The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Texas82 on January 03, 2014, 02:50:41 PM
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is it ever a good idea to not contribute to your 401k, (but wait) even though my company automatically contributes 3% to my account without me having to contribute anything? I'm currently at an 8% contribution rate, thinking of putting that 8% elsewhere....like paying down mortgage, save for a new home, or where would you suggest putting that 8%?
sorry if this question has been posted before, I gave it a few searches before I posted but didn't find anything similar.
Thanks in advance!
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That depends on your goals, but in general, maxing out your tax advantaged accounts will get you to FIRE the fastest.
http://www.madfientist.com/retire-even-earlier/
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This depends on several factors. The first is your mortgage or other debt interest rates. The second is your income - are you allowed to contribute to a Roth IRA? If your mortgage is your only debt and the interest rate is decent then you should keep putting money into tax advantaged accounts. Generally if you get a match from your company then the 401(k) is your first choice for money so you don't pass up on the free money the company is offering, but it sounds like they are giving you the 3% regardless of if you put that money in or not. If you can contribute to a Roth IRA then you should max that out first and then contribute to the 401(k). This is because if you go with Vanguard you will almost certainly have lower fees in your IRA than your company 401(k).
You also need to consider that a fair amount of that money in tax advantaged accounts isn't super accessible until you hit 59.5. So at some point you may have enough in those accounts and can start funding taxable accounts as well. That will help cover the gap between retirement and 59.5.
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Also remember what ever you put into a 401k is not taxed (today) so doing something else with that money would have to have a really good return. Yes also remember you will need money in taxable accounts for before 401k/roth can be accessed.