Should I be putting more into my traditional 401k?

Submitted by Deezy1414 t3_zzevj0 in personalfinance

First post here and I’ve always wondered if I’m handling me and my wife’s retirement correctly.

Me (31) and my wife (29) currently take home around 85k. We both have jobs that have pensions and my job matches contributions up to 5%. I have roughly 27k in my 401k and contribute 9k a year including employer match. Our savings is around 40k and invest 2k a month into a brokerage account which currently has about 14k. Every now and again we’ll throw a chunk of money into the brokerage account when we feel there is a good buying opportunity. Our home cars and toys are paid off and have 0 debt. We currently have a baby on the way but that will be our only child.

Should I be trying to max out my 401k? I don’t hate the idea but I also like that if something were to happen (losing jobs, staying home with the baby ect.) We have money that can be used and not have to go through hoops and fees with the 401k.

Thank you for reading and I look forward to seeing your thoughts!

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nkyguy1988 t1_j2b6mvb wrote

You are behind traditional guidelines. By age 30, Fidelity's rule of thumb is 1x annual salary. You should be targeting 15% gross income to retirement with the ideal goal to max out. With no debt, 15% should be easy.

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Deezy1414 OP t1_j2b7201 wrote

I forgot to mention that i am contributing 10% + the 5% employer match every two weeks. Luckily we sold our stocks earlier this year (to pay off the house) when everything was high right before the market went down

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sonnyfab t1_j2b6sr6 wrote

You should maximize your 401k contributions before using a taxable brokerage account. Taxes are expensive. Tax advantaged accounts are excellent for minimizing both your current year taxes (for traditional 401k accounts) and future capital gains taxes, or for future taxes altogether (for Roth accounts).

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Deezy1414 OP t1_j2b7ieb wrote

Thank you! I love thinking about reducing our current taxes but I’m always afraid of not being able to have that money available if something were to happen

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sonnyfab t1_j2b7qi1 wrote

That's why you should have a fully funded emergency fund. Follow the order of the steps in the prime directive from the FAQ.

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biondablonde t1_j2b6rfj wrote

At your ages I would be prioritizing retirement accounts over a regular brokerage account. The tax deferral is a big benefit and having the money "locked" away can prevent you from spending it rashly (although it sounds like you are generally very responsible). At the very least, open a Roth IRA to take advantage of the tax benefits for that money - in a Roth you can always withdraw your contributions without penalty, and your earnings will also be tax free.

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Deezy1414 OP t1_j2b8pmb wrote

I do love the idea of reducing our taxable income. We did clean out the brokerage account earlier this year to pay off the house but that’s the only time we’ve sold for the short term. I’m always afraid of something big happening and not nothing the money to take care of it. I think I’ll bump my contributions up to 20% and go from there. I don’t have the idea of a Roth IRA I just don’t like more money coming out of my take home pay after taxes and deductions if that makes sense

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biondablonde t1_j2bbizk wrote

The Roth would be instead of throwing money into your taxable brokerage account, not in addition to (unless you wanted to save/invest more). We tend to think of Roth money as untouchable until retirement, but that's not actually true - you can withdraw your contributions at any time without penalty. Only the earnings are subject to penalty for early withdrawal. I would max the Roth space before putting any more in taxable (full disclosure - this is what I do).

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