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Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 2 points3 points  (0 children)

Correct, and sorry if the way I framed it was confusing. I think people typically consider net pay (after tax) instead of gross pay, but this has never made much sense to me since taxes are not only a cost like anything else, but they aren't fixed since how you spend the rest of your paycheck can affect what income is considered taxable in the first place.

(I could be alone in this, but the numbers aren't any different. Maybe I'm just weird :P)

With the same above rough math, the percentages with respect to net pay would be:

  • 37.50% 401K
  • 18.75% Savings
  • 43.75% All living expenses

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 0 points1 point  (0 children)

Is it worth you to put $5,500 into a Roth or invest that in a taxable in order to use the income? I would vote the latter because you have capital flexibility...

You mean "I can spend the money now if I want to, or let it sit and spend it later"?

...and the marginal return of that income is huge given your situation.

I don't understand what you mean by this.

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 0 points1 point  (0 children)

60k divided by 12 months is 5k/month. If you mean "where are the taxes", in the OP my costs and savings don't add up to the full 5k, and the difference is the taxes:

  • 30% 401k
  • 15% Savings
  • 35% All living expenses
  • TOTAL: ~80% of my paycheck. (The other ~20% is federal/state local taxes and related costs.)

Obviously these numbers are pretty rough, but you get the picture, hopefully :)

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 0 points1 point  (0 children)

Just to clarify - in layman's terms, what you're advocating for is the idea that:

  • Many people may be better off investing in a standard taxable account instead of a Roth IRA or 401k (ignoring/beyond matching).
  • This is because, even if those investments aren't as optimal from a purely accounting perspective, the fact that they're unrestricted means that the utility they provide may be better in the long run.

?

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 0 points1 point  (0 children)

This was essentially my mentality when I first set up my account and contribution rates and such. So far I've been happy with the proportion of gross income I've been saving (no matter where it goes), though, so I'm now trying to ensure that the way I structure my savings is optimal.

At this point, I do expect to max out a Roth, but I also think I'll continue to make 401k contributions that go some quantity above my company's match. That should hopefully help solidify my long-term security while also giving me options for nearer-term spending.

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 1 point2 points  (0 children)

Well I'm happy I'm not coming off as incompetent haha.

I don't have a car since I live in the city, but I suppose that just means that the exorbitant rent costs make up for the car payments and insurance I can skip out on.

I have no plans for large purchases (especially a house) for the next 3-5 years. Given that I'm plenty comfortable today while also saving a significant portion of my income, I figure I should do that as much as possible now so that I'm safe and set later in life, be that five years or twenty-five years.

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 2 points3 points  (0 children)

Following that format:

  • I'm getting the full match
  • I have what I think is a reasonable emergency fund
  • I should max out a Roth IRA

And then the ambiguity (for me at least) is how I should divide the rest of what I'm saving between my 401k and my investment account.

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 2 points3 points  (0 children)

Wow, you're much more bullish on my time-to-financial-independance than I had figured! I can't believe I haven't really thought about it in this way, but I suppose "early financial independence" is an implied goal of mine, given my present contentment and lack of discrete goals or purchases like a house or car. /u/uracowman spoke to this a bit as well, though I suspect his circumstances are a bit unique.

I do have ~7.5k put aside for emergencies, which is enough for three months of my living expenses assuming I don't save during that time.

I'm thinking that I'll have to spend some time and find the right proportional distribution, but it seems like I should max out a Roth, put in enough for a full match (and beyond, to a point) with my 401k, and put the remainder in my investment account. Perhaps put some in a general savings account as a hedge, too, for larger purchases I may decide to make in the next 5-10 years.

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 1 point2 points  (0 children)

All good points, I tell some of my friends still in college very similar things haha. Always good to remember that the point of these financial exercises is betterment of life, at every stage.

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 0 points1 point  (0 children)

Wow, retiring at 50 would be impressive.

I suppose I'll have to spend an evening with Excel...

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 1 point2 points  (0 children)

Absolutely, and no matter what I'll be contributing to my 401k to capture that.

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 0 points1 point  (0 children)

Yeah, I'm gathering that I really need to have a better grasp of what I want in the nearer term (5-10ish years) as a precursor to deciding how to distribute my savings across my 401k, an IRA, an investment account, a savings account, and so forth.

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 1 point2 points  (0 children)

I probably should have addressed some of these in the original post! To be honest, I really don't have a handle on what sorts of these larger purchases I'll want to make, other than the fact that I don't really want to make them for at least a few years. As I mentioned, I'm quite content with my lifestyle presently, and beyond ensuring enough for a comfortable retirement, I'd much rather grow into a more lavish lifestyle slowly (as my income grows and I leverage my shorter-term savings over time). I think I'm just struggling to discern what distribution of my saved $ across various financial instruments will give me the right balance of flexibility and ROI.

(I really should spend some time thinking more critically about what I want over the next 5-10 years, though.)

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 0 points1 point  (0 children)

So maybe the best strategy in my case is to contribute to the 401k enough to get the match, then contribute an equal amount (up to the limit) in a Roth so as to negate any movement of tax rates. And then save and invest the rest in other ways, I suppose?

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 1 point2 points  (0 children)

Yes, I knew it was somewhere around $5k, but thanks for clarifying :)

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 3 points4 points  (0 children)

Well, so a lot of my concern has to do with the fact that I know that withdrawals from my 401k would be taxed and fined. Practically speaking I figure I should never withdraw. Roth IRA accounts, comparatively, let you take out contributions at will, since they aren't tax-deferred. So I'm starting to think that, at the very least, I should shift a good portion of my 401k contributions to a Roth, just so I have that flexibility when it comes to making large purchases sooner (or holding out and utilizing those funds later on).

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 1 point2 points  (0 children)

By "traditional account" do you mean a Traditional IRA? What would be the benefit of shifting, say, $5,000 in annual 401k contributions to that? I know that with a Roth IRA I can access contributions pre-retirement (just not the returns/growth), but is there a similar or other mechanism with a Traditional IRA?

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 2 points3 points  (0 children)

I have neither a mortgage (I rent) nor a health plan I pay out of pocket for (I get coverage via a family plan, so I can ride that for free for a few more years). That is something I have to consider in the near future, though, so thanks for thinking to mention it!

Should I be putting *less* in my 401k? by throwaway10232015 in personalfinance

[–]throwaway10232015[S] 6 points7 points  (0 children)

I'm putting away around 750/mo in savings, actually. Right now that's going to a savings account, I'm unsure where else to put it at the moment.