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Max 75% contribution to 401k
Old 09-09-2014, 08:37 PM   #1
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Max 75% contribution to 401k

Hi, age 34, I will become eligible for 401k October 1 and planned to contribute max 75% to get me just about to the yearly 17.5k limit. It's basically no match but Roth is already funded and sitting on about $100k cash that we have been trying to think what to do with.(buy another rental or put in brokerage account). So the point of maxing 401k would be to invest pretax. Would anyone be concerned about putting this much in the market over the next 3 months? I was thinking all teally low exp mid cap which would balance out portfolio a bit. Any other thoughts?

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Old 09-09-2014, 08:43 PM   #2
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At age 34, I would not be too concerned, but you don't have to put it "in the market" to gain 401k tax advantage. You probably have lower risk choices you could use and move into stocks gradually if you think the market is too high right now.
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Old 09-09-2014, 10:00 PM   #3
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I would have no concern. I did basically the same thing at the beginning of the year where I maxed out my 401k in 2 months.
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Old 09-10-2014, 07:04 AM   #4
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The only reasons to contribute to a 401k are to reduce your current tax rate or to get the match. If there is no match, do you really expect your tax rate to be significantly under what your retirement rate will be? Mine isn't going to go down at all after I retire next year.

You can invest after tax in a taxable account. You then qualify for LT capital gains and receive dividends which still receive favorable tax treatment. Anything coming out of your 401k will be taxed at your marginal tax rate and may even increase what your marginal tax rate will be in retirement.

Personally, I max out my own 401k but I receive a 5% of salary "match" by doing it.
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Old 09-10-2014, 07:17 AM   #5
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I would have no concern. I did basically the same thing at the beginning of the year where I maxed out my 401k in 2 months.
+1
Even if you have no company match that money will grow tax free for years to come. Also that money is PROTECTED from any creditor. In the other words it is in very safe place

Select cheap broad index fund like VTI or S&P 500 index. Those are always available in 401ks.

If your 401k has no good investment choices then you may reconsider.
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Old 09-10-2014, 07:22 AM   #6
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I always have my 401K deduction at 75%. Invested in 100% stocks as soon as it hits the account. I max mine out, with the over 50 $5,500, typically by mid-March.

Assume the market will always be random, but will trend up on a long term basis. That said, money in early is generally better than money in later. 30% of the time it won't be...

Good luck! Putting in 75% for a few months teaches you how to LBYM.
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Old 09-10-2014, 09:44 AM   #7
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Also that money is PROTECTED from any creditor. In the other words it is in very safe place
Also, If you have (or will have), any kids going to expensive colleges, funds in the 401k do not add to your "expected family contribution", whereas after tax funds get 'taxed' at a rate of 5.6% per year by the FAFSA formulas. So if you had two kids, 4 years each, no overlaping years, the FAFSA formulas would expect that your after tax accounts would be 45% smaller at the end of school. Of course there are a lot of moving parts in the calculations, the biggest is that if you make too much income, the benefits wouldn't even kick-in. But the point is that there is another reason to not have a lot of after tax money around during college years.

But as 2B says, you can get favorable tax treatment after tax with capital gains, which is nice. And also you have more flexibility in spending. For instance, if the majority of your cash is in tax advantaged accounts, you'd need to borrow to buy some big ticket item, whereas the after tax saver would just pay cash.
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Old 09-10-2014, 10:14 AM   #8
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The only reasons to contribute to a 401k are to reduce your current tax rate or to get the match. If there is no match, do you really expect your tax rate to be significantly under what your retirement rate will be? Mine isn't going to go down at all after I retire next year.
If you don't get employer health insurance or if it's too expensive, you can use it (or a traditional IRA) to reduce your MAGI for the purposes of cost sharing and subsidy eligibility through the Marketplace established by the ACA.

For various reasons it's *very* important for us to keep our MAGI under 300% of the federal poverty line. Even if that doesn't give me any match on a TIRA or change my tax bracket, it is still critical for our purposes to stay under that line.
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Old 09-10-2014, 12:07 PM   #9
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Hi, age 34, I will become eligible for 401k October 1 and planned to contribute max 75% to get me just about to the yearly 17.5k limit. It's basically no match but Roth is already funded and sitting on about $100k cash that we have been trying to think what to do with.(buy another rental or put in brokerage account). So the point of maxing 401k would be to invest pretax. Would anyone be concerned about putting this much in the market over the next 3 months? I was thinking all teally low exp mid cap which would balance out portfolio a bit. Any other thoughts?

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This is $17500 of a $100k+ portfolio.

You would be adding 17% or less to the account, so ask yourself what this would do to your overall asset allocation.

For example if you were 75-25 stocks bonds
with 25% large cap, 25% small cap, 25% foreign, and 25% bond index, each with $25,000 of a $100k portfolio, just make sure the 401k contribution does not tilt any asset class too much in one direction or another.
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Old 09-10-2014, 01:57 PM   #10
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People can correct me if I'm wrong but if your roth is already funded ($5,500) the most you could put an individual 401k would be $12,000 for a combined amount of $17,500. Correct?
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Old 09-10-2014, 02:16 PM   #11
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People can correct me if I'm wrong but if your roth is already funded ($5,500) the most you could put an individual 401k would be $12,000 for a combined amount of $17,500. Correct?
I disagree. As long as your family income is below the limits, your Roth IRA contribution does not limit the maximum 401k contribution. I've been maxing out both for a very long time.
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Old 09-10-2014, 02:23 PM   #12
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I disagree. As long as your family income is below the limits, your Roth IRA contribution does not limit the maximum 401k contribution. I've been maxing out both for a very long time.
+1

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Old 09-10-2014, 03:06 PM   #13
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People can correct me if I'm wrong but if your roth is already funded ($5,500) the most you could put an individual 401k would be $12,000 for a combined amount of $17,500. Correct?
Nope, you can do the Roth, and if income too high, you can backdoor it using an nondeductible IRA assuming you have no regular IRAs.
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Old 09-10-2014, 03:10 PM   #14
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Got it, I got the traditional IRA limits and 401k confused. Thanks.
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Old 09-10-2014, 03:13 PM   #15
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Got it, I got the traditional IRA limits and 401k confused. Thanks.
Yep, these limits are totally independent from one another. The 401K limit is shared with the limits on 403B and 457 plans, though, as well as the federal TSP -- so if you changed jobs and had a 401K and a 403B for part of the year, the combined contribution can't exceed the limit.
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Old 09-10-2014, 10:25 PM   #16
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Thanks for all the replies!

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