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

[Anonymous]

DH and I are both 47 years old. HHI is about $340,000 (which is a recent improvement in 2014 after I returned to work full-time and got promoted). Before that, when I worked part-time, our HHI was closer to $200,000.

During the years when I was a SAHM or worked part-time, we had some unexpected expenses and began helping some family members with their bills. Thankfully, those family members have all gotten back on their feet and no longer need our financial help. Also, we were paying out of pocket for various therapies for 2 of our 3 kids, who have special needs.

In a nutshell, we have decent retirement savings (combined $1 million), but no other savings (except our emergency fund of $40,000 in a savings account, and the college funds which are totally separate).

We have always tried to max out our 401(k)s because we always read that it was crazy not to do so.

However, we'd now like to do an expansion of our small house because we really think it would improve our quality of life. We have nothing saved for it. We have a mortgage on our house ($330,000 mortgage and house is worth $800,000), and perhaps we could refinance and get a HELOC? Or we could do a 401(k) loan. But we'd really like to have some money available that does not involve a huge penalty to withdraw.

Perhaps we could try to save for it? It would mean NOT maxing out our 401(k)s though. DH gets a match of 5% (not dollar for dollar) and I get a match of 9% (dollar for dollar). I was thinking of asking DH to cut back on his contributions, since I get more of a match (about $16,000). Also, DH has more in his 401(k) than I do because he's always been working full time. Also, DH is a federal employee and so will get an annuity of about $2000 per month upon retirement (assuming he stays at least another 15 years, which he probably will), and so perhaps we don't need as much in his 401(k).

Do any financially responsible people with decent incomes NOT max out their 401(k)? Do you put money in accounts where you can touch the money. I'm just wondering if we're the only ones who have saved decently for retirement, but have no other savings (other than an emergency fund and college savings).

[Anonymous]

I'm not quite maxing out my 401K but I'm close - I put in about 15% of my income, so it comes out to about $16,500. (the max is $18K.) Before I had my child, I maxed out my 401K and my Roth. Now, I'm a bit house poor (but the house is appreciating well) and I'm funding college.

I mostly do retirement and college savings, though I do keep about $30K liquid-ish.

In your situation, I'd probably do a HELOC. Rates are low, and you definitely have enough equity. You just need to be able to pay it back while making your other monthly payments.

[Anonymous]

15:54 here - I did a HELOC when I needed to redo a kitchen and some bathrooms in my previous house. Had a HELOC of $30K, used about $24K of it, had a rate of less than 3% and paid it back $1,000/mo until I sold the house, when it was paid off in full. It was a very good decision for me, I just wish I'd done it earlier to enjoy the renovations for longer.

[Anonymous]

There's nothing wrong with borrowing some money for that expansion. You are millionaires, after all.

I would probably do that rather than cut back on the 401(k) contributions, because you'll be forced to pay the loan back every month.

I wasn't clear on the aspect of whether or not you were proposing to give up matching, even if it's not dollar for dollar. Do NOT give up any matching. If the maximum match he can get is by contributing 5%, make sure he contributes 5% (or more). Don't give up matching just because it's not dollar for dollar; even if it's only 50% matching, that's the equivalent of giving up an instantaneous 50% return on your investment (likewise, you could say it's equivalent to taking a HELOC with a 50% annual interest rate).

NEVER forego matching contributions.

[Anonymous]

We make about $220K and don't both max. I get an 8% match so putting in the max gets me about $26K per year and DW puts in about $9K of her own money and gets a company contribution of about $10K. We bought a house we're really happy with that's in great shape. With cash flow we probably could put a little more in but will probably just slowly increase her contribution as we get raises. I'm also a fed and will be getting an annuity upon retirement so I'm really not worried about it.

[Anonymous]

We're late 30s/early 40s, have nowhere near $1M saved for retirement, and we're not maxing. We make a combined HHI of about $185k and between childcare, mortgage, and student loans we just haven't been able to do it. We both contribute enough to get the match (5% for him, more like 3% for me) and we're definitely hoping to increase in the near future when childcare expenses decrease.

I don't know what I'd do in your case. Not a 401(K) loan, but we've also been wary of HELOCs. It means we've been fixing our house up little bit by little bit for 3 years but it's also kept us from taking on more debt (we have only mortgage and student loans).

[Anonymous]

Anonymous wrote:We're late 30s/early 40s, have nowhere near $1M saved for retirement, and we're not maxing. We make a combined HHI of about $185k and between childcare, mortgage, and student loans we just haven't been able to do it. We both contribute enough to get the match (5% for him, more like 3% for me) and we're definitely hoping to increase in the near future when childcare expenses decrease.

I don't know what I'd do in your case. Not a 401(K) loan, but we've also been wary of HELOCs. It means we've been fixing our house up little bit by little bit for 3 years but it's also kept us from taking on more debt (we have only mortgage and student loans).

Most people don't aim to have $1M in their late 30s/early 40s. They aim for it by retirement -- which for most is closer to 60-67 yrs old. Of course the sooner the better, but nationally it's rare to even have $1 million at retirement let alone at age 38.

[Anonymous]

Have you price the work you want done?

I would go the HELOC route if that is enough for what you want to do. The price of renovations does go up and interest rates are low, so given your large equity and income I would consider using a HELOC and then ultimately refinancing to consolidate your loans if cashflow is a concern, as you could probably end up with a mortgage payment not that much higher than your current one.

[Anonymous]

Anonymous wrote:Have you price the work you want done?

I would go the HELOC route if that is enough for what you want to do. The price of renovations does go up and interest rates are low, so given your large equity and income I would consider using a HELOC and then ultimately refinancing to consolidate your loans if cashflow is a concern, as you could probably end up with a mortgage payment not that much higher than your current one.

+1. Keep funding retirement and take out a HELOC.

[Anonymous]

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.

[Anonymous]

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.

Obviously meant 250 in taxes. It's early!

[Anonymous]

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.

[Anonymous]

We have never maxed out - HHI around $200k with 2 fairly equal incomes. Maxing out 401k on 2 incomes just feels like too much of a pay cut when things are already tight. We have always maxed out company match and saved between 10-15% a year.

[Anonymous]

*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.

[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.

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?