Maxing out your 401(k) and IRA really is possible!
Maxing out your 401(k) or IRA is just plain awesome. And even more so, maxing out BOTH in the same year! For the first time in my life, I have done just that, and I can't tell you how excited I am (even though I sorta kinda already did in my last net worth update).I was leery to blog about this in case it came off as too "look at me! look at me!", but a recent comment from Miel at Dinks Finance coaxed me to say a few more words on it - mainly to show that it is, indeed, possible to max out not only your 401(k) for the year, but also your Roth. And the "how" part of it all? Pretty much exactly what Miel left on the previous post of mine:
"...keep stretching yourself and adding on a bit at a time. Back when I first started contributing I thought it was virtually impossible to max out. After we got married I upped my contribution by quite a bit, and then realized I could still get by, so I upped it again. I kept doing this until I maxed out. I was surprised how quickly this happened. It was a great strategy for me and now I max out on auto pilot."SO. TRUE. Once you get in the mindset and declare to yourself that YES, I WILL MAX OUT it's just a matter of time as to when you do. You start upping it a little here and a little there, and before you know it you're close to maxing-out-land! Now, obviously it requires some hard work and a pretty clean slate to get on this, so if you're not in the right mindset as yet you may want to backtrack a bit.
Some of you have bad health issues, or you're in $50k of debt, or you're spending more than you're bringing in. If this sounds like you, then scratch away the millionaire to-do list and start focusing in on the very basics. Go through all of your expenditures (or hopefully budget!) and pinpoint the areas of weakness. You may have 1 or you may have 5, but either way it's important that you find them so you can work on fixing them. Create a "life plan" and actively work on it! It's only when you clear up a lot of the bad stuff that you can concentrate on upping the good stuff - like your 401(k) and IRAs.
With everything, it all comes down to time and dedication. 3 years ago I couldn't care less about my retirement funds - I liked seeing my paycheck as full as possible, and I didn't have any plans on where it went at all. I had no budget, no real savings, and no ultimate desire to pimp my finances. I was just living and coasting along w/out a care in the world ;) It was fun and it worked for a while (26 years, actually) but sooner or later you have to man up and set things in motion. It's only then that you can really start concentrating on that financial game plan and increase your retirement accounts.
I'm not sure if I totally went off track here, but what I'm trying to say is that you CAN, indeed, max out both your 401(k) and IRA. I did it for the first time this very year, and I can only hope I'll stick with it and report with the same next year. So, if you really REALLY want to save more and work towards that golden retirement, start today! Up that % another point or two, and continue moving it up every few months. With a little time and patience, you'll get closer and closer to your goals :)
Labels: 401k, retirement, roth ira
posted by J. Money at
7:49 AM
16 Comments:
The early years of retirement saving are among the most important due to the compounding effect. As luck would have it the performance of the equity markets the last two years have opened the door of opportunity to any late starters.
Retirement saving is important if you don't want to be at the mercy of the State in your twilight years.
-Luke Sidewalker
It gets easier to max out a Roth IRA as your income grows and it phases out. LOL. Not that I'm anywhere near that. ;-)
If my math is right, you'll soon be a 30-something soon-to-be- millionaire! ;)
That's great that you've been able to max out those two important retirement vehicles. Something that's hard to do, and dependent on how much you make and how much debt you owe. I think it's better to tackle debt before trying to max out your 401(k)/IRA -- but afterward, go for it!
Congrats J! You're right in that it's all about process. Everybody will be rich in a matter of time with the right process.
I bet now that you've achieved your goal, you'll stick with it forever!
Thanks for the shout out on our $1,000 giveaway at Financial Samurai. I think two lucky winners who want to go to grad/b-school will really benefit from it.
@Luke Sidewalker - Yessir....the more we can save early on, the bigger our stock pile down the road! Especially while things are still lower & cheaper than before.
@mapgirl - One day we'll be near that ;)
@RainyDaySaver - I'll agree with you, clearing away debt should be close to the top before finagling ways to max out retirement funds. Probably a nice balance there depending on your preference and personality.
@Financial Samurai - I'm sure hoping so! It's true that making it a habit helps you stay on track, so I'll be doing my best to continue with it! And I hope people take you up on those consulting hours of yours, that's sweet for future grad students :)
It's great that you're able to max these out!!
My next goal is to get my student loans paid off (my 2010 goal) and then in 2011 i'm going to go after my RRSPs (Canadian girl here) like a mad-woman!
Maxing retirement accounts and touting the miracle of compound interest sounds great but from my experience it has been a disaster. You tout the retirement accounts as great as sliced bread but what really matters is what you invest in which to me is like picking lotto numbers. I'll be sticking my money in a taxable FDIC insured savings account. I know it might sound radical and stupid to most but it works for me.
-StackingCash
Congratulations J! Seeing you succeed reminds me that it can be done! For now, I'm continuing to work down the debt, stick to the budget, and save save save (that includes retirement). The thing that I want most is to be able to stay home and raise my baby, but I know that if I work my butt off now, it'll be better for him (and any subsequent babies) in the end because we'll not only be able to provide him with the things he needs (and a few wants!), but we'll be able to pass on the financial lessons we've learned so that he does things right the first time!!
It's good to see posts like this and remember that it's not just a pipe dream!
@Jessie - Good for you!!! Women with financial goals are very, very sexy.
@StackingCash - I don't think that's stupid at all. If that's what you're comfortable with, great! I think the important part here is to actually DO SOMETHING to provide a better retirement for our future selves :) For me, maxing out both these accounts make the most sense (esp the 401(k) since I get 100% matching on 100% of my contributions. that's double the money from the start!), but for others it may be a different instrument or two. As long as people are consciously putting money aside (or paying debt off), I think it's wonderful.
@Sandi - you slipped right by me ;) I'm glad you found this helpful, that was the main point I wanted to get across - that it really IS possible. And I wish you much success on your game plan and the new baby! Can't wait to have one myself one day.
That's awesome J! I hope to be able to do the same in a couple of years. I've got some student loans to knock out in 2010 and we are closing on a home in a couple of weeks. Besides trying to pay down the mortgage as quickly as possible, the retirement accounts are the next big goal. I think it's pretty incredible that you couldn't care less about your retirement accounts only 3 years ago, and now you're maxing out both of them.
Thanks for the support J. Your so right, at least I'm actually saving for the future. Your situation with the 100% match is so outrageously generous that you HAVE to fund your 401(k). My job provides me with a small pension for my retirement instead of a 401(k). Maybe I'm just jealous of your company LOL!
-StackingCash
J, you inspire me. I upped my 401k contributions today by 1% because of you. While I am nowhere near maxing it out, you have definitely helped me set that as a goal.
@Broke M.B.A. - we all have to start at some point :) congrats on the new home!
@Anonymous - pensions? I didn't know they still existed :) that is awesome though - much more stable than my job I'm sure.
@Hank - Awesome!!! And I bet you won't even notice it as much either. Good job my friend, I'm glad this stuff helps people :)
Hey J. Money. . .
My company only allows me to contribute up to 15% of my salary into my 401k and 15% of my salary does not allow me to fully max out my 401k. . .does that sound normal?
You know, I think that is fairly common. That was the same case as my old job, but I'm not sure exactly how that works. Maybe HR can give you more details?
If you're looking to store away more than your 15% (which would be AWESOME btw), it might be worth opening up an IRA (maybe Roth?) and filling up until you can go back to the 401k next year. Although, it really depends on how much your company matches you too.
Check out this link if you're interested, it may help :)
401(k) vs. IRA - Which is better for your extra money?
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