Author Topic: Maxing out 401k with lower income  (Read 1946 times)

doneby35

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Maxing out 401k with lower income
« on: February 16, 2017, 04:28:44 PM »
Up until just recently, my spouse was a stay-at-home wife, enjoying the good life. Now she found a lower income job (30k/year) that she enjoys, so we're all happy.

Now, my yearly salary is 105k and I max out my 401k.
With her salary, should she be maxing it out as well? We were initially planning on using my income for mortgage and investments, and hers for some home renovations, vacations and savings for extremely rainy days. But now I'm wondering, is it better for her to max out her 401k as well? or maybe contribute only up to the employer's match so that she can see some money in her paycheck?

Aggie1999

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Re: Maxing out 401k with lower income
« Reply #1 on: February 16, 2017, 04:41:51 PM »
Of course contribute up to the employer match as a minimum. Otherwise she is leaving money on the table. No idea on your money requirements but if you are saving the $18k she could be putting in the 401k then put it in the 401k. Might also look into a mega roth backdoor if you or your wife's 401k plan allows it.

CheapScholar

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Re: Maxing out 401k with lower income
« Reply #2 on: February 16, 2017, 05:17:51 PM »
I don't feel you gave us enough info to give you good advice.  For example, are the home renovations needed?  Do you and your wife really value the vacations?

The one advice I'll give you, don't try to compartmentalize that your salary goes to X, Y, Z and your wife's goes to A, B, C.  That can be a BAD way to look at money.  Especially if you frame it that you pay the mortgage and her pity check goes to a rainy day fund.  You should see your household income as 135K.  I make 110K and my wife makes 38K.  We both max out 403bs at 18K and as a result my wife's pay checks are only $600.  This makes her feel like crap sometimes but I make sure she knows that we are working together to save for retirement with the 403bs and reducing our tax liability. 
« Last Edit: February 16, 2017, 05:21:17 PM by CheapScholar »

JLee

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Re: Maxing out 401k with lower income
« Reply #3 on: February 16, 2017, 05:40:06 PM »
I don't feel you gave us enough info to give you good advice.  For example, are the home renovations needed?  Do you and your wife really value the vacations?

The one advice I'll give you, don't try to compartmentalize that your salary goes to X, Y, Z and your wife's goes to A, B, C.  That can be a BAD way to look at money.  Especially if you frame it that you pay the mortgage and her pity check goes to a rainy day fund. You should see your household income as 135K. I make 110K and my wife makes 38K.  We both max out 403bs at 18K and as a result my wife's pay checks are only $600.  This makes her feel like crap sometimes but I make sure she knows that we are working together to save for retirement with the 403bs and reducing our tax liability.

Yep, I was going to post that.

If you each made $67,500, would you both max your 401k's?

MDM

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Re: Maxing out 401k with lower income
« Reply #4 on: February 16, 2017, 05:51:35 PM »
With her salary, should she be maxing it out as well?
Sure, why not?

With those incomes - assuming MFJ with no dependents, no other deductions, no state tax, etc. - every dollar from the first through the thirty-six thousandth saves you 25% (i.e., ignoring employer matches).

Malum Prohibitum

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Re: Maxing out 401k with lower income
« Reply #5 on: February 16, 2017, 05:58:44 PM »
should she be maxing it out as well?
Yes!  Max it out!  This is a $36,000 tax deduction for you two.

doneby35

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Re: Maxing out 401k with lower income
« Reply #6 on: February 16, 2017, 06:12:26 PM »
Makes sense, I had a feeling  And would it still be ok if the cheapest 3 funds were of 0.41 ER? I've never heard of them.
1. Principal Global Investors LargeCap S&P 500 index Separate Account
2. Principal Global Investors MidCap S&P 400 index Separate Account
3. Principal Global Investors SmallCap S&P 600 index Separate Account

MDM

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Re: Maxing out 401k with lower income
« Reply #7 on: February 16, 2017, 06:22:09 PM »
Makes sense, I had a feeling  And would it still be ok if the cheapest 3 funds were of 0.41 ER?
Yes.  See Investment Order in general, and specifically the link about a 401k with high fund fees.