How Much SHOULD You Be Putting In Your 401k?

First thing is first, I’m a big fan of the 401k and not contributing to it if your company offers it is your first big mistake in investing. Your company is giving you a raise every 2 weeks when you use it. Who doesn’t want FREE money? You’d be surprised…

So the wife got a raise last month and I immediately put that money into the 401k contribution matching my 15% we’ve got going there. We don’t need the cash for any other projects currently and I know (and you do too) that if you have money, you’ll spend it. It’s the nature of the beast. Pay yourself first.

How Much Should You Be Putting In Your 401k?

A lot of sites mention different info on this front, but you’re on this site 😉 so my recommendations are as follows:

1. If your company matches, it’s immediate return on your money. My company matches the first 5% and so at the very least, I’d be putting in 5% and if your company offers differently hit that minimum, AT the minimum.

2. If you are getting close to the ROTH IRA phase out, you want to be able to offset your MAGI score to be able to keep contributing to it as long as you can. Bumping up your 401k contributions drop that MAGI score down. The ROTH phase out schedule is here:

  • Single: If you’re not married, your contribution limit will be reduced when your modified AGI exceeds $101,000, and completely eliminated when your modified AGI reaches $116,000.
  • Married filing jointly: If you’re married and file a joint return with your spouse, your contribution limit will be reduced when your joint modified AGI exceeds $159,000, and completely eliminated when your joint modified AGI reaches $169,000.
  • Married filing separately, living apart: If you’re married and file a separate return, and live apart from your spouse at all times during the year, your contribution limit will be reduced when your modified AGI exceeds $101,000, and completely eliminated when your modified AGI reaches $116,000 (same rule as if you were single).
  • Married filing separately, other: If you’re married and file a separate return, and live with your spouse at any time during the year, your contribution limit will be reduced when your modified AGI exceeds $0, and completely eliminated when your modified AGI reaches $10,000.*

3. If you can only put in a couple dollars to a 401k plan, do it. If you’re making 20k per year and don’t think you can’t afford it; EVEN if your company doesn’t match you’re putting $200 per year in (not including if your company matches) and that looks like this (click to enlarge):

and you’re putting in 5k after 25 years and have over 300% return on your money!

Or if you’re making 60k, just 1% (without company match) is going to do the same thing:600-per-year-for-25-years.jpgAnd you’re looking at a bit over 55k in the same time at at modest 9%.

4. Don’t undercut your contributions with the bogus 401k debit card!


Money is money, and more money makes more money. If you CAN afford to put more in it, do it. If you CAN’T afford to put some much in it, put SOMETHING in because you’d be surprised how fast time flies by. You’ll be in retirement sometime soon and if you don’t have a plan now, you’re going to be wishing you did then.

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  • this is something I’ve been toying with doing. Currently I’m only putting in about 4%, and there is no company match. After doing an entire zero based budget this last month I think we can afford to put some more in. The question is this. Should i just put more into the 401k – or start a roth ira? If Roth – any suggestions?

    Pete @’s last blog post..Why is it important to have health coverage, even if you’re healthy?

  • My company doesn’t match at all, but I put in the full 15%. I have from the first day I was eligible last year. It’s not a lot of money, but over time I hope it will be. Sometimes, when thing are tough, I grumble about not having that extra money, but I’m not too tempted to adjust the withholding. It’s just not worth it to save less.

    Momma @ Tales From The Road Less Traveled’s last blog post..Making your Staycation into a Vacation

  • sgries

    I have a question on the 15% that “they” recommend. Is that per person, or for a household? Is it with, or without the match?

    For example – I put in 7% of my salary, the company matches me for 3% – so that’s a total of 10%. My husband puts in 5% of his salary with no match. So is that our 15%, or are we very far behind?

    I’m never sure how to interpret that. If we each do 15%, aside from not being able to live on the remainder, wouldn’t that be 33% (with my up to 3% match)?

  • This post makes me feel anxious again to get building up my RRSP (what the 401k is called in Canada).

    The flipside to the 401k/RRSP philosophy, of course, is that you can use that money to buy yourself a stream of dividends NOW, which will last you through to retirement. This is something that InvestorBlogger and I were talking about. Of course, yes, they’re taxed, though.

    And if you are working somewhere where you’re lucky enough to have an employer match your contributions, by all means, do that first. I agree with that.

  • @Pete – Too bad your employer doesn’t match; tough break! As far as what to tackle next, again it’s your personal choice, and I’m no pro remember, but if I were you…

    …I’d actually dig on a ROTH now for 2 reasons. Tax now is almost certainly going to be lower than in the future. You’d be putting in ALREADY taxed money into a ROTH IRA now, and it grows tax-free and is retreived at 59 1/2 tax free. Your 401k is tax deferred now, but it’ll be taxed when you take it out, and you can almost be sure the tax rate will be higher in 30 years with inflation than it is today.

    As far as what to put your ROTH in, I’m riding in SWEGX right now and it has done pretty well for me. Low expense ratio (0.80%), 5 star from Morningstar, low buy in price ($100).

    @Momma – good idea!

    @sgries – Thanks for stopping by! You’re MORE than ahead of about 98% of people that have a 401k available! They just don’t realize the benefits! You’re already getting 3% worth of immediate 100% return on your money. Nice job! I wouldn’t say you’re far behind at all, I’d actually say you’re far AHEAD of most people!

    As far as the calculation, think of your total income between yourselves. If you make 50k and he makes 50k, that is 100k total. Take 15% of that or $15,000. That’s your number! Hope that helps!

    @MoneyEnergy – Absolutely! Does your RRSP provider match to you?

  • @sgries, I also found this article (Is there a max amount you can contribute to 2 separate 401k accounts if you are married filing jointly?)that may help you out!

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  • As much as you can… that’s how much you should put. I max out my 401k. Its money I never see, but I’m making 30%+ automatically by virtue of tax savings. Its amazing how many people are content tucking away savings at 2% in the bank while they miss out on this wonderful opportunity to save and invest.

    High Return Investing with Dax’s last blog post..Breakout Trifecta: POT, V, AAPL

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