Should I max out my 401(k) between now and end of year?

[KingGheedora]

Never contributed, employer matches 100% up to 15k I think.

Yes, I've been stupid with money until now. I projected my expenses for the rest of the year, and if I contribute 100% of my remaining 5 paychecks for the year I'll have put in a little over $10K, and will be left with just under $4k in my checking account.

I'm wary of dipping down so low in case I need emergency funds (I have never needed them so far). But it seems like a worthy gamble, because I can scale back my per-paycheck contribution on Jan 1 2009, and build up my emergency fund back to around $10K over 5 months while still putting enough into the 401k to allow me to max it out over 2009 too.

With the market pretty down right now it seems like a good time to jump into the 401k anyways.


EDIT: http://www.vertex42.com/ExcelT...udget-spreadsheet.html
I used this to project my monies till the end of year. If i contrib 15K, after taxes, bills, rent, etc, I end up with just over $5K in my checking.

And suddenly I'll have $30K invested towards my retirement. This is my first time making a budget for myself. I suddenly value money... I foresee myself cutting back on useless spending, actually entering expenses to get paid back for random stuff from work, etc.

 

[TridenT]

15K a year or just 15K overall? I'd put at least 15K down, you get free 15K there... >_>

 

[Kelvrick]

I've been maxing out my contribution to what my employer matches for the last 2 weeks or so.

 

[KingGheedora]

I think 15K a year, need to read all the info, but I think that's what it is. When employers say 100% matching, is it usually up to some amount per year or what?

I just realized that I can contribute pre-tax, so I think I can put in exactly 15K and actually end up with about $5k in my checking account at the end of the year.

 

[KingGheedora]

When they say that your contributions are not taxed (at least not until the time you redeem the 401k), that means all taxes right? state, city, social security, medicare, etc?

And when I do my taxes I will report income as salary - amount contributed to 401k?

 

[Kelvrick]

401k deductions should be taken out of your gross pay pre-tax. That means they take out your contributinos and then you're taxed on the part thats left.

 

[KingGheedora]

I just verified my employer matches 100% up to 15K per year. So it would be stupid not to do this.

The only downside is the market, but I don't care if it continues to slip, as long as it's up when I'm ready to retire. I'm 27 years old, what's a good balance of allocation for the 401k funds? Aggressive is good since I'm investing for the long term right? Should I bother with bonds at all?

 

[josh0099]

Originally posted by: KingGheedora
I just verified my employer matches 100% up to 15K per year. So it would be stupid not to do this.

The only downside is the market, but I don't care if it continues to slip, as long as it's up when I'm ready to retire. I'm 27 years old, what's a good balance of allocation for the 401k funds? Aggressive is good since I'm investing for the long term right? Should I bother with bonds at all?

Good Reading here...
Text

I think the proper allocation for your age is 80% Stocks 20% Bonds , but its really up to how much risk you want. Why you haven't been doing this for years before this is baffling with such a good matching program...

 

[mchammer187]

100% matching meaning if you put in 15K they will put in 15K as well?

if so that is insane and you would be dumb not to do it cuz even if the market tanks you are still making money

 

[AmpedSilence]

yeah dude, 5k is probably enough as a safety fund, just start dumping EVERYTHING into 401k with that match!

plus then you get to write off the rest of the year from taxes. it's a win-win for you. Whats the vesting period for such an amazing match?

 

[sactoking]

I just STOPPED my 401(k) contributions. The conglomerate that owns my company suspended the employer match indefinitely because the other branches are losing money (we're very profitable in my company). Rather than make my contribution with no match into a limited fund selection where the choices amount to losing 25% in bonds or 50% in stocks, I've redirected the money to my Roth IRA where I have better options.

 

[NoCreativity]

Think of it as a $15k/year raise. And max it out every year from now on if you are able.

 

[Fritzo]

Yes you should. This will allow your funds to buy shares while the market is down. When it rebounds, you'll make a killing.


Go get 'em tiger.

