[Marc]

Hi guys,

I just started contributing to my 401k, I only contribute 3% which is what my company matches 100% … i think they also match 50% of the next 2 or 3%

based on some reading i have done that seems to be extremely low! I do have a family and we try to live comfortably but really have no saving activity going on! “sole breadwinner” making around 60k.

I was wondering how everyone else plans for retirement.

No signature needed.

Passed And got my license too ..

[ScarletKnightCPA]

@ Last Chance CPA

https://www.shrm.org/hrdisciplines/benefits/articles/pages/2015-irs-401k-contribution-limits.aspx

“Plans may see better nondiscrimination testing results (including ADP results) if there are fewer participants at the low end of the HCE range, especially those with big deferrals. It could make a big difference for plans that were close to failing the tests. Fewer HCEs means that there are fewer participants who must receive 401(k) deferral refunds if the plan fails the ADP test. – See more at: https://www.shrm.org/hrdisciplines/benefits/articles/pages/2015-irs-401k-contribution-limits.aspx#sthash.Zl8NKyQK.dpuf“

There's nothing about a limit for people making more than $120K being capped at 3K. Now if the company 401K participants is mostly individuals making more than $120K other limitations come into play.

Far: 76 (Wiley Test Bank)
Aud: 77 (Wiley Test Bank)
Reg: 61, 76 (Wiley book, Wiley Test Bank)
Bec: 86 (Wiley Test Bank)

MBA in progress

[Anonymous]

What do you recommend a 29 year old to do that has ZERO in any type of retirement fund? Up until now, I couldn't afford it. Wasn't making anything and what I did have was taken away by expenses and student loan debt. But, I received a raise and I can start contributing to my company's 401k, but damn I am so far behind.

[ScarletKnightCPA]

At 29 you are still fine. Assuming you are making 50K and contributing 10% with 8% annual returns you should be be able to get to around $1 million at 65. Of course depends on type of lifestyle you want.

Far: 76 (Wiley Test Bank)
Aud: 77 (Wiley Test Bank)
Reg: 61, 76 (Wiley book, Wiley Test Bank)
Bec: 86 (Wiley Test Bank)

MBA in progress

[StephAV]

I agree with the advice of not missing out on any matching contributions. At my first job in public accounting they did matching(can't remember the specifics of it), but I didn't contribute because it was a 5 year vesting period and I was sure I wasn't going to be there long term. I ended up staying 3 years. Probably would have been at least 50% vested.

My current job is awesome and I contribute 6% they match that 100% and do an additional 3% profit sharing. So it is a total of 15%. I'm 32 and have slightly over 1x my annual salary.

OP- I'd do some research and make a plan. Maybe when your kids go to school your wife can go back to work and you can save more at that time?

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[Anonymous]

I'm 27 and contribute 3% to my SIMPLE IRA through work since my employer matches 100% up to 3% and you definitely want to take advantage of free money if you have the opportunity. The only investment options in that plan are load funds since they're all actively managed, hence my contribution of only 3% to that plan. A 5.75% sales charge on every class A share purchased really eats into potential growth over time.

I then contribute another 4% split between Traditional and Roth IRAs since I'm not quite financially comfortable enough yet to max out that option. That 4% is completely invested in no-load index funds with low expense ratios and the balance in those accounts has generated from 6-9% returns since they were opened, so I've been pretty pleased about that. 🙂

I've been employed at a local CPA firm in my area for over 5 years now and haven't been actively looking for new job opportunities, but a friend of mine that works for the university we both attended for our undergrad degrees (large state school) currently has an opening for a Fiscal Analyst that looks too good to pass up, so I might just apply for that position and see what happens. That particular position offers a hybrid pension plan as well as a 403b and 457 with 50% matching options, which I honestly think is probably the best blend of employer-provided retirement options you can have.

[Last Chance CPA]

@ScarletKnightCPA & Others –

https://www.shrm.org/hrdisciplines/benefits/articles/pages/2015-irs-401k-contribution-limits.aspx

“There's nothing about a limit for people making more than $120K being capped at 3K. Now if the company 401K participants is mostly individuals making more than $120K other limitations come into play.”

You are right. I have never seen or heard of this either. My company is capping my 401k at $3,000, not letting me go to the max of $18,000. They claim it is an IRS imposed restriction, but Scarlet's link shows no such restriction. I will do more research, but this looks shady?

They also restrict my dependent care at $2,500 because I am highly compensated…

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I want those initials next to my name!!!!

FAR - 76
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Now I need some experience!!! And some networking...

[jbarwick]

OP please don't think 8% returns will continue. Base it on something lower like 6% because things will come up and you may need to drop your savings percentage. The last thing you want is no money and be 85 with a healthy 10 years left.

