Author Topic: 401k Questions? Please help a newbie!  (Read 3099 times)

cashstasherat23

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401k Questions? Please help a newbie!
« on: January 28, 2015, 11:09:26 AM »
Hi there,

Hoping that someone can help clarify for me the rules and regulations RE max contribution to the 401k + company contribution, and give a bit of advice on the best strategy for this year. I also plan to ask my401k representative this, but haven't been able to get in touch yet, so figured I would throw this out to all the smart Mustachians out there in hopes of getting some help.

I just started my job this past year and have a 401k for the first time (23 years old). I started as soon as I was eligible in June 2014 after a 90 day period, with a 9% contribution, or about $300 a month. I have now bumped it up to 11% for 2015, so contributing $400 a month, and hope to increase that number dramatically, as I know it is best to max out your 401k.  I get a 3% of my salary employer contribution, regardless of whether I contribute or not. Related, I am also paying down student loans, so am throwing a lot of extra money at that right now.So here are my questions:

1. Should I continue to pay more towards my student loans or pay the minimum and throw more money into the 401K to max it out? I have about $25K in student loans, and hoping to have them fully paid off by mid-2016 if I keep paying them at this rate.

2. Is the 3% contribution from my employer counted in the $18K total, or is that in addition to the 18k? IE if I maxed it out at 18K, would they still put in the 3% for another $1,350, or should I stop short of the $18K and only put in enough so that when they contribute the 3%, it totals $18k?

Thanks for your help!

Frankies Girl

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Re: 401k Questions? Please help a newbie!
« Reply #1 on: January 28, 2015, 11:29:06 AM »
Hi there,

Hoping that someone can help clarify for me the rules and regulations RE max contribution to the 401k + company contribution, and give a bit of advice on the best strategy for this year. I also plan to ask my401k representative this, but haven't been able to get in touch yet, so figured I would throw this out to all the smart Mustachians out there in hopes of getting some help.

I just started my job this past year and have a 401k for the first time (23 years old). I started as soon as I was eligible in June 2014 after a 90 day period, with a 9% contribution, or about $300 a month. I have now bumped it up to 11% for 2015, so contributing $400 a month, and hope to increase that number dramatically, as I know it is best to max out your 401k.  I get a 3% of my salary employer contribution, regardless of whether I contribute or not. Related, I am also paying down student loans, so am throwing a lot of extra money at that right now.So here are my questions:

1. Should I continue to pay more towards my student loans or pay the minimum and throw more money into the 401K to max it out? I have about $25K in student loans, and hoping to have them fully paid off by mid-2016 if I keep paying them at this rate.

2. Is the 3% contribution from my employer counted in the $18K total, or is that in addition to the 18k? IE if I maxed it out at 18K, would they still put in the 3% for another $1,350, or should I stop short of the $18K and only put in enough so that when they contribute the 3%, it totals $18k?

Thanks for your help!

1. Don't know for sure since you didn't post your student loans interest rate. If it's under 5%, I'd max out your 401k if you can (or at least keep it at the current level) and just keep paying as much as you can on the loan to get it paid off by your timeline of mid-2016. (and way to go on both - you're definitely on the right track way earlier than I was!)

2. No, the employer contribution is not counted towards the amount you can put in. So you can put in a full 18K, and they'll put in an additional 3% over that amount.

« Last Edit: January 28, 2015, 11:33:54 AM by Frankies Girl »

cashstasherat23

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Re: 401k Questions? Please help a newbie!
« Reply #2 on: January 28, 2015, 11:54:41 AM »
Thanks for your reply! The student loan rates vary, four are at 6.5% and the other two are at 3.15%. I am working on paying down the smallest of the 6.5%'s most aggressively right now, and will move on to the next smallest after this one is done in about a month or so, and the next and so on. 

Sblak

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Re: 401k Questions? Please help a newbie!
« Reply #3 on: January 28, 2015, 12:28:29 PM »
6.5% is pretty high.  I would try to be rid of all the student loans at that rate as quickly as possible.  Then I would try to max my 401k. 

The only reason I would recommend that you max the 401k before more aggressively paying off the loans would be if you made more money than you it sounds like you do, and are in a very high tax bracket, which would make pretax saving relatively more valuable.  However, you let slip what 3% of your income is, which means you probably don't benefit from the tax savings as much as a high income person would.

cashstasherat23

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Re: 401k Questions? Please help a newbie!
« Reply #4 on: January 28, 2015, 12:33:00 PM »
Yeah, I am making only about $45K right now, but also working on getting that number up, so I am thinking that right now the loans may be the way to go. Once I am free from them I will be able to throw so much more at the 401k!

MrMoogle

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Re: 401k Questions? Please help a newbie!
« Reply #5 on: January 28, 2015, 12:49:50 PM »
How much total are have 6.5% interest?  How much can you afford to put into your 401k + student loans this year?

Since there's no match, you can front load or back load your 401k.
I would start the year putting all your savings towards the 6.5% loans, and end the year putting all your savings to a 401k, for the tax benefits. 

cashstasherat23

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Re: 401k Questions? Please help a newbie!
« Reply #6 on: January 28, 2015, 01:00:37 PM »
About $14K of the loans are 6.5% unfortunately. Based on my calculations I can afford to put about $12K in, plus whatever I get from the tax refund/side hustles, so maybe could cover the $14K total and then just have the 3.5% loans left to take care of.

CanuckExpat

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Re: 401k Questions? Please help a newbie!
« Reply #7 on: January 28, 2015, 01:01:23 PM »
2. No, the employer contribution is not counted towards the amount you can put in. So you can put in a full 18K, and they'll put in an additional 3% over that amount.
There is a combined maximum of $54,000 including both your contribution and the employer contribution. So it's possible that 3% contribution could be reduced if it would take you over the combined maximum (this would only be a possibility if your salary is over $1 million though, if I am doing my math right)

cashstasherat23

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Re: 401k Questions? Please help a newbie!
« Reply #8 on: January 28, 2015, 01:07:27 PM »
2. No, the employer contribution is not counted towards the amount you can put in. So you can put in a full 18K, and they'll put in an additional 3% over that amount.
There is a combined maximum of $54,000 including both your contribution and the employer contribution. So it's possible that 3% contribution could be reduced if it would take you over the combined maximum (this would only be a possibility if your salary is over $1 million though, if I am doing my math right)

Hah, I wish!