401k Musings
I've been trying to figure out what I could do to bump my 401k contributions to 20%, which would allow me to hit the cap for the year. The problem is I just didn't have enough money each month to do it. I realized the only ways to pull it off would be a raise (not likely), or to juggle money.
So, I decided to fund my Roth out of my savings rather than out of my paychecks directly. This means that I'll only be putting $8000 into savings each year rather than $12000. However, it allows me to put $3500 more into my 401k, thereby hitting the max. In theory, I'm only down $500 for the year in savings.
But if I look closer, the problem is that after taxes, that $3500 is really only $2450. So somewhere in here I've lost $1550 savings for the year, not just $500. I'm gonna try to make up $1200 of it by putting $100 more into savings each month. The other $350 I'm gonna have to look for. I know it's in the budget, but I'm just not sure where yet.
However, even if I can't make up the difference, I still think this is a better move financially. It reduces my tax burden, for one. Also, I can always contribute more to savings each year. But there is a cap on 401k contributions. So for my 401k to truly serve me in retirement, I have to fund it as much as possible in the early years.
So, I decided to fund my Roth out of my savings rather than out of my paychecks directly. This means that I'll only be putting $8000 into savings each year rather than $12000. However, it allows me to put $3500 more into my 401k, thereby hitting the max. In theory, I'm only down $500 for the year in savings.
But if I look closer, the problem is that after taxes, that $3500 is really only $2450. So somewhere in here I've lost $1550 savings for the year, not just $500. I'm gonna try to make up $1200 of it by putting $100 more into savings each month. The other $350 I'm gonna have to look for. I know it's in the budget, but I'm just not sure where yet.
However, even if I can't make up the difference, I still think this is a better move financially. It reduces my tax burden, for one. Also, I can always contribute more to savings each year. But there is a cap on 401k contributions. So for my 401k to truly serve me in retirement, I have to fund it as much as possible in the early years.
posted by NinjaPigeon at
8:09 PM
2 Comments:
did you consider the tax break you're getting from your home and adjust your W4 - form for tax withholding?
that just might bump up your paycheck a little bit.
By
Adventures In Money Making, at 10/03/2005 9:23 PM
I actually haven't done so. I know I'm in the minority here, but I'm okay with getting a tax refund each year. Trying to figure out the numbers just right so that the government isn't getting a "free loan" is too open to error, and I don't want to end up owing any.
Besides, the house issue is actually a little complicated, since I own it with another person and we have to split the taxes a little weirdly.
Though your point is valid, and next year I might try to figure this out. But for now, it's a little beyond me.
By
NinjaPigeon, at 10/03/2005 10:26 PM
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