Today I increased my 401(k) contribution, a move which will bring me significantly closer to my goal for investing up to the limit allowed by the government in 2008 ($15,500). My 401(k) account is split into three portions: my before-tax contributions, my Roth contributions which are after tax, and my company’s employer matching contributions, which are considered before-tax contributions as well but don’t contribute towards the $15,500 limit.
I increased my before-tax contribution rate from 12% to 20% of my salary while leaving my Roth contribution rate at 13%. I decided to take this approach rather than leave the before-tax and after-tax contributions equal to each other to take more advantage of the tax benefit this year.
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1:00 pm (reply)
I’m assuming this is 33% of your salary income, but not your overall (including business) income, right?
1:13 pm (reply)
Brian: That’s correct, 33% of the gross salary from my day job.
2:11 pm (reply)
At first I was astounded to see that you upped your contribution to 33% – that’s way more than most folks can afford. But of course I forgot that you make a good bit outside of your day job. Kudos for being smart and tucking away that much for retirement. Still takes a lot of discipline.
2:33 pm (reply)
Llama: Thanks… without the “outside” income, there is no way I could afford to put 33% of my salary away for retirement. My fingers are crossed that the “outside” income continues.
4:55 pm (reply)
Is your Roth IRA through your employer?
Presently, is your goal to hit your 15.5K 401K mark plus max out the $5K Roth contribution? Do you have money left over for taxable investing?
Do you have an auto deposit set up for your Roth contributions? I need to set this up somehow as it is annoying to auto deposit in my checking then over to my ING savings and then to my brokerage account. anyways…i digress. good job with your savings!
5:05 pm (reply)
Luper: My Roth 401(k) is with my employer. I’m not investing in a Roth IRA this year because there’s a good chance that I’ll be over the income limit. If it turns out I’m not, I’ll do a lump sum when I’m sure. In previous years, I did an automatic investment in my Roth IRA twice a month with TIAA-CREF, (from ING Direct) but I wouldn’t recommend them (TIAA-CREF) to anyone.
5:56 pm (reply)
Congrats on increasing the savings rate. I’m increasing mine each year when raise time rolls around. I’m a little short of my goal to save 20% of my gross. Within a year I should be there though. Then next will be to max both the Roth and 401(k). If my wife continues having earned income we’ll likely open a Roth IRA for her as well (but that’s not a sure thing).
9:38 pm (reply)
Do you have a goal amount for your retirement savings? When you reach that goal do you have early retirement plans or maybe plans to pursue other career options? I am wondering because when I calculate what my nest egg will be in 30 years it seems like more than enough for me. Of course many things could happen in the next 30 years but is there some point where you would stop contributing to your 401k and use the money for something else?
10:40 am (reply)
If you are over the limit for a Roth, have you considered putting the money in a nondeductable IRA and then converting it in 2010 to a Roth? I have been funding a nondeductable every year for the past three years, and plan to convert to a Roth in 2010, which is when the income limits for Roth conversions disappear. You have to pay some tax when you convert, but that can be spread over two years, and then you can have the benefit of the Roth even if you don’t meet the income requirements.
12:13 pm (reply)
Nicole: I’m not sure if a non-deductible traditional IRA is worthwhile for me at this point. I’ll have to look at the numbers.
12:31 pm (reply)
That’s great that you could increase to that level. I you concerned with the current market fluctuations? I’m in a bit of a panic about it, though I know it should be fine.
Lisa
1:20 pm (reply)
Lisa: The market fluctuations aren’t bothering me. I’ve got several decades to go before tapping my retirement funds, and I’m also stocking up in savings for the near term.