The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: tugarug on February 02, 2015, 07:33:35 PM
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First post here, thanks!
I've just finished my first year of post-college full time employment. I finished school with no student loans or debt of any kind, and in the past year I've saved a little over $30k.
Here is a current snapshot:
Age
24
Monthly Income
$4k, after taxes
Monthly Expenses
$250 - rent (incl. utilities)
$50 - phone
$1000 - discretionary (gas, insurance, fun, etc)
Assets
$30k
Liabilities
$2500 truck (cash value)
$3k per year in repairs
My question:
I'd like your thoughts on a 401k. Would you contribute only what my employer will match (around $4k), or would you contribute the maximum amount of $17k? The latter is attainable at my current spending rate, but at the cost of flexibility. A 401k isn't of much use if I'd like to retire at 34.
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My question:
I'd like your thoughts on a 401k. Would you contribute only what my employer will match (around $4k), or would you contribute the maximum amount of $17k? The latter is attainable at my current spending rate, but at the cost of flexibility. A 401k isn't of much use if I'd like to retire at 34.
Welcome to MMM forums. Read the following Blog post.
http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/
Also google Roth Conversion Pipeline. For example,
http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/
Edit: Definitely max out the 401k and IRA if you can. You are likely in the 25% tax bracket federal + x% state tax. In my state, the tax bracket would be 7-8%. That is almost a 33% marginal tax bracket. Every $ you put in the 401k, you save $0.33 in taxes. If you somehow able to max out both Trad IRA and 401k, you can save almost $8K in taxes. That is a very nice and tidy sum.
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I'd contribute the max of $18k, then try to also max out an IRA.
As rpr posted, there are many ways to get the money out early, and penalty free.
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Thank you both, especially to rpr for the jlcollins link. I feel much more confident knowing about the Roth conversion option.