Journey Started - January 2015
FAR - 4/2015 - Passed
AUD - 7/2015 - Passed
BEC - 8/2015 - Passed
REG - 11/12/2015 - Passed

[Anonymous]

Saving for retirement is good, but I question the benefit of contributing to a 401(k) or like fund beyond the amount matched by the employer. From what I've seen, it seems like most retirement accounts are fairly low-performing. I'm saving around 15% of wages and will soon be looking into investment options soon (was “investing” in paying off my house first, but that's done now), but am not impressed with the “official” retirement accounts that I've seen. Sure, the tax savings now is nice, but last I ran the numbers, it didn't come out in the long-term. It's been a few years since I've looked into it in detail, but it seemed to me that investing elsewhere had a better return on investment when you're looking at 30-40 years before you use the funds.

EDIT: Only issue I have with Dave Ramsey's Baby Steps is that I'd put paying off the house before a college fund for kids, since there's nothing wrong with the kids having to work through college…and I'd probably push for a couple more months of savings before paying off all debt. Right now we're at 6 months emergency fund and only outstanding debt is my car loan – I could pay it off if I used my 6 months emergency fund, but I don't think that is smart. I'd definitely say someone should keep at least 3 months' minimum living expenses in the bank before paying off debt.

[juuustin]

Lilla:

Respectfully, I think you are way off in your analysis of 401(k)'s and other similar retirement vehicles. Sure, there are “bad” 401(k)'s out there, but to say that the tax savings “doesn't come out in the long-term” is just incorrect. Deferred tax growth for 35 years absolutely destroys any taxable account, especially considering most decent employers supply 401(k)'s that offer all the bells and whistles of a standard taxable account. The simple fact is, to buy 10 shares of $10 stock in a taxable account costs about $130 pre-tax. It costs $100 in a 401(k).

With all of that said, maxing a Roth IRA is a great step in between the match and maxing the 401(k), but if you have the means, you should shield as much money as possible from taxes as the government will allow.

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[Anonymous]

It's not shielded from tax, though – just changes when you pay the taxes. Last I analyzed them, the rates of return I could get in a 401(k) were about 4% less than through equivalent-safety outside investments, so say I saved 40% tax by investing pre-tax (mine rate wasn't that high, but we'll pretend 🙂 ), I would've lost WAY more than that 40% in lost income by the time I retired in 40 years. Then I'd still have to pay at least some tax when I draw it out. Like I said, it's been several years since I researched it, and there may be better options available now. It seems like most employer plans are pretty locked in based on what the employer picks – I'd want more control than that over my retirement fund, so would probably go with an IRA of my own outside of my employer if there wasn't a match sufficient to make the employer 401(k) attractive.

[jbarwick]

Most employers should offer a S&P 500 fund with a super low expense ratio. Ours is something like 0.06%. It really depends on the funds you select but some can be overly costly. My wife's former company had a terrible plan where an S&P fund cost 0.70% which is ridiculous.

As for Roth IRAs, it really depends on what you think your retirement tax rate will be. Seeing how that is really far down the line, there are other sources than a CPA forum to discuss that.

Journey Started - January 2015
FAR - 4/2015 - Passed
AUD - 7/2015 - Passed
BEC - 8/2015 - Passed
REG - 11/12/2015 - Passed

[ScarletKnightCPA]

You so save taxes in a 401k. In a 401k you are taxed once. In a normal investment account you are taxed twice. Once when you earn the income and then again on capital gains.

By 4% less do you mean instead of 10% gain you make 9.6% gain?

I think that would depend on the company.

Far: 76 (Wiley Test Bank)
Aud: 77 (Wiley Test Bank)
Reg: 61, 76 (Wiley book, Wiley Test Bank)
Bec: 86 (Wiley Test Bank)

MBA in progress

[Anonymous]

My employer matches 50% of my contributions up to the IRS limit. So I have been contributing the max allowable amount. That was a big selling point for me deciding to take this job. Its “free” money. Another thing to consider when contributing is the vesting schedule. I was 100% vested on day 1, which from what I have heard is rare. That was really nice, as I dont plan on staying at this job for very long.

[Anonymous]

If you're taxed once on the total drawn (which at that point will be principal + gains), vs taxed individually on the principal and then on the gains, how is that different? Say your principal investment is $60, gains $40, you end up with $100 total that is drawn out. Taxed on $60 when invested, $40 when gained, is same as taxed $100 total. The presumed tax savings is in tax deferment and potentially the expectation that your tax rate will be lower when drawn than when invested (say if you make $125k, but anticipate drawing $60k/yr once retired since your house will be paid off and you'll be taking up inexpensive hobbies or something like that).

By 4% less I meant at the time I could invest in “safe” investments with guaranteed return of 6%, vs the 2% my employer's retirement plan offered. Major difference. A 9.6% to 10% difference would easily be made up with employer contributions and/or tax savings, but a 2% to 6% difference is substantial. This was during a bad time for the markets in general, hence the low rates. I haven't completed the service period required to be eligible for my current employer's plan yet, so haven't researched theirs or outside options, so as said previously, these issues may be very out of date.

[Anonymous]

From what I can tell, lots of people misunderstand that process @Lilla. I see a lot of people who are into retirement and want to start drawing money out of their 401k but “dont want to pay taxes on it” and they dont understand that that's not a possible option.

[Author]

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