A 401K question, when to stop contributing.

[dodge man]

Where I worked we had a few bad years and the company stopped contributing to our 401k at all. It was still a deal because the company picked up the fees and then you still get the tax savings.

 

[airbiscuit]

Easy to quit contributing to a 401k plan. Harder to start contributing again.

 

[ultrarunner]

Be careful with anecdotal evidence.

According to this article, 98% of employers offer some type of matching.

How Much Do Companies Typically Match on 401(k)

www.myubiquity.com

I’ve been all over the map on match…

At one time it was 1/4 percent match up to the 4%

Another time it was it was variable and one year it really performed due to some formula and it was 1 for 1 up to 6%… but that was stopped as the next year no match…

My disappointment is when I took a pay cut at same desk to be fully benefited and later the ownership changed and I was far from being fully vested… and just a week shy of the next step…

Some of my co-workers had unbelievable good luck with ESOP… I was enrolled with the pay cut but that too was cut short with ownership change…

One of our nurses did very well with that ownership change… she had moved several times and years ago worked for a related hospital in another state…

The ownership changed picked up where she was now and said you have 65k in your 401k already… she was shocked but it was true having totally forgot about that job…

We were 401k but since 2017 403B

 

[mjonesnh]

My wife worked for a company for 27 years. Early on they had a company retirement plan that was one of the better ones I knew about. Later they stopped company retirement and went with a 401k plan. Employees could contribute up to 15% of their pay and company would match 50% of that amount. My wife and I agreed to shift most of the bills to me as I did not have access to a 401K but was contributing to an IRA annually and max out her contributions for our retirement. We did this for several years until they left area in 2010. My wife had built up quite a 401K fund by then plus she was vested in the retirement plan from years earlier. Our smart choices years earlier has allowed us to be financially secure in our retirement years without worrying about money issues like so many people in our area that are in our age group are facing

 

[Torvy]

Wife and I had the same in reverse for quite a few years. She made the cash and I dumped in all of the 401K I could.

She was essentially the CFO for the (region) company for a few years. They had a long-time employee come to her about wanting a pay advance due to a crisis. In the process, my wife helped the lady understand that she had almost $1MM in her retirement fund. Between the language difference and lack of education, she didn't realize she could have retired years earlier.

 

[CloverKnollFarms]

Looks like the administration is about to put forth a change to allow 401k funds to be used for a home down payment

 

[Torvy]

Looks like the administration is about to put forth a change to allow 401k funds to be used for a home down payment

I wish he'd stop wasting time on solutions without a problem. You can already do that with a loan. It is worse to draw out the funds and leave them out.

 

[Oaktree]

Where I worked we had a few bad years and the company stopped contributing to our 401k at all. It was still a deal because the company picked up the fees and then you still get the tax savings.

Not only that, but since you never saw that money, it was a good way to save for those who were not very disciplined financially. My brother, who was in that category but also smart enough to realize it went that route for that reason.

 

[Richard]

I've not read every single post.

As long as someone is employed, they "can" contribute. (my opinion is they SHOULD contribute) My logic of should would be: How many times do you think someone has come to me and said "dang it..... I have saved TOO MUCH money!!!!!" ???

You are right, that has never happened.

For anyone wondering what authority I might make any of these comments, I've been in the investment business for 39 years. Take my thoughts/comments as you please, none of them are investment advice (always have to get that disclaimer in!!!)

Some 401K's allow for an after tax / Roth contribution. If someone has that, then my thoughts are that should be maxed out to the individuals comfort zone. You can put a lot more into a 401K, even as a Roth, than you can an IRA/Roth-IRA so you can in the end, have far more money that is tax free to you.

AND, if you can max out a 401K, you can still add an IRA on the side. In fact, if you have the appropriate situation, you can max out both a 401K AND a 457 and STILL do an IRA. If the 457 also allows for Roth contributions, you can simply stash an obscene amount of money that will be tax free later in life (if you can swing the deductions..... I have dealt with some who can)

An IRA will indeed, have much wider investment options. (I personally have both and my Roth/IRA outperforms my 401K because of the investments but, because of the contribution allowences, the 401K still has more money in it)

You can usually borrow from a 401K and that's better than doing an IRA and taking the money out. If someone has child in hospital, I agree that you do what you have to do. Can't borrow from an IRA so you are setting your retirement back by pulling out.

