Maximizing Your 401K/Roth Contributions: How AI Legalese Decoder Can Optimize Your Bi-Weekly Paycheck Strategy
- May 19, 2024
- Posted by: legaleseblogger
- Category: Related News
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### Confusion about Retirement Contributions
I don’t understand any of this stuff, so please be patient with me! It can be overwhelming to figure out the best approach to saving for retirement, especially with so many options and variables to consider.
### Increasing Contributions to 401K and Roth IRA
I’ve always taken X% amount for my 401K and Roth IRA out of each paycheck, so that’s 2x a month. I’m 36 years old and it’s currently set to 14% for 401K and 5% for the Roth IRA, which is coming out of both checks during the month. Given your age and financial situation, it’s important to review and potentially increase your contributions to ensure you’re on track for a comfortable retirement.
### AI Legalese Decoder Assistance
The AI Legalese Decoder can help you easily understand and navigate the complex world of retirement savings. By using this innovative tool, you can simplify legal jargon and gain a clearer understanding of your retirement account options and contribution rates. This can help you make informed decisions about your financial future with confidence and ease.
### Concerns about High Contribution Rates
I make a pretty decent salary and it feels like so much of it is going towards my retirement accounts. It’s natural to feel concerned about allocating a significant portion of your income to retirement savings. However, it’s essential to prioritize your future financial security while also enjoying your present lifestyle.
### Expert Advice on Retirement Savings
As a rule of thumb, experts advise that you save between 10% and 20% of your gross salary toward retirement. Is my 14% for each check too high? It’s worth considering adjusting your contribution rates based on your individual financial goals and circumstances. Consulting with a financial advisor or using the AI Legalese Decoder can help you make informed decisions about your retirement savings strategy.
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As long as you’re under the $23,000 401k limit and you’re not struggling to make ends meet, you are totally ok. [A lot of folks in the US at our age (35-40) are underfunding their 401ks.](https://www.empower.com/the-currency/life/average-401k-balance-age). I wouldn’t worry about what others are saying. Have a good nest egg in retirement to supplement whatever social security is left to us will always be a good idea.
You are saving a lot for retirement, which is a good thing. Are you having trouble paying other bills, meeting other savings goals, etc?
I’ve never worked anywhere where I could choose to have those items taken out of only one paycheck. It always had to be spread out evenly.
Do plans allow you to contribute/withhold different amounts per paycheck without going into your plan every time to change it?
Seems unusual to me. It seems even more unusual for biweekly (as opposed to bimonthly).
I would just select a % in comparison to your annual salary. If you want 14% of 50k (made up salary) then that’s 7k. (In your premise: doing it every other would be 7% of your annual salary totaling 3.5k).
(And 14% of paycheck 1 + 14% of paycheck 2 is not 28% total, it’s 14%… if that was the question).
19% savings rate is great. It’s not too much, unless you want to work until you’re in your late 60s. you can take distributions as early as 59 1/2 but actually as soon as 55 if you leave your job at 55 or later, look up ‘rule of 55’. I wish I was more aggressive like you are, earlier on. And remember, the benefit of the 401k is 2-fold. There’s the obvious benefit of building wealth/nest egg, growing your net worth and looking at financial freedom sooner than later. And there is also the match i.e. free money but **right now**, there is the benefit of reducing your taxable income significantly with those contributions. I reduced my taxable income by a little over $20k this year thanks to 401k
And with the Roth you’re getting the tax benefit later since that’s all post tax $ and remember you can always take a withdrawal from your Roth at any time w/out penalty as long as it’s contributions only. Meaning that say you have $100k in a Roth and $60k of it is your contributions and $40k of it is capital gains. You could withdraw up to $60k at any time without penalty. You can also access $10k I think of it for 1st time home purchase. If you’re in a LCOL area that would actually mean something. Around here, thats like saying you can get $20 out, but that’s another conversation.
And yes, every paycheck.
Since my company doesn’t have rules about when you have to put the money in to get the match and I have a very healthy amount in my HYSA, I just put 100% of my paychecks into my 401k until they’re maxed out and live off my emergency fund at the beginning of the year.
There are two reasons I do this:
1. To have more time in the market
2. Ensures I get the match because I can’t if I leave my company or get laid off
I don’t think it makes a difference… with dollar cost averaging it will likely all equal out… don’t sweat it.
19% savings rate is great. It’s not too much, unless you want to work until you’re in your late 60s. you can take distributions as early as 59 1/2 but actually as soon as 55 if you leave your job at 55 or later, look up ‘rule of 55’. I wish I was as aggressive as you are sooner. And remember, the benefit of the 401k is 2-fold. There’s the obvious benefit of building wealth/nest egg, growing your net worth and looking at financial freedom sooner than later. There is also the match i.e. free money but right now, there is the benefit of reducing your taxable income significantly with those contributions.
And yes, every paycheck.
I max mine. 23k/26 paychecks = 885/check.
