Anyone NOT maxing out your 401(k) even though you're making decent money?

[Anonymous]

Anonymous wrote:

Anonymous wrote:*raises hand* we're contributing but not maxing out. We have really sound personal finance habits but very little faith in the future of the economy. Signed, disallusioned millennial.

I am curious where you put your money that you consider safer than a 401k, given your lack of faith in the future of the economy. Gold bullion? What investments do you think are immune to the collapse of the US economy?

np. Also, even if you simply think that equity returns are going to be lower than their historical average*, then a logical conclusion would be to save more money, not less.

*It's a popular sentiment lately, which is probably a good indicator that the opposite is true.

[Anonymous]

My employer matches up to 6% so I only do that and save elsewhere. I too have little faith in the future state of the economy.

[Anonymous]

36 here (both DH and I), HHI is $220K. We have been maxing out our retirement accounts since maybe 28. Only time we didn't is the year we bought our house -- we only contributed the minimum to get the full employer match that year so we could rebuild our emergency fund.

We live very frugally and have about $600K saved up at this point.

I'd do the HELOC.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I would max out to limit taxes. If you choose to use 1,000 on your house instead of putting in your 401k you're choosing to pay at least 2,500 in income taxes. The 401k is one of the best tax breaks out there. I'd only not use it if you like giving the government money.

I definitely see your point. But do some people want a little money ( other than the emergency fund and college savings) that isn't locked up in retirement? I feel guilty about the prospect of not maxing out because I know the tax benefit. Then again, I know I will have to pay tax on it eventually, albeit presumably at a lower rate.

OP, on a $340,000 HHI, even if you max out both 401ks for a total of $36,000 this year, you have a monthly gross income of more that $25,000 Figure you're netting $15,000 a month, after health insurance, taxes, etc. (likely more after you both hit the social security max). You have a mortgage of $330,000, the payment for which, even including taxes and insurance should be somewhere around $2500. You have not identified any other debts. Are you seriously trying to set up a binary choice, whereby you save either in a tax-advantaged plan or outside a tax advantaged plan, but not both? You can't save anything out of the $12,500 monthly you have left over after your mortgage? No offense, but that's ridiculous.

You recently said that your HHI was $200,000, so you just got a $140,000 increase, and yet can't manage to save any of it.

The question in your initial post implies that you view yourself as a "financially responsible person." You need to reassess that. You're not.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I would max out to limit taxes. If you choose to use 1,000 on your house instead of putting in your 401k you're choosing to pay at least 2,500 in income taxes. The 401k is one of the best tax breaks out there. I'd only not use it if you like giving the government money.

I definitely see your point. But do some people want a little money ( other than the emergency fund and college savings) that isn't locked up in retirement? I feel guilty about the prospect of not maxing out because I know the tax benefit. Then again, I know I will have to pay tax on it eventually, albeit presumably at a lower rate.

OP, on a $340,000 HHI, even if you max out both 401ks for a total of $36,000 this year, you have a monthly gross income of more that $25,000 Figure you're netting $15,000 a month, after health insurance, taxes, etc. (likely more after you both hit the social security max). You have a mortgage of $330,000, the payment for which, even including taxes and insurance should be somewhere around $2500. You have not identified any other debts. Are you seriously trying to set up a binary choice, whereby you save either in a tax-advantaged plan or outside a tax advantaged plan, but not both? You can't save anything out of the $12,500 monthly you have left over after your mortgage? No offense, but that's ridiculous.

You recently said that your HHI was $200,000, so you just got a $140,000 increase, and yet can't manage to save any of it.

The question in your initial post implies that you view yourself as a "financially responsible person." You need to reassess that. You're not.

Op here. You are completely right about the numbers above. Our main financial commitment is tuition for our two special needs kids. Our third child is in public school. Hence the lack of savings other than 401k, emergency fund, and college.

[Anonymous]

Anonymous wrote:

Anonymous wrote:*raises hand* we're contributing but not maxing out. We have really sound personal finance habits but very little faith in the future of the economy. Signed, disallusioned millennial.

I am curious where you put your money that you consider safer than a 401k, given your lack of faith in the future of the economy. Gold bullion? What investments do you think are immune to the collapse of the US economy?

None are. That's the point. Stay out of debt, have an emergency fund, live within means, put some away for a rainy day. If there's something you want to buy or do that will enrich your life, so it now. Spend the money. There's no guarantee that you and/or your money will be there later.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I would max out to limit taxes. If you choose to use 1,000 on your house instead of putting in your 401k you're choosing to pay at least 2,500 in income taxes. The 401k is one of the best tax breaks out there. I'd only not use it if you like giving the government money.

I definitely see your point. But do some people want a little money ( other than the emergency fund and college savings) that isn't locked up in retirement? I feel guilty about the prospect of not maxing out because I know the tax benefit. Then again, I know I will have to pay tax on it eventually, albeit presumably at a lower rate.

