I am 23, make about 30,000 a year, and am considering contributing to the 401 k plan at my job...what percent?

Question

My company matches up tp 6% of pre-tax earning and I can contribute as much as 50% if I wanted to (which I dont!!). I want to contribute enough so that I am safe for retirement but am not sure what would be good for me. Can someone help?!?!?!?!?

Answer 1

I Would do atleast the 6% just to get the match. 10 % would be just about right.

Answer 2

401(k) plans do NOT have fees that "eat up" your company's contribution, so ignore that comment. At worst, a 401(k) limits you to the investments provided by the company that manages the 401(k), which means you may only be able to earn what their funds do. But you get into the game, and that's the most important thing.



You should contribute at least 6% so that you get your company's matching contribution -- that doubles your deposit (from $1800 to $3600 a year). And if you can contribute more, 10% would be a great start.



The other great feature about a 401(k) is that they use "pre-tax" dollars. This means that they take the money from your gross paycheck, not your net paycheck; better yet, the amount you contribute REDUCES the amount of the paycheck that they tax you on. So let's say you contribute 10% (to make the math easy) -- that's $3000 a year. But instead of taxing you on $30,000 a year, they only tax you on the remaining $27,000 a year. If the amount you have deducted drops you into a lower tax bracket, you can save big. Either way, the rule of thumb is that every $100 you contribute to a 401(k) only drops your net pay by about $75.



Now, will it be enough? You can find out. I use Quicken to manage my finances, and in addition to the regular account-management features, I use their Retirement Planner. It's set up like an interview, asking you questions -- how old you are, when you plan to retire, lots of other things -- and then lets you play "what-if" on your contributions. It takes inflation into account and shows you how much you'll have at retirement based on how much you put away now.



The GOOD news is that if you put away even ten bucks a week starting now, you'll have like a billion dollars by the time you're 65. (Well, maybe not a WHOLE billion... :-) Seriously -- starting early is the single best thing you can do. Even if you can only put in the 6% -- even if you can only squeeze out 3%, do SOMETHING. Compounding over the next 42 years will put you in VERY comfortable condition when they hand you the gold watch.



All the best!

Answer 3

I can't believe someone on here actually advised you to not contribute to a 401(k) because of fees. That's the stupidest thing I've ever heard. There's no way the fees would outweigh the advantage of tax deferred growth, the tax savings (investing 100 only feels like 70) and the match your employer gives you. Please IGNORE the person who told you not to contribute. People like that are why some retired folks end up eating cat food for dinner during retirement.



As others have already stated, always contribute up to what the employer will match. You can do more, but it is most advantageous to contribute extra amounts into a ROTH IRA. A good amount to be setting aside for your retirment is about 10 percent of your income. So you want to put about 150 /month into your 401k to get the 6% match. Then do another $100 /month into a Roth IRA. I like American Funds but any investment vehicle will do. You can use mutual funds, stocks, even annuities but I wouldn't recommend annuities for a ROTH.

Answer 4

6% of your salary is $1800 a year. Your employer adds in another $900 to that. That makes it $2700. So, if your investment of 1800 is worth about 2700 the very first year. Not a bad thing!



Remember when they take out $1800 from your salary, it is pre-tax, so if you do not let them deduct for 401k, you would have received say $1500 after tax. That makes the equation more interesting. So, your $1500 investment is worth $2700 the very first Year. Isn’t that really interesting? I do not know your tax situation. So, this $1500 is just hypothetical.



The quick and short answer to your question would be. Yes, go ahead and put 6% of your salary into 401k. If you are able to save more money, then put that extra into an IRA. Weather you should put in Traditional or Roth, depends on your situation and preferences. Personally, I am a Roth fan. But you should see plus and minus of both and decide.