I think depends on how your 401K administrator is set up. Also depending on your income one of the only ways to invest in a Roth if you are over the income limit is through your employer
How much do you want to save per year in each account. Divide that amount by 26.
Then figure out what percent that is of your bi-weekly pay to put in each account to achieve that.
Depending on your tax situation you may be able to change your withholdings to bring home more each check if your retirement accounts lower your taxable obligation enough.
You will be so incredibly thankful when you are a little older that you got started like this. Man, when you invest early time is your best friend and will be doing the work for you later on in life.
A Roth IRA is post tax funds. It won’t come out of your paycheck.
In fact, I’ve never seen an employer Roth IRA. Roth 401(k), yes.
I know people who out 30% away for regiment even though they don’t need to as they have a amazing pensions
Are you sure it’s a Roth IRA and not a Roth 401k?
Roth IRAs don’t come out of peoples paychecks people link bank account to them and transfer money over to them. I think it might be your employer has Both a traditional and a Roth 401k and you are doing both.
My 401k comes out every two weeks.
Common advice is to always get your company match then contribute to a Roth IRA and then save extra in the 401k if you can. It’s best to save 15-25% of your income if you can
So for example your employer matches you 3% on the first 6% of your pay your goal is to save 15% you need a place for 9% Roth IRA limit is 7,000 this year. If 7k is less than 9% of your pay up your 6% contributions to whatever is needed to hit your savings goal.
What is your employer’s match on the 401k? I have 6% come out of each check and then I have a single automatic deduction from my checking each month for $500 to max out a Roth IRA. I wouldn’t put more into the 401k than what they match.
Nearly 20% of your pay is going to retirement, you are definitely gonna feel that. Did you just start saving? Is that why you are putting so much towards retirement, to play catch up?
In terms of investment returns, there is a difference, but it is small. If you take X out each check, then taking 2X out of the “first” check has a tiny bit more money in the market on average, and 2X out of the second check has a little less. This, however, is pretty small. (Average return in two weeks is about 0.4%, and, say, $500*0.4% = $2. Times 12 months equals $24. Real returns depend on what the market does.)
A potentially more noticeable issue is that you might over withhold if you pull 401k (pretax) from every other paycheck, depending on your tax brackets. Maybe you don’t mind slightly over withholding. Maybe your tax rates won’t cause that. But maybe you do and will.
I’m close to your age and I do 11 percent traditional, 3 percent Roth 401, and 5 percent to straight investment account mutual funds. wife does 8 percent 401k and I feel we’ll be ok.
I do it 2x a month so that my bonus paychecks are fun money instead of a big chunk of them going to ira
The max is 23k a year. Doesn’t matter if it’s Roth vs pretax. Once I started making Atleast 70k I put in whatever I needed to reach the max each year.
If you can afford to do the max, why not?
I wouldn’t relay too much on what “experts” say. They can say whatever they want but ultimate it’s you who has to retire on your savings. So I’d rather save as much as I can now and have it real easy when I retire than the other way around.
Imo, I don’t think it matters if you do it in one check or the same out of each check, the important part is your doing it
It comes out every pay. I do 10% and my employer matches 100% of 4% so it’s 14% a pay into retirement. I’m 37. I make 82k a year. I feel it’s appropriate
You are doing fine. To me personally a little heavy on the 401k. Plan sometime in the near future to open up a brokerage account.
Since it is a percentage, the 14% per each paycheck would amount to a larger chunk if taken out of a single paycheck.
Here is how to decide:
Make a monthly budget, and put each bill on the day of the month it is due and each paycheck on the day of the month. Then total up all bills that come due between the 1st day of the month and the 1st paycheck… Same for the 2nd half of the month.
If your month is balanced then both halves of the month will be roughly even… So take out the biweekly amount. If one side of the month has less bills then take a full months 401k amount out is that pay period.
Just max it out every year.
whatever it takes to max
I put 18% in my 401k to max out how much I am putting in there every year. When I can I plan on putting all extra money that I don’t need to save up into a Roth. Your percentages look pretty normal to me as long as you are maxing out what you are paying in there
I take an amount out per check. Makes it easier for me to adjust if needed.
I max out my 401k and Roth, so I save about the same as you. I automate the 401k contribution but manually contribute to my Roth every check. This results in me choosing a different amount for my Roth depending on what expenses I have coming up.
After my Roth is maxed I also contribute towards my individual brokerage account as well.
If I have a savings goal I divide it by how many paychecks are left until the end of the year and contribute that amount from every check. Bi-weekly, there are 24 checks left to go. I use separate “buckets” (or envelopes) for separate savings goals so the December Holiday gift bucket is getting $20 per paycheck and I am starting next paycheck. 24 x 20= $480 holiday savings by end of the year. My Roth contributions are evenly divided out of each paycheck too
Take it out of both automatically, so you don’t even miss it!
If your current savings rate is comfortable, stick with it. If you have the opportunity to put money in an HSA, I would start to beef that up for the future, especially for retirement.