OP, on a $340,000 HHI, even if you max out both 401ks for a total of $36,000 this year, you have a monthly gross income of more that $25,000 Figure you're netting $15,000 a month, after health insurance, taxes, etc. (likely more after you both hit the social security max). You have a mortgage of $330,000, the payment for which, even including taxes and insurance should be somewhere around $2500. You have not identified any other debts. Are you seriously trying to set up a binary choice, whereby you save either in a tax-advantaged plan or outside a tax advantaged plan, but not both? You can't save anything out of the $12,500 monthly you have left over after your mortgage? No offense, but that's ridiculous.

You recently said that your HHI was $200,000, so you just got a $140,000 increase, and yet can't manage to save any of it.

The question in your initial post implies that you view yourself as a "financially responsible person." You need to reassess that. You're not.

Op here. You are completely right about the numbers above. Our main financial commitment is tuition for our two special needs kids. Our third child is in public school. Hence the lack of savings other than 401k, emergency fund, and college.

OK, but you made that work on $140,000 less income in the recent past. Where'd the extra $140,000 go?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:*raises hand* we're contributing but not maxing out. We have really sound personal finance habits but very little faith in the future of the economy. Signed, disallusioned millennial.

I am curious where you put your money that you consider safer than a 401k, given your lack of faith in the future of the economy. Gold bullion? What investments do you think are immune to the collapse of the US economy?

None are. That's the point. Stay out of debt, have an emergency fund, live within means, put some away for a rainy day. If there's something you want to buy or do that will enrich your life, so it now. Spend the money. There's no guarantee that you and/or your money will be there later.

NP here. Not investing anything is pretty foolish. Markets are cyclical and we have a few generations of data showing this. Invest the money.

[Anonymous]

You should both be maxing out your 401ks. It isn't taxed. It's silly not to do this. It's like a 35% return on your money.

Take a HELOC for your addition.You have plenty of equity.

[Anonymous]

Anonymous wrote:You should both be maxing out your 401ks. It isn't taxed. It's silly not to do this. It's like a 35% return on your money.

Take a HELOC for your addition.You have plenty of equity.

Not really that high because you'll be paying taxes on it at some point when you withdraw it. Maybe like 15% assuming a 20% marginal rate in retirement.

[Anonymous]

Anonymous wrote:You should both be maxing out your 401ks. It isn't taxed. It's silly not to do this. It's like a 35% return on your money.

This badly misunderstands the tax advantages of a 401(k). There are two such advantages. 1-The possibility that your marginal tax rate will be lower in retirement than it is now, and 2-Avoiding the need to pay annual taxes on dividends and realized capital gains (e.g. from rebalancing).

For #1, if you believe that you will be in the same tax bracket at retirement as you are now, there is no tax advantage from investing with pre-tax money instead of post-tax money. If you believe (say) that you will pay 28% of your marginal income dollar in taxes when retired, versus 35% now, then the tax advantage from using pre-tax money to invest is 7%.

For #2, if you were to buy and hold index funds in a non-retirement account, you would pay little or no capital gains taxes, but you would still pay taxes on dividends annually. Say that you expect a return of 8% from your portfolio, and that you will have to pay taxes equal to 5% of the gains each year. In this case, holding the funds in a non-retirement account is equivalent to a reduction in annual return from 8% to 7.6%. This reduction will be greater if your dividend tax rate is higher, you invest in funds that pay relatively more dividends, or if you have more realized capital gains each year (say because of rebalancing).

For most people, the savings from #2 will be greater than those from #1.

[Anonymous]

Anonymous wrote:*raises hand* we're contributing but not maxing out. We have really sound personal finance habits but very little faith in the future of the economy. Signed, disallusioned millennial.

'

Another millennial here l. I'm with you! I thought I was the only one.

[Anonymous]

Anonymous wrote:

Anonymous wrote:*raises hand* we're contributing but not maxing out. We have really sound personal finance habits but very little faith in the future of the economy. Signed, disallusioned millennial.

'

Another millennial here l. I'm with you! I thought I was the only one.

Oh, youngins. Please don't fall behind your investing peers because of political fear mongering.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:*raises hand* we're contributing but not maxing out. We have really sound personal finance habits but very little faith in the future of the economy. Signed, disallusioned millennial.

'

Another millennial here l. I'm with you! I thought I was the only one.

Oh, youngins. Please don't fall behind your investing peers because of political fear mongering.

+1

I'm cusp millennial/Xer and hearing this makes me cringe so hard. What are you investing in instead? My guess is artisanal brunch. That's not a plan, fam.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:*raises hand* we're contributing but not maxing out. We have really sound personal finance habits but very little faith in the future of the economy. Signed, disallusioned millennial.

'

Another millennial here l. I'm with you! I thought I was the only one.

Oh, youngins. Please don't fall behind your investing peers because of political fear mongering.

It's OK, pp. They're doubtless working to get Bernie elected, and then everything will be free. Yippee!