Climbing From Debt » 401(k)

Result of my 401(k) Increase

KC — Thu, 13 May 2010 18:08:05 +0000

So, during my last net worth update, I mentioned that I had increased my 401k contribution from 5% per paycheck to 8% per paycheck. Many friends of mine either don’t contribute to their companies 401k plan or if they do – they never increase their contribution amount. Typically, most set their contribution amount to the minimum amount to qualify for a company match. That’s fine – but many have told me that they won’t increase their percentage because they don’t want the amount taken from their paycheck.

Well I just took a look at my most recent paycheck, which includes my new 8% contribution. The bottom line is that it didn’t hurt at all. In fact, barely felt the few additional dollars. In total, my retirement contribution went up by about $80 while only about $60 was taken out of my check. So, the tax advantage of the 401k contribution is basically like $20 free bucks. Not too bad, eh?

In fact, kind of makes me want to do a little math right now and determine if I should raise it to 10%. We’ll see.

401k Employer Contribution Received

KC — Sun, 08 Mar 2009 19:54:00 +0000

I’ve been checking for a little over a month now, but it’s finally here. Over $4,000 has been put into my 401k account from my employer. The contribution is based upon profit-sharing and not upon my contribution amount, which is great because in one day that deposit exceeded what I had put in there for the entire year.

Even better (for me at least) is that stocks are really down right now, so my $4,000+ infusion went directly to cheaper stocks with a big (hopefully) growth potential!

Obviously, this has really made my week!

Ouch!

KC — Sun, 19 Oct 2008 17:24:00 +0000

I’ll be posting a net worth update for October soon. It was delayed due to a much needed vacation. Honestly, each year at this time I take a vacation and I know the argument that when you’re in debt you shouldn’t be spending money on vacation – but for health reasons mental and otherwise, I feel that it is important to get away for a little bit.

Anyway – I returned home to a good surprise and a bad surprise. The good surprise was a drop in gas prices in the Boston area. Currently, some prices around here have dropped a little more than 30 cents.

The bad news, which will be outlined in my upcoming net worth post, is that my 401k took a solid punch to the nose in the past month, dropping by over 20% in value.

I saw it coming, but seeing it has a different feeling than experiencing it. In the end though, I know that I’m still just building that account and that stock value dropping is just code for “buy, buy, buy”.

It helps to have a little motivational article from the Oracle too…

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.”

So, with that said, onward we go.

New 401k

KC — Fri, 11 Jul 2008 20:21:00 +0000

So, I signed up for my company’s 401k plan this week. I planned to contribute only to the match, since I am still working to pay down my debt. However, I learned that my company does a year end profit sharing contribution instead of a match and it is based on your salary and not affected by your contribution percentage.

I am new to the profit sharing concept, so I asked about 15 what-if questions just to be sure I wouldn’t miss out on any free money. Just to be safe and because it really wouldn’t hurt that much, I decided to contribute 5% per pay period anyway.

It’s a little under $80 a paycheck and I’ll forget it’s even being removed in about a month or two.

I know it’s kind of breaking the common debt reduction rule, but on the other hand I have a lot of years for that $80/week to grow into something before I need it.

My next step is rolling over my $8,000+ 401k from my previous job. Having never done that before, I’m sure I’ll be asking my HR person another 15 questions about that within the next week or so.

Lastly, yes I know the argument that the growth on my 401k account pales in comparison to the money I am bleeding by paying credit card interest rates. But I feel good about contributing right now – even if just a little – and once I pay off my debt, I plan to put savings and retirement savings into overdrive to catch up slightly. That’s the plan at least.

It’s The Debt, Stupid!

KC — Sun, 01 Jul 2007 16:19:00 +0000

In my previous post I was trying to figure out what is best to do with the 10% of my paycheck that should be reserved for my 401(k), but can’t be for one full year.

The obvious solution was to begin contributions to my Roth IRA that I hadn’t been contributing to in the past year or so. However, I have been thinking about this situation in the back of my mind since making my last post and then it occurred to me. What would be the best use for this “extra” money? Right then it jumped at me: It’s the Debt, Stupid!

How many articles have I read about whether it’s better to contribute to a retirement plan (i.e. 401(k), Roth, others) or pay down debt.

The rule is to follow the percentages.

If you’re gaining 8% – 12% on your plan and your massive amount of debt is at an 8%+ interest rate then you have a leak that will prevent you from really making any sort of progress. Thinking back, I think it’s the reason that I stopped Roth IRA contributions in the first place. The 401(k) was at least supplying me with a company match – which made it worth adding to.

So, my plan for the next year is to increase my debt payments even more – that way by the time my 401(k) actually does kick in maybe I’ll be in a position where I can contribute even more than my 10% goal in an effort to play catch up on a year lost.

So the question now is, how much is enough? My “contribution” will be post-tax so I wonder if I can still make the 10% or not. We’ll have to see. I’ll try forwarding 10% of my pay to debt on my next paycheck and we’ll see if that effects my budget at all.

The Price You Pay

KC — Wed, 27 Jun 2007 11:26:00 +0000

Well – the new job is going really well. There’s a lot of stuff to learn, but everyone is really nice and I feel that it’s a great fit for me.

The only thing that is bad so far is that it’s a one year wait for enrollment in the 401(k). Ouch!
I must have misunderstood during the interview process because I had thought that the one year referred only to when I’d be eligible for the profit sharing program (which is pretty sweet by itself).

Oh well – it’s too bad I can’t keep contributing to my old 401(k) which is still at the former job. But there are some positives (I guess):

Bigger overall paycheck now that my 10% 401(k) deposit isn’t being taken out
Opportunity to begin investing in my ROTH IRA again.

I haven’t received a paycheck yet from the new job so I’m honestly not really sure what the bi-weekly number will be, but I’m obviously looking forward to the raise being tangible.

401(k) Confusion

KC — Thu, 24 May 2007 15:33:00 +0000

A 401(k) is a scary thing when you really think about it.
At least for me. I’m trying to learn all I can about how best to manage my money.

Some things are easy:

Join
Invest 10% of my pay (pre-tax)

Take advantage of the company match (a.k.a. free money)

Diversify your holdings

Some things are not:

Out of the limited funds I have to pick from, which funds are the right fund
How much should I be paying (expense ratios)

Recently, my 401(k) fund swapped out some “under-performing funds” for some that matched their criteria. This, in turn, replaced two of my funds.

Now I’m doing some research into what’s available and what I should be in, but honestly it’s very confusing and I’m not exactly sure what to do.

Yes, I have time before I retire.
But I realize that the better I manage my money now, the harder it will work for me in the time allowed.

So, what do you think about expense ratios and p/e ratios? Any tips out there or solid guidelines?

Latest Retirement Survey…wow.

KC — Wed, 11 Apr 2007 13:17:00 +0000

According to a survey conducted by the Employee Benefit Research Institute, “Nearly half of all workers saving for retirement have savings that fall short of the $25,000 mark”.

…wow.

This is why I don’t necessarily agree with Dave Ramsey’s idea of postponing contributing to your retirement fund.

First of all, in most cases, there’ s an employee match (read: free money).
Secondly, The good ol’ power of compounding interest will always work in your favor.
And lastly, saving for your future becomes a habit, if not unnoticeable after a while.

It may not be nice to say this but this story actually makes me feel good. I’m only 26 and in pretty good shape with about $10K and growing in my retirement accounts. According to the “Rule of 72“, if I were to stop contributing now I would have $25K in less than 14 years – making me 40 and putting me in the “bad average” in this survey. So basically, I like my chances that I’ll be doing much better than that if I keep going as I am now.