401k catch up $ ?

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koditten
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401k catch up $ ?

Post by koditten » Sat Oct 28, 2017 3:58 am

I just turned 50 so am now eligible to run my contributions to 24k. I also maxed out my 18k contributions just before turning 50.

My question is:

What benefit does adding that extra 6k do for your account numbers? That 6k really doesn't gain you much in the compounding interest of the whole account.

This was a very high overtime year, I don't expect to be able to contribute more than 20-22k for the next 6 years.

What would be a better place for that 6k(provided that I can make that much by the end of the year)?

Obviously I don't have trouble saving, I'm leaning towards just having quick access to that money and stuff it into a high yield SA.

401 is presently sitting at around 750k and I would like to stop working in 6 years.

Edit: I will contribute the minimum to continue the company match. I'm not losing out on the free $.

dbltrbl
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Re: 401k catch up $ ?

Post by dbltrbl » Sat Oct 28, 2017 4:45 am

If you need the money now, than do not put it in 401k. My suggestion is put in whatever extra you can, 2-4k (18k+) as it will compound for about 20 years before your RMD and you get tax deduction right now.

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samsoes
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Re: 401k catch up $ ?

Post by samsoes » Sat Oct 28, 2017 5:26 am

Don't forget about tax-deferral of the extra $6,000. This is especially useful if you believe you'll be in a lower tax bracket when you withdraw the funds in retirement. It's icing on the cake if you're in a high state income tax state now and to move to a low (or no) state income tax state in retirement.
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CyclingDuo
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Re: 401k catch up $ ?

Post by CyclingDuo » Sat Oct 28, 2017 10:57 am

koditten wrote:
Sat Oct 28, 2017 3:58 am
I just turned 50 so am now eligible to run my contributions to 24k. I also maxed out my 18k contributions just before turning 50.

My question is:

What benefit does adding that extra 6k do for your account numbers? That 6k really doesn't gain you much in the compounding interest of the whole account.
Counts as a pre-tax deduction, and an extra $6K compounding over the next 25 - 30+ years is another, hey $6K of capital at work in tax deferred. :beer
koditten wrote:
Sat Oct 28, 2017 3:58 am

This was a very high overtime year, I don't expect to be able to contribute more than 20-22k for the next 6 years.

What would be a better place for that 6k(provided that I can make that much by the end of the year)?

Obviously I don't have trouble saving, I'm leaning towards just having quick access to that money and stuff it into a high yield SA.
Well, if you've got shorter term goals or uses for the additional $6K - then so be it.
koditten wrote:
Sat Oct 28, 2017 3:58 am

401 is presently sitting at around 750k and I would like to stop working in 6 years.

Edit: I will contribute the minimum to continue the company match. I'm not losing out on the free $.
We don't know your overall portfolio/financial picture, but let's say if it is only $750K in your 401K now with just 6 years to go - our vote goes for you to take advantage of the 401K catch up rule to sock away the entire $24K this year for the benefits - and continue to play catch up for the next 6 years with as much as you can - or however long it takes to "hit your number" before actually retiring. Now if you've got IRA's, investments in a taxable account, a pension, a working significant other to increase household income in retirement via their retirement plan(s) to couple with your SS - then maybe you don't need to put the extra $6K into your 401K.

JW-Retired
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Re: 401k catch up $ ?

Post by JW-Retired » Sat Oct 28, 2017 11:42 am

koditten wrote:
Sat Oct 28, 2017 3:58 am
I just turned 50 so am now eligible to run my contributions to 24k.
.............
What would be a better place for that 6k?
................
401 is presently sitting at around 750k and I would like to stop working in 6 years.
Just a guess, but if you are going to retire at 56 then perhaps put the after-tax portion of the $6k in whatever savings you plan to tap while waiting to draw on your 401k?

If we knew more about your overall situation we could give better advice. Preferably listed something like Laura's format here .... viewtopic.php?f=1&t=6212
JW
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koditten
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Re: 401k catch up $ ?

