Found out I'm getting a 401k!!!

[disneysteve]

That doesn't mean you should not contribute more. It's all pre-tax, so you can get the tax break. The key is to not over contribute to the point you are missing the match because you hit the $24k limit 6 months into the year. Some plans will be nice and do a true up at the end of the year on the match so you always get the full match and don't have to do the math.

I don't know if they due the true up. I need to ask about that.

I realize there is a benefit to the pre-tax investing. As much as I'd like to stash it all for retirement, we do need to live on some of this money which is part of why I'm getting the job in the first place.

[Jluke]

One other thing that might be worth mentioning here is whether the company match is fully vested right away or if there is a period of time for the match to become 100% vested.

[bjl584]

That's good news.

I'm lucky enough to have 2 401K accounts. One at my full time job and one at a part time job. I contribute 10% to both.

[disneysteve]

One other thing that might be worth mentioning here is whether the company match is fully vested right away or if there is a period of time for the match to become 100% vested.

There is a 3-year vesting period.

[tripods68]

The vesting period is the key. So if you leave job before during the vesting period, you will not be entitled to Employer Match. You can get your own contributions out but the ER match. At minimum you need to stay at least for 3 years to get 100% of the match.

The more you contribute to 401K, the lower your paycheck will be. At the same time, you AGI will be lower next year's filing season. If you are not use to have a lower paycheck because of pre tax deduction, it will take some time to adjust. Because you already living below your means, that shouldn't be an issue.

[disneysteve]

if you leave job before during the vesting period, you will not be entitled to Employer Match.

I understand that part.

The more you contribute to 401K, the lower your paycheck will be. At the same time, you AGI will be lower next year's filing season.

I understand all of that, too. That won't be a problem for us. I am taking the job to bring in some extra money but the pay at the new job is high enough that even if I do put 50% into the 401k, I'll still get a nice boost to the take home pay.

[Like2Plan]

Congratulations! You need to read up on the particulars

So being over 50, I can contribute $24,000. 6% of that is $1,440. 50% of that is $720, so that's the maximum match I can receive. Is that correct?

Actually, the 6% should be based off of your salary not the 24k limit.

And, in case you were wondering the match itself doesn't count towards the 24k limit. (It does count towards the 53k limit).

Now I see where the problem comes in. If I hit the $24,000 contribution limit before I hit the maximum match, they stop contributing (because I stop contributing).

Yes--unless they do a true up at the end of the year.

This won't be a problem for me at this point since I won't be earning enough to reach the 24K limit. If I increase my hours in the future, though, I'll have to revisit the numbers to maximize the match.

ETA: So I guess putting in 50% doesn't really get me anything but a tax break. The match will be the same whether I put in 6% or 50%.

Yes--that's true.

[Like2Plan]

I don't know if they due the true up. I need to ask about that.

Also, check and see when they deposit the match. Some companies have gone to depositing the match at the end of the year (as long as you are employed on 31 Dec, for example). If you start work in Jan, for example--that adds almost another year onto your vesting requirement.

Also, in the fine print there may be an early vesting if you meet the retirement age specified in the plan. We were pleasantly surprised that DH's current employer has 59.5 as the retirement age for their plan and so DH became 100% vested at age 59.5 (which was prior to the normal 5 year vesting requirements they had in place).

[LivingAlmostLarge]

yep the vesting is a big deal depending on when they deposit the match. I think one of DH's old companies settled up in December so you had to work all year to get it.

[greenskeeper]

been doing an employer 401k match since I was 18 (now 36). I've always at a minimum put enough aside to get the full match.....it's free money!

[disneysteve]

After giving it some thought and reviewing some numbers, I decided not to put 50% into the 401k.

1. It doesn't get me anything extra as far as the match is concerned.
2. A prime reason for the new job is to boost income. If I stash half of it away in a retirement account that I can't touch for at least 8 years, that partly defeats the purpose.
3. I'd like to get DD through the last 2 years of college with as little debt as possible.
4. I'd like to attack the $40,000 balance remaining on the mortgage.

So instead, I'm going to do 10% for now. That will get me the full match plus a little more going in. I can always adjust it upward if things change.

Thanks everyone for educating me. This was one area that I wasn't all that familiar with having never totally dealt with it though DW did have a 401k when she was working for the same hospital system. Her income was a lot lower so the deciding factors weren't as significant.

[QuarterMillionMan]

Disneysteve my recommendation would be to contribute 100% of your salary in order to maximize the IRS yearly $24,000 contribution. Being that you are starting at 50+, there's not a lot of time to build up that retirement account and I believe you should "power save" into that account to build it up fast. The contributions made are before taxes so you'll be taking advantage of that angle as well. I wouldn't mess around with 10%, 20%, 30%, or even 50%. And once you hit the $24,000 max within the year your employer automatically stops the contributions and at that point use the remaining money for other purposes such as paying off mortgage, college for daughter, etc. Just my 2 cents.

[disneysteve]

Disneysteve my recommendation would be to contribute 100% of your salary in order to maximize the IRS yearly $24,000 contribution. Being that you are starting at 50+, there's not a lot of time to build up that retirement account

1. The maximum I can contribute is 50%.
2. Just because I haven't had a 401k doesn't mean I haven't been saving for retirement. I have several other accounts including my Roth, a SEP IRA, an old rollover IRA, and taxable accounts as well.
3. Changing the contribution is as easy as logging into my account and updating the info so I can do that at any point if I find that we don't really need all of the extra income. Also, if I cut back on my hours at my existing job, I'll need to replace that income with some of what I'm making at the new job.

Until I have a better idea of how much I'll be working at each place, I'd rather just get the full match and keep my options open for now.

[~bs]

Actually I just found out about the plan yesterday and haven't gotten all the details yet. I seem to recall from when DW was working there that it was 50% up to 6% of income so they would provide 3% in matching funds.

How do they figure out the cap on the match, though, if they don't know how much I'm going to earn during the year or how much I'm going to contribute?

per paycheck basis