Reply to Maxing out 401k contributions at 18%?

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[quote=Anonymous][quote=Anonymous]We are a little bit financial illiterate. I am a SAHM and have an IRA. Husband is a fed (new pension system, so not much) and has 401K plan and an IRA he opened to put in the money from his old 401k (from last 3 jobs before getting into federal service).

He earns about 148k/year and he contributes 15% to 401K. Anyway, while growing this forum, I always see people saying "we" should max out 401k contributions at 18% so I pestered him about (yes, I confess I take advice from this forum  :oops: ) this and he finally talked to someone about upping his contribution form 15% to 18%.

However, the person who he talked to told him (and printed out a paper about this subject) the maximum he can contribute per year is 18k (per IRS) and the government matches up to 5% of his contribution every pay period (not subjected to the IRS 18k limit). So, anyway, if he contributes 18% of his paycheck, that will surpass the 18k/year allowed and at some point in the year his contributions will stop once it reaches the total limit. The downside of that is that the government ALSO stop the contribution once none is taken out the employee's paycheck, so he could end up missing on his employer's contributions.

So, given those facts, it doesn't seem it makes sense for him to max out at 18%. It seems it would be wiser to lower the monthly contribution to not reach the 18k/year limit before the end of the year and max out on the employer's match program.

Is my understanding correct or is there something I am missing here?

On a side note… can he also contribute to his IRA account? [/quote]

Ignore other people talking about percentage. As you discovered, different people make different salaries and their 18% (at 100K salary) may equal your husbands 15% - though quick match tells me that 15% of 148K is $22K - he may want to lower his % further in order to not miss out on company match for the paychecks where he's already maxed his 18k (for 2015) (looks like it would be about 12% or 12.5%)

He should be able to contribute to his IRA if that's your only income, as a married couple - a traditional IRA should be no problem, but ROTH IRAs have income phaseout, though I'm pretty sure a married couple at 148k is under the income threshold, you're not far from it so keep an eye on (FWIW - it's based on AGI, Adjusted Gross Income) not simply compensation.

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