Author Topic: How much do I need to put into my 401(k) to hit 18k?  (Read 3219 times)

Sulame66

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How much do I need to put into my 401(k) to hit 18k?
« on: January 05, 2017, 10:35:09 AM »
Hello,

I live in a state with no state income tax, and I make $60,100.

I currently am putting 32% into my 401(k), and 50% goes into the traditional 401(k) and 50% goes into the Roth 401(k). It says my estimated deduction every two weeks is $801.08.

How much should I be putting away to hit the $18,000 cap for the year, while maintaining a 50/50 traditional / Roth split?

Thank you!

Cromacster

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Re: How much do I need to put into my 401(k) to hit 18k?
« Reply #1 on: January 05, 2017, 10:43:17 AM »
Maybe I'm just confused...but your asking how much money you need to put away to hit the 18,000 cap?  You need to put away 18,000 to hit the 18,000 cap, or 30% of your salary.

SeattleCPA

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Re: How much do I need to put into my 401(k) to hit 18k?
« Reply #2 on: January 05, 2017, 10:45:31 AM »
Hello,

I live in a state with no state income tax, and I make $60,100.

I currently am putting 32% into my 401(k), and 50% goes into the traditional 401(k) and 50% goes into the Roth 401(k). It says my estimated deduction every two weeks is $801.08.

How much should I be putting away to hit the $18,000 cap for the year, while maintaining a 50/50 traditional / Roth split?

Thank you!

To hit $18K for the year, you put away $692.31 every two weeks (so 26 times a year: 26 times $692.31 equals $18,000.06.

BTW, you probably don't benefit by using a Roth unless you're not paying income taxes right now.

The month you ultimately draw out of your traditional 401(k) will probably all be tax free.

If you're single, you can have about $450K in a tax-deferred account and get money out without paying income taxes even if you're drawing Social Security.

If you're married, the number is closer to $600K even if you're drawing Social Security.

For detailed calculations, you might find this post useful: http://evergreensmallbusiness.com/why-you-dont-need-to-worry-about-taxes-in-retirement/


Sulame66

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Re: How much do I need to put into my 401(k) to hit 18k?
« Reply #3 on: January 05, 2017, 02:50:03 PM »
Maybe I'm just confused...but your asking how much money you need to put away to hit the 18,000 cap?  You need to put away 18,000 to hit the 18,000 cap, or 30% of your salary.

Because 30% would be correct if it was 100% traditional, but I have Roth contributions so I will first get taxed on 50% of what I'm putting over, which means I would end up with less than 18,000 put in

caffeine

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Re: How much do I need to put into my 401(k) to hit 18k?
« Reply #4 on: January 05, 2017, 03:28:06 PM »
Maybe I'm just confused...but your asking how much money you need to put away to hit the 18,000 cap?  You need to put away 18,000 to hit the 18,000 cap, or 30% of your salary.

Because 30% would be correct if it was 100% traditional, but I have Roth contributions so I will first get taxed on 50% of what I'm putting over, which means I would end up with less than 18,000 put in

Do you have to provide a dollar amount or a percentage amount for your 401k plan? If it is percentage, you simply say 30% total (15% traditional/15 roth). Payroll should automatically deduct the taxes necessary for the 15% Roth.

If you need to provide a dollar amount, it is still the same. You don't have to worry about the taxes because payroll should take care of it. So

60100 * .3 = 18030

18030 year/12 months/ 2 weeks = $751.25

You will pay $751.25 for the first 23 paychecks and $721.25 in the last month.

Since you are doing a ROTH, you will need to pay $2,250 income tax (assuming you fall into the 25% bracket) taxes on that $9,000 a year. This should be taken care of for you.




Sulame66

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Re: How much do I need to put into my 401(k) to hit 18k?
« Reply #5 on: January 05, 2017, 03:34:53 PM »
Makes sense, thanks

With This Herring

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Re: How much do I need to put into my 401(k) to hit 18k?
« Reply #6 on: January 05, 2017, 03:59:27 PM »
Maybe I'm just confused...but your asking how much money you need to put away to hit the 18,000 cap?  You need to put away 18,000 to hit the 18,000 cap, or 30% of your salary.

Because 30% would be correct if it was 100% traditional, but I have Roth contributions so I will first get taxed on 50% of what I'm putting over, which means I would end up with less than 18,000 put in

No.  When you are making 401(k) contributions
- anything that gets contributed to a traditional account up to the limit will be removed by your employer from the wages subject to income taxes
- anything that gets contributed to a Roth account up to the limit is ignored/stays in wages subject to income taxes

Your income tax withholdings come out of your regular paycheck.  Your contributions are not reduced for that amount.

So, if you are paid $60,100 gross wages:
Gross wages (wages with no deductions)
$60,100
Traditional 401(k) 16%
$9,616
.
_______
Wages less trad 401k for income taxes
$50,484
Fed tax on wages less trad 401k (assuming you are single with no kids and no other job)
$5,805
Wages
$60,100
Social security (based on gross wages)
-$3,726
Medicare (based on gross wages)
-$871
Traditional 401(k) 16%
-$9,616
Fed tax withholding
-$5,805
Roth 401(k)
-$9,616
.
_______
Net paychecks
$30,466

Those full $9,616 for each 401(k) will go into the 401(k) accounts without being reduced for taxes.

