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Updated about 7 years ago,

Account Closed
  • San Mateo, CA
2
Votes |
3
Posts

Philosophy of how much to put in 401(k)?

Account Closed
  • San Mateo, CA
Posted

Hey guys, this is a relatively simple question, and it may have been asked already numerous times, but I think with the new upcoming tax changes it may be worth considering again. Would you guys recommend that I max my 401(k) contributions for next year?

Obviously that is very general so I'll give you guys my current situation. I just started my first full time job 2 months ago. Therefore it would still take about 1.5 to 2 years for me to get conventional financing as far as I'm aware. I'm making $62,000 in the Bay Area, to give you an idea of my tax bracket and how long it would take me to save up a reasonable down payment. Lastly, I'm living at home right now, so basically 100% of my pay is going directly into the bank to fund my first real estate purchase. My employer matches 50% up to 6% of my 401(k) contributions.

Based on that I see three main strategies:

1) Put the full $18,500 next year to max it, save on taxes, because I'm still saving a lot by virtue of living at home.

2) Put only the 6% to get the match, stack the rest in the bank, take the tax hit, because it is worth getting down payment money ASAP for real estate because the returns are so good.

3) Somewhere in the middle, because it might take me a while to get conventional financing or a down payment in the Bay Area (although I'm also considering cheaper markets such as Vegas and Phoenix due to personal ties). Maybe based on the details of the tax bill, I can put just enough to avoid a 25% tax rate, but be okay paying at 15%. I'd be relatively diversified.

Let me know what you guys think, and maybe what you're doing in your own personal situation.

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