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I was playing around on a couple financial sites and checked out their tools to help determine amount needed to invest each year to reach certain thresholds in retirement. The 2 I played around with are:
- Betterment.com
- PersonalCapital.com
Personalcapital tells the investor to save in this order (assumes you are working, have a 401K).
1. Max out your 401K at work ($24,000 if over 50, $18,000 if under) then
2. Fund a Roth IRA up to the maximum outside of your 401K *if* you can (this depends on your adjusted income level). This is up to $5,500 if under 50 and up to $6,500 if over 50. Not everyone can do this, but if you are under the IRS limit, make a point to do this.
3. Then, after that, fund as much as you can (usually after tax) into an IRA up to the level you need, and of course within the limit imposed by the IRS. Not everyone can do this, but they encourage it. Alternatively you are allowed to put in after-tax monies in your 401K up to I think a limit of $53K per year, including all 401K contributions you made. The amount put in by your employer does not count against the limits. This is certainly a big goal; those who have the income to do it can really accelerate their savings.
This of course all depends on your age, how much income you think you'll need to live on once you do retire, the age at which you intend to retire, how long you think you'll live, and some other variables. Their suggested amount of savings needed per year are based on the variables you supply.
Anyway, I found it interesting. Perhaps others will find the tools good ones to try out.
If you have already done 2, then the amount you can fund into an IRA in 3 is $0. Also in 3 you say the 401k limit is 53k and the employer match does not count. But, it does towards the 53k limit. It does not count towards the 18k limit, which is all that most people can do.
My company 401K happens to have Roth as one of the choices. We can direct up to 80% total of our pay to 401K for each paycheck. My maximum 401K contribution allowed for the year (pre-tax, Roth, or combo of both) is $24,000 (because of my age).
- I put about 40% pre-tax and 60% to Roth in the 401K plan. I max 401K out.
- I could also, if I so wanted, make after-tax contributions to the 401K up to the plan maximum allowed, but that's a bit out of reach for me. I do some, but not that much.
- Bonus payouts can be directed into the 401K plan as well (pre-tax, Roth, and after-tax) Of course all IRS limits apply across the board on any monies contributed to 401K.
- In addition to my 401K, I also am able to contribute to a separate IRA in my own brokerage account, not affiliated with work or that 401K account. I started a Roth IRA in 2015 and am continuing those contributions in 2016. Because the company bonus was rather dismal, my adjusted income is still low enough to allow me to contribute to a Roth IRA. Silver linings I suppose.
Yes, NewbieHere, after-tax contributions are indeed available in our 401K plan. Those are different from the pre-tax and Roth contributions.
Clear as mud?
BTW, those recommendations in the first post are not *mine*. Those happened to be from personalcapital.com.
Last edited by lottamoxie; 04-25-2016 at 06:12 PM..
This is before Roth 401k. My company had a plan that I could contribute max pretax 401k then if I continue to get the company's matching, it will kick over to after tax contribution. Maybe things change now with the Roth 401k. What happens if you exceed your $24k limit?can you still contribute?
Unless you've opted for "after-tax" 401K contributions, your 401K contributions will stop upon reaching the maximum total amount of either $18K or $24K depending on your age. Companies do this automatically--their payroll systems are setup to keep track. If you've opted to contribute after-tax monies into the 401K plan, you can do that, up to the total maximum allowed under the plan based on the IRS rules ($53K is the current maximum allowed). As for the company match - in my company it's a 1:1 match for the first 6% the employee contributes.
So that's what I did and that money when you rollover, I believe can be rollover to Roth account. I contributed max pretax $24k to 401k and then continue with after tax money up until it reaches $53k. It was useful for my husband and I because together our income was too high for Roth, we want the deduction for the taxable 401k.
Companies do this automatically--their payroll systems are setup to keep track.
Yep, I've had times where HR cut my final 401k contribution by a few dollars to not crack the cap.
I think the only can't miss step is to always fund up to the match in your 401k. After that there are lots of other variables at play that influence where your money goes.
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