If you were later to convert a traditional account to a Roth account, you would have the option of having the administrator withhold an amount for conversion taxes from the converted amount, but that is optional.

boarder42

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Re: How much do I need to put into my 401(k) to hit 18k?
« Reply #7 on: January 06, 2017, 09:05:43 AM »
bigger question is why are you doing roth? you should put more information out there its likely suboptimal when you could easily put that 2500 towards more investments instead of tax.

Sulame66

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Re: How much do I need to put into my 401(k) to hit 18k?
« Reply #8 on: January 23, 2017, 09:29:00 AM »
A few more questions that popped up:

I can't tell if I'm putting in anywhere near the max anymore. Here is my W2 from last year, where I was partially making $54k for some of the year.

My wages were $56377.73, my 401(k) contributions were $11,854.93, and my Roth 401(k) contributions were $3,681.52.

Is this anywhere near the $18k cap, if you combine them? There is no way I can do both $18k to 401(k) and $5.5k to Roth, not until I'm totally out of debt. And I'm not sure that's even optimal because I'd basically be living like a pauper now in order to have millions in retirement I wouldn't even use.

On that same note, how do I convert my total account balances between pre and post tax? I.e. if I have a $50k balance, but 40k is pre-tax and 10k is post-tax, how much would it be in post tax? What about pre-tax?

Thanks

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Re: How much do I need to put into my 401(k) to hit 18k?
« Reply #9 on: January 23, 2017, 10:05:40 AM »
A few more questions that popped up:

I can't tell if I'm putting in anywhere near the max anymore. Here is my W2 from last year, where I was partially making $54k for some of the year.

My wages were $56377.73, my 401(k) contributions were $11,854.93, and my Roth 401(k) contributions were $3,681.52.

Is this anywhere near the $18k cap, if you combine them? There is no way I can do both $18k to 401(k) and $5.5k to Roth, not until I'm totally out of debt. And I'm not sure that's even optimal because I'd basically be living like a pauper now in order to have millions in retirement I wouldn't even use.

On that same note, how do I convert my total account balances between pre and post tax? I.e. if I have a $50k balance, but 40k is pre-tax and 10k is post-tax, how much would it be in post tax? What about pre-tax?

Thanks

First, your paystubs should have the amounts you put towards each 401(k) acccount both for that pay period and cumulatively for the year.

So, if your September 30th paystub shows you are contributing $455.99 per pay period to your traditional 401(k), you get paid every two weeks (so have six pay periods remaining), and the total amount contributed that year-to-date is $9,119.80, you can figure out that to hit $14,318.48 ($18K less expected Roth 401(k) for entire year), you need to contribute $866.44 per week going forward.

I think people aren't necessarily saying that you need to max both your 401(k) and your IRA, but that, if you are going to put away retirement savings (whatever amount you feel comfortable contributing), put it ALL in traditional accounts.  So, for any 401(k) space you use, make it all traditional 401(k) space.  For any IRA space you use, make it all traditional IRA space.

What does your crystal ball say that your marginal tax rate will be in each year of retirement when you would want to use/convert those traditional retirement balances?  If you know it will be 15%, you will keep 85% of the money...
Pre-tax:   40,000 + (10,000 / 85%) = 40,000 + 11,765 = 51,765
Post-tax: (40,000 x 85%) + 10,000 = 34,000 + 10,000 = 44,000
But, that only works if you know your marginal tax rate will be 15%.  If your marginal rate is different, it changes.  For more reading on this, many people recommend this post by GoCurryCracker.

MDM

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Re: How much do I need to put into my 401(k) to hit 18k?
« Reply #10 on: January 23, 2017, 01:03:47 PM »
I can't tell if I'm putting in anywhere near the max anymore. Here is my W2 from last year, where I was partially making $54k for some of the year.

My wages were $56377.73, my 401(k) contributions were $11,854.93, and my Roth 401(k) contributions were $3,681.52.

Is this anywhere near the $18k cap, if you combine them?

It appears you are seriously overcomplicating this.  In other words, I assume you know how to add the two contributions and compare the result to $18K.

And, that is all you have to do.  Does that make sense?

Sailor Sam

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Re: How much do I need to put into my 401(k) to hit 18k?
« Reply #11 on: January 23, 2017, 01:12:28 PM »
Maybe I'm just confused...but your asking how much money you need to put away to hit the 18,000 cap?  You need to put away 18,000 to hit the 18,000 cap, or 30% of your salary.

Because 30% would be correct if it was 100% traditional, but I have Roth contributions so I will first get taxed on 50% of what I'm putting over, which means I would end up with less than 18,000 put in

I think you're overcomplicating this. The tax money isn't taken out of the Roth portion of your contribution. If 30% = 18,000, then the full 18,000 will end up in your 401k. Your take home pay will be taxed on the Roth portion.

Does that help?