View Full Version : 401k Question

01-18-2008, 10:47 AM
DH and I currently put 28% of our income into our 401k's. Both of our companies match up to 6%. We put the extra in just because we wanted to make sure we were saving enough and since it is automatically taken out of our checks we don't even have to think about saving.

My question is this: Since we are losing so much right now and the economy is so stale, would it be smarter to decrease that amount and put more into our savings? We have an online savings account and get a great rate - 4.24%. I keep thinking at least that way we are making $$ instead of losing it. I wouldn't think of taking anything out of our 401k and I wouldn't drop below 20% of our income.

Any advice?

01-18-2008, 10:55 AM
How long until you and DH retire?

01-18-2008, 10:56 AM
What percentage are you saving on your taxes? If you contribute to your savings account instead of your 401k, what do you lose to taxes immediately?

Is your tax rate higher or lower than your losses?

Is there anyway you can just change your current distributions in your 401k to contribute to overseas stocks, bonds, or a safer option?

01-18-2008, 11:02 AM
How long until you and DH retire?

We are both 30, so we have 30-35 years to wait!

01-18-2008, 11:03 AM
What percentage are you saving on your taxes? If you contribute to your savings account instead of your 401k, what do you lose to taxes immediately?

Is your tax rate higher or lower than your losses?

Is there anyway you can just change your current distributions in your 401k to contribute to overseas stocks, bonds, or a safer option?

Ok, I'm going to show my financial ignorance here because I can't answer any of your questions. How would I figure out this information?

01-18-2008, 11:11 AM
401k contributions are done prior to taxes being taken out of your check. As a quick guess as to your tax rate, take a paystub, total your federal taxes and divide that number by your GROSS pay.

If you contribute to your savings account, versus your 401k, you would get taxes taken out of your money, resulting in less to put into your savings account. So take that guess from above and deduct that percentage from the amount of money you'd change from the 401k.

Do your losses still exceed the tax rate? To figure this out, take the tax rate and add your current earnings rate on the savings account. Figure on that earning rate on the savings account going down a half a percentage point in the next 30 days.

Remember that once you put money into your savings account, you can never transfer it back to your 401k.

01-18-2008, 11:16 AM
Hi MinnieMom...I just responded to your other thread. You're doing a great job if you're saving 28%!

Keep in mind that while the market is looking cruddy, in theory, you're just buying stocks on sale. The whole point of putting in a certain amount monthly is to buy more when the prices are low (painful as that is) and less when they are high. You are in for another 30 yrs of ups-and-downs ... history tells us that timing the market is not typically as successful as buying regularly and leaving your money sit.

That said, since your jobs are in a risky industry (at least for today), I might reduce my 401k contributions for a bit to up my savings account. Make sure you could comfortably live for 6-12 months on your savings if one of both of you should find your jobs in trouble. When you've achieved that level of available savings, put the remainder back into your 401k.

Best of luck,

01-18-2008, 11:18 AM
Remember your 401(k) money is tax deferred until you take it out. So you are not paying taxes on it now. Make sure you have anough in a rainy day acount but sock away as much as possible. You are doing a good job towards saving for retirement.

01-18-2008, 12:14 PM
Make sure you have enough in the rainy day fund. Then keep dumping it in the 401k or a IRA.

401k plans differ by company. I cannot touch mine unless I retire or leave the company. There is no hardship dispresment, no loans, nothing. Untill I got involved in the HR side here I had wrongly assumed in a catastrophy I could use some of that money. I found out when I enquired for someone who was needing the cash. When we switched plans/ providers we lost that option. (For example if something horrid like a house fire or something.) So I put more into savings to build my rainy day fund up alot and then I will go back to my normal 15% in the 401k. Just a good thing to know about your plan!

01-18-2008, 12:22 PM
I have a 401k and what I did was transfer all my balances into our Stable Fund...kinda like a savings account inside the 401k so it's a little safer. I do however still have my new contributions buying stocks, like a pp said stocks are on sale now and I too have a while before retirement and can ride out the storm. But I didn't want to lose the bulk of my money in the market therefore transfering it into the Stable fund. Does that make sense?

01-18-2008, 12:24 PM
I'm not sure if this is an IRS regulation or if it's a condition specifically for our company but for us only 20% is pre-tax. You may want to confirm that with your Benefit person...if the additional 8% is POST-TAX, I would put it in a Savings that is making you money.

As to your current contributions and/or balance...if the funds you've selected are losing money, try moving it, at least temporarily, to something stable. Making a little money is still better than losing.

01-18-2008, 12:38 PM
You may also want to check to see if your company offers a Roth 401k. I am also 30 and have a Roth 401k. So yes my funds are taxed now but when I retire and withdrawl my funds I don't have to worry about taxes. My company matches up to 6% so I only put the full 6% into my 401k and then I put other funds into traditional Roth's, and savings account. I am no financial expert. I am just sharing what I do.

We are a one income household as DH stays at home with our kids so this is the best I can do right now. I just wished I would have started this when I was 20 instead of waiting until I was 30.

01-18-2008, 12:48 PM
I agree with a previous poster, you are buying investments that are "on sale". I just upped my 401k contribution from 6% to 15% to take advantage of lower purchase prices. Also, your losses are on paper only...they aren't actual. The market cycles like this and what you have to look at is your average return over the life of the investment. The more you can buy when the market is down, the better your return will be overall.

01-18-2008, 01:14 PM
I really think you are asking 2 questions here

#1. Where should my retirement money be invested.

Just because something is in a 401K doesn't mean that is HAS to be invested in high risk equities. You can invest in money market accounts within a 401k also. If you feel your investment risk is too high at the moment, you can move it into safer waters and still remain under the 401k umbrella.

What age do you want to retire? I think that the general consensus would be that anybody who has 20+ years until retirement age needs to remain heavily invested in equities, with slight diversification into bonds and cash.

#2. How much should I be putting into retirement?

28% is a pretty high percentage.

I would do 401ks up to the amount your company matches
Then I would set up fully funded Roth IRAs outside of the company for you and your husband assuming you meet the income guidelines.

Then I would go back to the company 401ks up to 15% of your salary.

At that point I personally would direct further investments into regular brokerage accounts that do not restrict use of the funds by age. Especially considering your other thread where you are a little worried that your Emergency fund may not be large enough. You will then have these funds available for large life goals that happen before retirement -- new cars, new houses etc. Yes, these funds will not give you tax deferred advantages, but a really good portion of your life does happen before age 65 you know.