I do not want to argue or comment on someone’s posting above. Each one has his or her own point of view. But I would say, each and every single dollar matters. So, when someone calculates (1800 x something x something) and comes up with a figure of $54000, I am surprised if he or she has not heard of something called “compounding”? No offense please



Say you start with a zero balance on your 401k. You keep contributing 6% which is $150 a month. Your employer adds another $75. Which means you will save $225 a month. Let us assume that you get a decent return on investment of 8% per annum. By the time you will be 60 years old. Which means 37 years from now, you will have $615,000! Remember that this amount takes into consideration that you will keep earning only $30,000 a year for the rest of your career. Of course your salary will increase and so will your contributions. But even with increased salary, you keep putting $150 (pretax) to your 401k, you end up having $615,000. If with increased salary, you increase your contributions.. then imagine how much you would saved!!



I agree that with inflation that $615k will not be same as today’s $615k. But you get the idea. Right?



Here is the caltulator that I used. http://www.bankofamerica.com.hk/english/personal_banking/investments/calc_future.html





Each and every dollar counts towards your retirement savings buddy. And remember, you have to start early. I started my retirement savings when I was 18. Today I am 33 and am happy that I started early.



All the best

Answer 5

First advice is to re-read the prospectus of the 401-K. Most companies with a matching plan also pay the 401-K fees. The IRS allows everyone to contribute up to $15,000 annually to a 401-K . You will not be taxed on the contribution amount for the year you put it in, the IRS will tax the money as it's taken out.



Your particular company will match your contribution up to 6% of your annual compensation. Is this a good idea? Yes, it's excellent providing you maintain enough cash flow for your own living style as any withdrawal from the 401-k before age 59 1/2 will not only be taxed but subject to a 10% penalty.



I'd have the 6% withheld for investment in this plan from my paycheck without hesitation. I asked my accountant for the same advice and he said "don't do it only if the sun doesn't come up in the east tomorrow, otherwise jump on it".

Answer 6

you want to contribute the full 6% because it is taken out before taxes and matched by your employer- meaning you contribute .06 x 30,000= $1800 and they put in $1800. This is a great start to your retirement...I am also 23 and make a similar salary but only contribute 3% or about $1000 a year....If you save more money than this put it in a mutual fund, high yield savings or money market account, or roth IRA.



good luck

Answer 7

well look at it this way 30000 annually is about 2500 a month, 6% of that is 150. Thats 150 a month, which is 1800 a year. You are 23 now, so multiply that by at least 30 (54000) In addition to what you contribute, do you think thats a lot of money when you are 53 ish? Honestly i think its a waste 401's have many fees. Get an IRA you can contribute to that whenever you want. No fees in there.

Answer 8

I'd say to contribute up to the match depending if it doesn't put you in a financial bind. Not knowing if your outflow is greater than your inflow, it's a bit difficult to give advice.



I'd also start a ROTH IRA if you have the extra money to invest. You'll get more choices outside of your company plan. Just watch out for fees. Vanguard has some good funds and their fees are quite low too.



Saving for the future is wonderful, but you don't want to beggar yourself for today or not be able to have any fun.

Answer 9

Stay away from 401Ks-they have fees. Any thing your employer would contribute would be eaten by these fees.



I suggest getting into a ROTH IRA. You contribute whenever you want. The most you would have to pay would be $15 a year for record keeping fees. You can contribute $50 a month to $4000 a year.



Simply, you need to cut out the middle man.

Answer 10

Given your income bracket......which is relatively low.....you should contribute to the 401K up to the match.....and max out and squeeze out every extra penny you can to a Roth IRA.....some companies are now offering Roth 401K's.....that would be ideal......but



think about it....you income is probably going to increase from here on out, right?.....why not pay taxes NOW when your bracket is low and fund as much as you can now....that way down the road, when your IRA is taxed at w/drawal time at the tax bracket of your highest earnings.....your 401K is all paid up and free and clear.

Answer 11

Contribue the 6% to get the matching. Take anything above and beyond that you want to save and put it into a Roth IRA. You will likely have more investment choices your IRA.

Answer 12

6% it seems like nothing because it is taken out before taxes and you receive a tax deduction at the next year.