How much should I contribute to my 401K?


By admin ~ July 31st, 2009. Filed under: General.

How much should I contribute to my 401K?

I just became eligible for the 401K plan in my company. Here are some of my facts.

- 25 years old, single
- No debts of any kind
- 25% Tax rate
- Employer contributes 3% of my salary to my 401K, regardless of my contributions to the plan. In other words, the amount they contribute does NOT change whether I contribute $0, or the max allowed by the IRS.

I also have a Roth IRA, and I try to contribute the maximum allowed amount every year.
Given that I'm currently saving for a down payment on my first home, I'll probably contribute very little, or none at all to my 401K during this first year. But looking forward, does it still make sense to set money aside in this 401K plan?

I know some of the tax advantages of leaving it in a 401K, but it still makes no sense to me since the money will still be taxed years from now when I retire.

Wouldn't it be better to pay those taxes now, get my money and invest it somewhere else?? What am I missing here?

Thanks in advance. Any help would be appreciated.

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4 Responses to How much should I contribute to my 401K?

  1. admin
    July 31st, 2009 at 4:32 pm
    Because investing before tax dollars increases the stocks you buy. The reasoning is when you retire your income needs are less so tax rate is less. Considering you will need minimum of 3 million when you retire save save save as much as you can now before children and college expenses weigh you down.
  2. admin
    July 31st, 2009 at 4:33 pm
    The best advice i have heard is 15% toward retirement accounts. The main advantage of a 401(k) over a Roth IRA is the match. In your case, there is no actual match. Therefore, I would only contribute to the 401(k) if maxing out the Roth IRA did not reach 15% of my income.
  3. admin
    July 31st, 2009 at 4:33 pm
    normally i would say put in as much as you can afford. the economy being what it is your ira is a better investmentyou wont make as much but you wont lose any either.
  4. admin
    July 31st, 2009 at 4:33 pm
    Contribute 3% to your 401(k) plan. That's an automatic 100% profit since your employer matches what you put in.

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