 

[KingGheedora]

My mistake, I misread the email from our HR guy. He did word it funny though. I'm still confused about what they will actually match, waiting from a response from him. There are two vesting periods which is confusing me. They said 100% of the initial 4%, so I'm guessing that means 4% of salary per year will be matched, and since it's Safe Harbor, it is vested immediately.

But on our 401 management website, it says graduated vesting, 25% 1st year, 50% second year, 75% 3rd, and 100% thereafter, so I'm confused as to what that means. Why would there be this set of vesting rules if the Safe Harbor marching guarantees immediate vesting? Assuming they are only matching 4%, I still plan to put in $15K, I see no reason not to do this.

 

[KingGheedora]

Originally posted by: josh0099

Originally posted by: KingGheedora
I just verified my employer matches 100% up to 15K per year. So it would be stupid not to do this.

The only downside is the market, but I don't care if it continues to slip, as long as it's up when I'm ready to retire. I'm 27 years old, what's a good balance of allocation for the 401k funds? Aggressive is good since I'm investing for the long term right? Should I bother with bonds at all?

Good Reading here...
Text

I think the proper allocation for your age is 80% Stocks 20% Bonds , but its really up to how much risk you want. Why you haven't been doing this for years before this is baffling with such a good matching program...

This is my first year of employment with this company, I only became eligible for this program this year. I am stupid for not contributing with my previous employer though. Granted I've only been working full time for about 4 years now.

 

[gar3555]

my company matches $0.50 to the dollar up to 5% bi-weekly paycheck, I've been contributing 10% for the lat 4 years, since that's the max. I also have been maxing or near maxing my Roth each year. keep buying...Warren Buffet told me . Also hooray for my brk.b. .

and to answer your question max that shit out...

 

[imported_Lothar]

You'd be a moron not to.

 

[scruffypup]

Originally posted by: KingGheedora
My mistake, I misread the email from our HR guy. He did word it funny though. I'm still confused about what they will actually match, waiting from a response from him. There are two vesting periods which is confusing me. They said 100% of the initial 4%, so I'm guessing that means 4% of salary per year will be matched, and since it's Safe Harbor, it is vested immediately.

But on our 401 management website, it says graduated vesting, 25% 1st year, 50% second year, 75% 3rd, and 100% thereafter, so I'm confused as to what that means. Why would there be this set of vesting rules if the Safe Harbor marching guarantees immediate vesting? Assuming they are only matching 4%, I still plan to put in $15K, I see no reason not to do this.

Safe harbor does not guarantee immediate vesting first of all.

Match and vesting are two separate things,..most likely it means the match is a full 4% if you invest 4% of your salary (100% of first 45), the vesting is designed to get you to stay with the company,... it means that if you leave after 1 year,.. the part they matched,... you only get to keep 25%, 2 years and then you leave,... you get 50%,... they take back (you forfeit the other portion), you always keep (fully vested) of what YOU put in.

Second,.. it may be only 4% match of each paycheck and not of salary per year,... a big difference if there is no True up match

Third, you should still invest the max you can afford without putting pressure on your day to day or even short term plans,.... it is an immediate tax reduction, unless the plan has a roth option,... but we will forgo that for now

Fourth if you do contribute and don't change tax deduction, you will end up in a better tax situation at tax time, if you make little, you can even get an extra tax credit for doing so, if you make a lot,... you are saving a lot more in taxable income

Fifth,,... the volatility in the market should have no bearing on your decision to contribute, the more you contribute, even if you leave the company early and forfeit all company match, this is still beneficial. This is due to you being 27 years old,.. if you invest in stocks, historically the best returns come after a downturn is one way to look at it, also you will get the best return over time with a heavier stock portfolio, but also even if you are worried about stocks,... all 401K plans have to offer a variety of investments with different levels of risk,... take a money market and government backed bonds if you are risk adverse and you will still come out ahead.

Sixth,... If you are unsure what to invest in,... get the contribution started and invest in the money market fund they have to begin with,... you can always move it later

The one thing to keep in mind though,... this is retirement money, don't put in anything thinking this is for something short term like buying a car, a house in a few years, etc.

