401K Contributions
I talked to one of my sisters yesterday and she was making one of the most important decisions of her life yesterday. How much she should contribute to her 401K plan.
She got the following information from a co-worker:
1) Company matches 50% of your contributions for up to 3% of your total salary.
Basically, for every $1.00 she puts in, her company will put in $0.50 for up to 3% of her salary. (so if she made $100,000, her company would put in up to $3,000 if she put in 6%.
There is no easy solution for how much you should put in to your 401K. At the very least, an individual should put in AT LEAST enough to get the company match. A failure to do so is passing up on a 50% return on your investment...which I doubt you will beat anywhere.
After you are contributing enough for the company match, you should save up money for your ROTH IRA. ($4,000 limit for 2007, $5,000 if you are over 50) Once the ROTH is fully funded. Start bumping up your contributions to your 401K.
You can use the following calculator to figure out how much of a difference even 1% of your income makes in the long term.
I personally am contributing 15% of my salary (a bump from 11%) and have aspirations to contribute 20% after my next raise. The main reason I bumped it? Because over 41 years (currently 24, start withdrawls at 65), the 4% difference in my contributions will end up making a difference of ~$1,473859.19 if I assume an 11% return.
Until next time,
Thor
She got the following information from a co-worker:
1) Company matches 50% of your contributions for up to 3% of your total salary.
Basically, for every $1.00 she puts in, her company will put in $0.50 for up to 3% of her salary. (so if she made $100,000, her company would put in up to $3,000 if she put in 6%.
There is no easy solution for how much you should put in to your 401K. At the very least, an individual should put in AT LEAST enough to get the company match. A failure to do so is passing up on a 50% return on your investment...which I doubt you will beat anywhere.
After you are contributing enough for the company match, you should save up money for your ROTH IRA. ($4,000 limit for 2007, $5,000 if you are over 50) Once the ROTH is fully funded. Start bumping up your contributions to your 401K.
You can use the following calculator to figure out how much of a difference even 1% of your income makes in the long term.
I personally am contributing 15% of my salary (a bump from 11%) and have aspirations to contribute 20% after my next raise. The main reason I bumped it? Because over 41 years (currently 24, start withdrawls at 65), the 4% difference in my contributions will end up making a difference of ~$1,473859.19 if I assume an 11% return.
Until next time,
Thor
posted by Thor @ 5:25 AM
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