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    Need advice on 401k contribution

    I am 51 yrs old. My 401k offers a 25% match up to $12000 per yr ( employer match ). While there is no way I'm able to maximize that, I do want to increase my current contribution which is $200/mo. We own our own home plus 2 other properties and have no other debt except for a zero % car loan I took out a few months ago and planned on paying off anyway. I had purchased the car sooner than I was planning and took the 0% just to buy myself some time deciding what I wanted to do financially over the next few months. Long story but I cashed out a large CD to help my daughter buy a foreclosed property and the balance of that CD ( around $50,000) is sitting in my bank account. I am almost 100% sure I should pay off my car, $15,000, freeing up around $300/mo to add to my 401k contribution. Am i missing anything? My struggle with doing this is that the original funds for the CD were an inheritance that I feel strongly about being a good steward of. I want to pass this wealth on but I'm equally bothered that I'm leaving money on the table by not contributing as much as possible to my 401k. Any advice is most welcome.

    #2
    Put the money back into the CD or other investment. Are you eligible for a Roth IRA? that would be a good alternative to increasing the 401k.

    You say you have no debt other than a $300/month car loan... Or do you have a mortgage on one or more properties that is eating up your monthly budget and just consider that to be debt?

    At 200/month for 401k, you are only putting in 2400 per year. max is 18k per year, and at 51 you could add even more with the catch up contributions.

    You may need to post your budget details for better answers otherwise a lot of us will make assumptions, etc that could be way off.

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      #3
      No other debt. I'm confused about you answer though....I know my current 401k contribution is low as you pointed out, but why put it back into a CD or other investment?

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        #4
        You should be putting in $12k a year and even mortgaging the rentals. I'm sorry that's free money you are passing up. That's $3k/year 100% guaranteed unless I'm reading the post wrong.
        LivingAlmostLarge Blog

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          #5
          Thanks. The 2 other properties we own are not rentals. One is my husband's business and the second is a beach house. I'm working on my husband to rent this out at least part time but he doesn't want to. He enjoys using it all season and doesn't believe the income potential after taxes, cleaning fees, additional insurance is worth it at this point.

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            #6
            Originally posted by eeyoresmom View Post
            No other debt. I'm confused about you answer though....I know my current 401k contribution is low as you pointed out, but why put it back into a CD or other investment?
            my initial response was going to be to up your 401k and replace that income (as needed) by using money from the 50k. but then I saw how you want to be a good steward of the money and didn't know if that is something you would consider.

            I would definitely look into a Roth IRA if you are eligible. You could contribute 5500 plus the catch up this year; then in January another 5500 plus the catch up. I forget what the catch up amount is, but total would be pushing 12k or higher.

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              #7
              Originally posted by eeyoresmom View Post
              I am 51 yrs old. My 401k offers a 25% match up to $12000 per yr ( employer match ). While there is no way I'm able to maximize that, I do want to increase my current contribution which is $200/mo. We own our own home plus 2 other properties and have no other debt except for a zero % car loan I took out a few months ago and planned on paying off anyway. I had purchased the car sooner than I was planning and took the 0% just to buy myself some time deciding what I wanted to do financially over the next few months. Long story but I cashed out a large CD to help my daughter buy a foreclosed property and the balance of that CD ( around $50,000) is sitting in my bank account. I am almost 100% sure I should pay off my car, $15,000, freeing up around $300/mo to add to my 401k contribution. Am i missing anything? My struggle with doing this is that the original funds for the CD were an inheritance that I feel strongly about being a good steward of. I want to pass this wealth on but I'm equally bothered that I'm leaving money on the table by not contributing as much as possible to my 401k. Any advice is most welcome.
              The 25% employer match to $12,000 is too good to pass up. Max out your 401K to $12,000 a year. Use the 50k inheritance to help make up that income, but don't pay off the car loan since it is 0% interest. Using the 50K to help max the 401k for retirement IS being a good steward, believe me. Letting is sit in a CD losing money with inflation verus earning 25% right off the top in your 401K is NOT being a good steward of the money.

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                #8
                Originally posted by eeyoresmom View Post
                Long story but I cashed out a large CD to help my daughter buy a foreclosed property and the balance of that CD ( around $50,000) is sitting in my bank account. I am almost 100% sure I should pay off my car, $15,000, freeing up around $300/mo to add to my 401k contribution. Am i missing anything?

                You're missing a whole of opportunity to Pre-fund your 401K contributions with $50K in the bank. Optimized your taxes for this year and next year which will do 2 things: 1) maximized employer contributions (free money) and 2) lower taxable income.


                1.) Pay-off the 15K car loan. Free up $300 a month that will you now contributes to 401K. This gives you $35K remaining.

                2.) Increase 401K contributions for the remaining 2017 calendar year. 2017 is almost over, let's say, you put all your paychecks for the next 2 month in Nov & Dec all towards 401K. By doing this, your Net Pay is greatly reduced. Transfer portion from $35K sub account into your checking account (For example $5K in Nov & Dec = $10K). This gives you $25K remaining.

                3.) For 2018, pre-fund your 401K contributions ($2K per month x 12 = $24K). Transfer $2K a month savings to checking account until you reach the maximum contributions of $24K. This gives you $1000 leftover.

                4.) Fund ROTH for 2017.
                Got debt?
                www.mo-moneyman.com

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                  #9
                  First and foremost - get as much of the 25% match as you can; that is a 25% return on your investment w/o taking anything else into account. If your company allows Roth 401k, use that otherwise use the regular 401k. There is nothing you can do that will beat 25% return on investment.
                  I YQ YQ R

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