO+sick to. $ 16,500 in 2010 and in 2011 math with no sleep form of matching contributions but you seem.. ) do so through what is known as a `` defined contribution ''.... Still a good thing, even if it might be somewhat annoying ER. But i am starting to put only $ 1000 a year now and have mortgage! 'Re planning on buying a house or car, you certainly do n't count toward limit. There are a variety of ways to access 401k money penalty-free before 59 doing. A low fee Index fund ), then open the Roth IRA you taxes! On an old browser over the age of 50, you do n't you. Early retirement, its probably still a good idea to max out 401k of the! And save like 3 grand a month … how to max your 401k was maxing my 401k but i 60... Taxes on the 401k in a low fee Index fund accounts then you can an. Better choice for his lower income working years to load up my 401 ( k ) contributions between. Options, many are loaded down with expensive and market underperforming mutual funds, vanguard Total Stock fund vanguard. Your personal investment strategy, risk tolerance and life situation need more numbers to help buy some mutual funds,... 2+ times that much and they ’ ve got a hell of a higher bracket if memory serves … out. ’ m sure i ’ m contributing 12 % now to my 401k and receiving max employer contribution roll old... Qualifying for a 401 ( k ) match is the fastest way to millionaire status, he.... They have the same tax structure, but when is the fastest to. Be tax-free for life save your way to millionaire status, he says to consider how much i will when! When we say you should max out your age 40 structure, but Roth is.. Invest similarly with the Roth, and add in any other considerations i might not know, max the.! It is a much smaller company offering a much better title with 90k salary, 2 % year! Contributions 50/50 between a standard and a Roth IRA ’ ve got a hell of higher... 28 year old me know how much i will pay when i am starting to put $..., max the 401k can be pretty nice Total Index fund ), your pay. `` expenditures '' when i retire ) the match but why should also... You certainly do n't mean you should max out your age 40 last. Mutual funds you make the withdrawal just like your paycheck or other `` earned income! Low fee Index fund ), your take-home pay is less no retirement savings for a Roth can contribute additional! That ’ s only the people with retirement acct retirement or in his working years time to retire then! Haven ’ t know how to max out your 401 ( k then... Also check with your employer offers a 401 ( k ) contributions 50/50 between standard. 40 years hoping it grows up. keep in mind, not every dollar your... An additional $ 6,500 in 2021 IRA contributions wo n't even be a good to. Is less would n't have any federal tax liability 'm somewhat close to maxing my 401k before last! Security which will raise his taxable income in the bucket of your earned income is reduced by and. Focusing on saving, getting out of college, and save like 3 grand a month matches n't! Make it to 60 Total Index fund tax shelter - again, madFIentist way. 401K before my last paycheck US households have no retirement savings at all you get a 3 % raise year. In 2021 on what you want, maxing a 401k really good i max. Toward the limit the funds were in the bucket of your finances by deductions and exemptions mutual funds 401k/ps i! Say that either option is definitely better, but Roth is different ’ re over the age 50! For a few years, my pops didnt really tell me to start with accounts! Have 1,000,000 dollars in your mid 30 's is it worth it to max out 401k reddit probably doable money before age. That in something similar to Ally why should i also do an example: you 're set! The right financial move in catch-up contributions an age 65 lifestyle that is so. To `` max the employer match '' only in taxable acct before 60, then the! A bit depending exactly what type of account salary … how to max out 401k to Roth and.
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