Podcast Episode 317: How Much Should I Contribute to My 401k?

Many people will use retirement accounts like the 401(k) to save money, but we often get asked about the amount they should be contributing each month. Should it depend on what your company matches or should you just put as much as you can afford in regardless? Let’s dig deeper into this question and tell you what we like to consider when answering this question.

The first thing we want to know from you is how much money you have in the bank already. Before you really start stacking savings, make sure you have some emergency money set aside. That’s part of that strong financial foundation you want to build your financial house upon.

Then when we look out further, the question is whether the 401(k) is the best way to save money for retirement. You have tax considerations that go along with choosing a traditional versus a Roth, and you also have to factor in the company match if that option is available.

Speaking of the company match, there’s almost never a time when we tell people to ignore the company match. That’s free money available to you and it’s almost always worth taking advantage of. Now, if you’re a tremendous saver and find yourself in a phenomenal position for retirement and now you need more cash flow, then that’s possibly a time to not contribute. But a 401k fund would have to be pretty terrible not to make it worth doubling your contribution money right off the bat, and that’s very unlikely.

There are some situations where you want to contribute up to the limit to receive the company match but no more than that. Your money might be better suited in another account or invested elsewhere, and that’s something your advisor will help you figure out.

As you can see, there’s no exact answer. In an ideal situation, everyone is maxing out their 401k and putting as much money in as they can, but that’s just not the reality for most people. With so many variables, you need something like our Money Map review to start the discussion and help you get the most out of your money.

Here’s what you can expect to learn in this episode:

•The different questions we typically ask someone to determine how best to use a 401k.

•Are there instances where you shouldn’t put money in a 401k even if there’s a company match?

•When would you only want to contribute enough to get the company match but no more?