The Finance/Retirement Thread

Kaldak

Wheelchair Kamikaze
Moderator
Joined
Jun 17, 2017
Messages
2,231
Location
Somewhere
You have to remember that 1000 to to a qualified retirement plan doesn't translate exactly to a 1000 reduction in income, from what I remember. I'm going to ask an IRS Agent I know to clarify for you better.

Stand-by a day or two.
 

SaintKP

Member
Joined
Sep 6, 2017
Messages
1,347
Location
Midwest
You have to remember that 1000 to to a qualified retirement plan doesn't translate exactly to a 1000 reduction in income, from what I remember. I'm going to ask an IRS Agent I know to clarify for you better.

Stand-by a day or two.

No worries thank you for the help
 

digrar

custom user title
Verified Military
Joined
Jan 13, 2007
Messages
2,257
Location
In the desert or Victoria, depending on the date
I'm Australian and our financial savings system for retirement is quite a bit different to yours, so definitely not the one to ask.
However, I did have a pre tax deduction for a block of company shares that put me under a tax threshold, which ultimately led to me getting more in my take home pay. That's only happened one year out of 12 of having that share block deduction, but for that year I was hovering over the threshold, it was a nice bonus.
If you're that close, I'd be bumping up the 401K payment at least $84 a month to get under it. The less tax you pay the better.
 

Isiah6:8

Member
Joined
May 11, 2009
Messages
350
Location
Chicago
A few thoughts for you @SaintKP :

Every dollar you put into your 401k lowers your taxable income by that amount on your tax return up to 19,500 this year. The company match does not lower your taxable income and will be taxed when you withdraw it. If it was a Roth then it would be taxed going in, but not taxed coming out. You could look at doing a back door Roth conversion to allow that money to grow tax free by paying taxes on it this year (it would increase your taxable income by the balance amount at year end taxes if you are unable to get below the threshold).

In order to make it earn more money you need to take more risk, equity etfs can do that (probably close to 100% allocation). I would tell you that for all that is holy do not make your 401k into a trading account. Deposit into it, forget about it for a few years, look at it as forced savings and let it grow. Your time horizon is long, you can withstand short term moves, no matter how big, and just need to contribute. If you want it to grow, what people don't tell you is that you need to contribute as much as you can each year. There is no shortcut. You can change the allocations in your plan to fit your risk appetite.

You should contribute to your 401k, but do not burden yourself by over contributing at 25. Life is expensive, it will get more expensive. If you can lower your cost of living then great. Get in the habit of every year increasing your contribution amount which will help curb lifestyle creep. When I was 22 I only contributed what the match was. Year or two later I had a hospital visit that wiped out my savings. I stopped contributing to my 401k to build up my savings again. Then when built back I contributed again. Point being, be fluid with this, don't cripple your immediate cash flow needs if you have them.

My personal .02 which goes against a lot of advice: Early on you should be not diversified and 100% equities in your 401k. If you want your 401k to grow realistically it won't be through market returns early on, it will be through contributions. Your goal is correct to get the balance up, but swinging for the fences doesn't get there, it is just contributing. Once you get a good balance then you should try to diversify to preserve and grow wealth. This is a 35 year game for you, the sooner you can get your earnings up to where you can max out the better.

Feel free to PM me if you want more in depth discussion on any of this.
 
Top