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401(k) - what is the ideal amount to contribute based on employer contributions? (self.personalfinance)

submitted ago by not_gullible

Your employer will make a Safe Harbor Matching COntribution equal to 100% of your salary deferrals that do not exceed 3% of your eligible pay plus 50% of your salary deferrals in excess of 3% of your eligible pay. However, your employer will not match more than 5% of your eligible pay

Based on this information, and my terrible track record, and my recent uplifting, please help me out. What do you think - based on a 60k salary, how much should I contribute? Keep in mind that I have only a little extra every month.. about $1,000 as far as my work salary goes.

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[–]zzcm 4 points5 points ago

means the first 3% is at 100%, and the next 2% is at 50% up to 5% total so essentially you need at least 7% to get the full match (3% * 1 ) + (4% * 0.5) = 3% + 2% = 5%

[–]NetherlandsVoerendaalse 0 points1 point ago

And so 7% would be 7% of 60K = 4200 a year; correct?

This is before taxes, so if your income tax is around 30% of your income, you will get (70% of 4200 is) $ 2940 less income in your wallet (posttax) per year if you contribute $4200 to the 401k; and your employer will then add $3000 more to your 401k.

[–]zyncl19 5 points6 points ago

Contributing 7% will allow you to receive the maximum your employer will give you. This is FREE MONEY! Do everything you possibly can to get it. Free money doesn't happen very often.

With that said, at a very, very bare minimum, contribute 3% to get the 100% match.

[–][deleted] 2 points3 points ago

The way it is written is confusing... I'm not sure if they stop matching once YOUR contributions go beyond 5%, or if they will match a total of 5% of your salary.

Assuming the latter, you need to contribute 7% to get their full match.

[–]csguydn 0 points1 point ago*

7% of your salary to get the match. Never ignore free money.

[–]not_gullible[S] -1 points0 points ago

Yea but 50% of contributions in excess of 3% up to 5%.

$3,000 is 5%. $1,800 will get matched 100%. $1,200 will get matched 50%.

So if I put $3,000 a year, I will get $2,400 matched by my employer.

That is $250 a month - I don't think I can afford that right now. Should I go for what I can get 100% of?

[–]Ipp 2 points3 points ago*

If you cannot afford that with your salary, I think you have bigger problems that you left out. Are in debt? If you are not in debt do you have a budget or have you tried cutting back on expenses?

Edit: After reading your other posts, I really don't think you know how much you spend $/m on "going out". Sign up for mint.com and track it, you will be repulsed. You'd be surprised how easy it is to go out every other week instead of every week. Or make your own food, not only is it cheaper than a grocery store (which is cheaper than fast food) but it also takes up time which means you will have less time to be bored which leads to irresponsible spending.

If I knew what your rent was, it would be a lot easier to set up a budget. I'm going to assume you spend between 500-600/m on going out when it should be down to 150; maybe 75 in your situation. If you don't get yourself out of the 20-30% Interest debt, you will rack it back up faster then you could ever imagine.

[–][deleted] 0 points1 point ago

And his other post says he makes an additional $20k a year on top of his salary. $250 really shouldn't be a a problem, especially when you consider that his employer is giving him free money to contribute.

[–]not_gullible[S] 0 points1 point ago

Expense Cost
Rent $875
Webhosting $269
Car $355
Parking $200
SL1 $145
SL2 $230
SL3 $210
CC1 $50
CC2 $150
Total $2,484

Take home is about $3,500 from work. From other sources about $1,000 / month and considering bonus times, comes to about 18-20k extra a year.

[–]NetherlandsVoerendaalse 0 points1 point ago

So you've got 2k per month to spend on food and fun? Sounds like it should be more than enough. You should be able to have at least $1k a month left for things like paying off your debts quicker and/or contributing to your 401k.

Maybe make it a game. Decrease your food/drinks spending to less than $20 a day for a week. That is your challenge. If you manage to get by on $140 or less (and no cheating!), you won. It is still a rather easy challenge, if you look at what other people are trying to live on. If you can't spend less than $140.01, you lost. If you lose, you pay $100 to support something you detest (pick your choice: the republican party, anti-abortion campaigners, etsy, Help-Warren-Buffett-through-the-winter-fund..., the you-know-who church). If you win, $100 go to the CC or SL with the highest interest rate and $25 go to your favorite charity.

[–]hypetech 1 point2 points ago

What is the situation where you are spending $269 a month on web hosting? Just out of curiosity.

[–]not_gullible[S] 0 points1 point ago

Something that I'm trying to get out of right now, move to VPS... I don't need all the power anymore. I used too.

[–]fauxberrysmoothie 0 points1 point ago

Step up that percent if you have to. Start with 3%, evaluate after a month or two, and increment it up. If you have something like peoplesoft at work you can nudge it up by a 1/2% at a time if you want, less painful that way.

[–]csguydn 1 point2 points ago

Why would you pass up an automatic 50% return on investment? Put in the maximum amount in which you get any match.

[–]not_gullible[S] -1 points0 points ago

Need the money man. The point isn't I'm passing it up.. the point is I spend too much, and I can't stop.

[–]NetherlandsVoerendaalse 0 points1 point ago

Almost everyone can stop spending too much. You're not addicted to alcohol, nicotine, drugs or cats, are you?

[–]csguydn 0 points1 point ago

No, the point is that you ARE passing it up. You choose to spend your money on things other than getting the match. You need to re-evaluate your priorities and behaviors.

[–]EatingSteak 0 points1 point ago

Put in the minimum amount of money needed to get the full match (borrowing from others' math in here), which is 7% of your salary to get a 5% match.

The 401(k) companies (in my case, Fidelity) will tell you to put in as much as you can afford, because after all, you're "giving it to yourself". This is horse shit, they just want your money.

Check the fee schedule closely. For my 401(k), Fidelity skims off almost a full percent every year for their "management fees". What a scam... they're making more interest money than they're giving you just through the privilege of "having" it.

If you keep it for yourself, (I use a Scottrade account and trade my own stocks), it's YOURS. You can take it out whenever you need it, and put in whenever you want.

With your 401(k) account, you take a huge penalty if you lose your job and need the money now, or they "loan" you your own money. Neither sounds like a good deal to me.

tl;dr Put in 7% to get your 5% match. Anything less, you're giving up free money; any more, and you're just throwing your money away.

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