Post by koditten » Sun Oct 29, 2017 2:33 am

Thanks for the responses.
All good info.
I do have other investments, but nothing as significant as the 401. My plan is to retire from the present job with a 2200/mo pension and hunt up another, less demanding occupation. Maybe work my small business(which I have now) more seriously.

Thanks again.

JW-Retired
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Re: 401k catch up $ ?

Post by JW-Retired » Sun Oct 29, 2017 10:52 am

koditten wrote:
Sun Oct 29, 2017 2:33 am
I do have other investments, but nothing as significant as the 401. My plan is to retire from the present job with a 2200/mo pension and hunt up another, less demanding occupation. Maybe work my small business(which I have now) more seriously.
The pension popping up now makes a huge difference, as does you continuing to work some after.

Can we guess that you will also will have pretty good social security payments once you take it? If so, in your long term planning keep in mind that if you can afford to, maximizing your SS income is favored just because SS has a cola and is lightly taxed in comparison to "other income".

For example: guessing some numbers..... by age 70 you might easily have grown your 401k to $1M, meaning the beginning year RMD would be about $36k. Then you have the $26k/yr pension + e.g. $25k/yr from SS gives a gross income of $87k/yr. If you are single at age 70 & today's tax rates & std deduction your Federal tax would be a hefty $13,564. (From an online tax calculator https://hrblock.com/get-answers/tax ... e/aboutYou )

Compare that with if you had spent down much of your 401k for living expenses so your RMD is $15k less ($21k), and you delayed SS to 70 so it's $15k more ($40k), That's exactly the same gross income of $87k but the Federal tax comes out roughly $1k less at $12639. Also, if you live in a high tax state like CA that taxes everything but SS income, this maneuver would have saved you another $1.5k in state taxes on top of the Federal $1k. Finally, SS has a cola and maybe your pension doesn't.

See what you get with your own guessed income numbers.
JW
ps: Also, you might take a look at /wiki/Social_ ... calculator
It's usually an eye opener! :shock:
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JD101
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Re: 401k catch up $ ?

Post by JD101 » Sun Oct 29, 2017 8:30 pm

My spouse doesn't have 401k through the employment therefore we invest in IRA. Is there a catch up contribution in IRA also or it is only through employer sponsored 401k?

JW-Retired
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Re: 401k catch up $ ?

Post by JW-Retired » Sun Oct 29, 2017 9:21 pm

JD101 wrote:
Sun Oct 29, 2017 8:30 pm
My spouse doesn't have 401k through the employment therefore we invest in IRA. Is there a catch up contribution in IRA also or it is only through employer sponsored 401k?
googling says a small one
total contributions to all of your traditional and Roth IRAs cannot be more than: $5,500 ($6,500 if you're age 50 or older)
JW
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CyclingDuo
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Re: 401k catch up $ ?

Post by CyclingDuo » Mon Oct 30, 2017 8:33 am

JD101 wrote:
Sun Oct 29, 2017 8:30 pm
My spouse doesn't have 401k through the employment therefore we invest in IRA. Is there a catch up contribution in IRA also or it is only through employer sponsored 401k?
Yes. It jumps from $5500 to $6500 for age 50 and over. So if both you and your wife qualify, you could be socking away $13K a year total between the two of you into IRA's.

JD101
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Re: 401k catch up $ ?

Post by JD101 » Mon Oct 30, 2017 3:52 pm

The above post says there is no catch up contribution for outside the the 401K

ThriftyPhD
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Re: 401k catch up $ ?

Post by ThriftyPhD » Mon Oct 30, 2017 4:32 pm

Do you have a Roth IRA? If not, you could fund that. You could always withdraw the basis, but at least any growth would be tax free. The catch up on your IRA is $1k, so that's an option as well. Depends on how you expect your current taxes to compare to retirement taxes.

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Earl Lemongrab
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Re: 401k catch up $ ?

Post by Earl Lemongrab » Tue Oct 31, 2017 11:47 am

JD101 wrote:
Mon Oct 30, 2017 3:52 pm
The above post says there is no catch up contribution for outside the the 401K
Which post says that? This is something you can easily look up yourself online.
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