I want to up my 401(k) contribution. I'm at 10% now, was thinking of going 11%, but maybe I should do 12%?

Question

My company doesn't match anything, but they throw in (on average) about 13% of employees' earnings to the 401k at end of each year as proft sharing.

BTW, I'm 34 and I plan on increasing my 401(k) contributions each year until I'm maxed out. Is that a good plan? How much can I put in each year anyway?

Answer 1

You can put up to $15,000 per year into your 401k plan. That money grows tax free until you withdraw it in retirement. However, once you retire, you will pay taxes on your withdrawals equal to whatever current tax bracket you're in at the time of retirement. If you can max out and your employer matches, you should do it.

Since your employer doesn't match, I would recommend supplementing your 401k with a Roth IRA. You contribute money that has already been taxed into a Roth IRA. Therefore, when you make withdrawals in reatirement, the entire amount (contributions and earnings) is tax free. Also, if you have your Roth IRA for at least five years, you can withdraw any amount of contributions (NOT earnings) penalty free even before you reach the age of 59 and 1/2. After age 59 and 1/2 you have all that money tax free and there's no mandatory time in which you have to start making withdrawals (with 401ks you have to start withdrawing money at age 70). So, if you never need it, it could go to your children, a charity or other family member.

There are some restrictions to a Roth IRA, however. If your single you can't make more than $90,000 and married filing jointly, your combined income can't be more than $110,000. Don't quote me on those exact numbers, but I'm in the ballpark. Also you can only contribute $4,000 per year to a Roth IRA. But it's worth it to have TAX FREE money when you retire. I would go to Vanguard's website. They have some good quality mutual funds and it's pretty easy to set up your Roth IRA if you qualify.

My advise if you don't qualify: Max out your 401k every year. You're making enough money to do that.

Hope this was helpful. Good luck and happy retirement!!

Answer 2

Here's the deal. There are two retirement investments that soar above the rest...the 401(k) and the ROTH IRA. If you want to make the most money in the long run, invest up to the match amount on your company's 401(k). Then, you should take any additional amount and put that into a ROTH IRA.

There are annual limits that you can contribute to each. Make sure that you don't exceed them or you will be penalized. If you can get very close to the maximum allowed (I think that it is $15,000K annually for a 401(k)) then you are set my friend.

Answer 3

Do you qualify for a Roth IRA? You might want to think about adding that to your investment mix. You contribute to a Roth after taxes, but when you take money after you reach 59 1/2 years old, there are no taxes on it. While on your 401K, you will be taxed at ordinary tax rates when you pull money out. So if you did a 50% pull from your Roth and 50% from your 401K, you are just taxed at the 50% from your 401K and might actually put you in a lower tax for capital gains.

Stetch yourself so you get the maximum amount of benefit. So 12% would be the best.

For 2006, the maximum annual limit is $15,000. If you are over 50, it is $20,000.

After 2006, the maximum limit is increased by $500 increments for inflation

2007: 15,500
2008: 16,000
....

Answer 4

I agree with saving as much as you can reasonably afford for retirement. Here are a couple of considerations:

1) Start with whatever fits in the budget, and consider increasing contributions when you get a raise or bonus.

2) Consider the difference between pre-tax and post-tax accounts - Upon retirement, 100% of money withdrawn from pre-tax account will be taxable. Many planners recommend a mix between pre-tax and post-tax accounts. A Roth IRA, in contrast, takes post-tax contributions, but 100% of the money withdrawn in retirement is tax free (including subsequent earnings) as long as you've had the account for at least 5 years.

If your income level allows you to qualify for a Roth IRA (less than $110,000 single or $160,000 married), then it is likely a wiser move to put money into a Roth rather than increasing the 401(k) contribution.

Good luck!

Answer 5

I would go to 12% its only a little more but can greatly add up in the long run

Answer 6

Max out asap.

Answer 7

put the maximum you can afford. Direct your own funds and do not put all your funds in the company's stocks.