ALSO,... this is important,... HR people are not exactly your best source to discuss the 401K plan, how it works, what options,... talk to your 401K provider!!! ASK your HR guy who the provider is,.. and their #

Call your provider,..
ASK if it is a true up match and to explain that to you either way
ASK if your company has setup any fees that you have to pay for participating,.. some do
ASK if they offer a roth option
ASK what investment options they have and to send you basic information on each choice
ASK what restrictions the plan has on making changes,.. most let you have freedom on number of times and when,... but a few don't

One last thing I had to put in here,... if your company offers company stock in the 401K,... no matter how good the company is or how much you like the company, DO NOT invest more than 20% (really should be 10% unless you are hellbent on it) of your 401K in the company stock,... just don't

 

[KingGheedora]

(The matching is 4%, not 100%)

Another question. I have the option of contributing or splitting contributions to both a plain 401k, and Roth 401k. I'm planning to contribute all 15k for the current year, pre-tax, to the normal 401k.

Is there any downside to this? HR person asked if i wanted to split contributions into each type of plan, and I'm not sure what the benefit is. Does the 4% matching start anew to each type (so would I get more matching if i contributed to both), or is the 4% just total contribution across both types?

 

[KingGheedora]

Sorry, another thing I'm not clear about. When they say the plan matches "100% of 4%", what does that mean exactly? Is it 4% of each contribution, or does it mean "up to 4% of yearly salary"?

 

[Kev]

.

 

[ultimatebob]

Always, ALWAYS invest up to the match on your 401K at a bare minimum. Even if you're scared of the market and just want to invest in money market funds, you're still missing out out on "free" money if you're not investing up to the 4% match.

 

[SearchMaster]

Originally posted by: KingGheedora
Sorry, another thing I'm not clear about. When they say the plan matches "100% of 4%", what does that mean exactly? Is it 4% of each contribution, or does it mean "up to 4% of yearly salary"?

It means they match 100% of your contributions up to the first 4% of your salary. So if you make $50K, they'll match up to $2K. If you only contribute $1500, that's what they'll match. If you contribute $2500, they'll match $2K of that.

 

[imported_Lothar]

Originally posted by: SearchMaster

Originally posted by: KingGheedora
Sorry, another thing I'm not clear about. When they say the plan matches "100% of 4%", what does that mean exactly? Is it 4% of each contribution, or does it mean "up to 4% of yearly salary"?

It means they match 100% of your contributions up to the first 4% of your salary. So if you make $50K, they'll match up to $2K. If you only contribute $1500, that's what they'll match. If you contribute $2500, they'll match $2K of that.

I think his question was more along the line of "Is it 4% every pay period, or yearly".

Ex: If I decide to make no contribution until november/december and decide to contribute max match all at once $2k instead of contributing $77(4%) every pay period(biweekly) or $167 every month?

In one version you get to sit on the money and collect all the interest (and in some rare cases it may even be beneficial *stock market today much lower than what it was in Jan, Feb, and June*), in the other you get nothing.
Of course with that strategy, if the stock market low was in the Jan-June period and not Sept/Oct like it is today, you'll be hurt for not contributing on the cheap.

 

[imported_Lothar]

Originally posted by: SearchMaster

Originally posted by: KingGheedora
Sorry, another thing I'm not clear about. When they say the plan matches "100% of 4%", what does that mean exactly? Is it 4% of each contribution, or does it mean "up to 4% of yearly salary"?

It means they match 100% of your contributions up to the first 4% of your salary. So if you make $50K, they'll match up to $2K. If you only contribute $1500, that's what they'll match. If you contribute $2500, they'll match $2K of that.

I think his question was more along the line of "Is it 4% every pay period, or yearly".

Ex: If I decide to make no contribution until november/december and decide to contribute max match all at once $2k instead of contributing $77(4%) every pay period(biweekly) or $167 every month?

In one version you get to sit on the money and collect all the interest (and in some rare cases it may even be beneficial *stock market today much lower than what it was in Jan, Feb, and June*), in the other you get nothing.
Of course with that strategy, if the stock market low was in the Jan-June period and not Sept/Oct like it is today, you'll be hurt for not contributing on the cheap.