There are some opportunities to pull money out a 401K. Bad idea as I feel it to be, we do what we have to do. I believe the IRS looks at contribution dollars first for tax purposes so if you keep your withdrawal to those dollars, I think they would come out tax free (since they've been taxed already). You dip into the gains, those would make the IRS smile because now, they get paid.

Some 401K's allow you to open a sub account. Mine allows me to open an account at Charles Schwab. My 401K money goes into the 401K proper....once I have enough, I can scoot some of those funds into the Roth/Schwab account that is still under the umbrella of the 401K BUT, I now have access to essentially the full stock market. I can buy stocks, funds.... whereas there are other 401K's that don't have this ability at all OR, they might have the ability but in the Schwab account, they might only allow you access to no-load / low-load funds. That might still open your investment options to hundreds of alternate funds than are in the base 401K proper.

Your 401K employer will have some impact here. I've seen some 401K's who have great funds in them and others where the investment selections suck.


Food for thought with Roth funds..... you are now retired and qualified to pull them out, what do you do?

Obviously, it won't matter to me what you do. So what I try to do is throw out ideas. You first, are never REQUIRED to take any Roth money out.... so what if you have say, $200,000 in the Roth account.

Rather than paying house off, buying new car....what if you (yourself OR, take to advisor) and say 'here's my $200K.... I want this in INCOME PRODUCING investments"

What if you can get say, 6% on that money. That's $12,000/year TAX FREE to you for as long as you can keep that train running. You die, it goes to spouse forever as long as spouse keeps things on the rails.....spouse dies, goes (again, tax free) to child/other..... and they ......are going to buy a new Corvette or maybe new tractor with cab.

That whole progression is tax free. Just to be clear.... spouse can keep the inherited account going for remaining lifetime.... a non-spouse can keep the Roth going for only 5 years before the account has to be pulled out.

HOWEVER..... now, if you are the non-spouse, you can take that $200K and put it into (their state of residence) municipal bonds and now, the income from those bonds remains tax free....(both federal and state).

I personally think Roth funds can be a gold mine, if you play your hand well.

 

[Richard]

Technically, the teacher system isn't a 401k. It's a 403B.

Might depend on where you are. In Tennessee, ALL teachers are mandated to be in the State pension system. They then have the option to do a 401K. "in the old days", yes, they only had access to a 403b.

Those 403b people still show up trying to SELL the teachers something.....why? So they can make commissions. The 401K is usually going to be the most cost effective vehicle someone (anyone) can use. Why? The fee structure is far better for the individual. They are not for example, paying anyone (in Tennessee)any commissions for the 401K. The 403b people can't claim that as cleanly. They might be able to say, they don't get a commission up front and that might be correct.... what they don't then tell is (depending on who the vendor is)

The employee might pay a 1.25% "management fee" on the account balance..... FOREVER. So the agent might not make a commission fee up front, but what is really happening is they might get .75% or maybe 1.0% of that management fee (forever) and are essentially building a salary for themselves.

Speaking for Tennessee, those employees are WAYYYYYYYYYYYYYYYY better off in the 401K. One problem is the 403b people don't TELL the employees they have that option (surprise) so it's a constant battle of trying to educate, the educators!

 

[zzvyb6]

I found out by being told: "You saved too much money." Now, my 401k is making more than the age based RMD withdrawal is requiring. Since the RMD is straight income, I'm jumping tax brackets. I live 'below my means' and have to learn to spend more in my old age...

 

[airbiscuit]

OMG, your retirement fund is earning more money than your required minimum distributions. That sounds like a first world problem. You have my sympathy.

 

[ruffdog]

I found out by being told: "You saved too much money." Now, my 401k is making more than the age based RMD withdrawal is requiring. Since the RMD is straight income, I'm jumping tax brackets. I live 'below my means' and have to learn to spend more in my old age...

^^Same...lots of taxes have to be paid.........grrrrr

 

[Richard]

That is one of the reasons I think Roth accounts are a gold mine. If those were Roth funds, you would not suffer the RMD's on them. You take out what you CHOOSE to take out.

 

[ultrarunner]

Is it ever too late age wise for a W2 employee to open a Roth?

I tendered my notice to retire this month but my employer is offering a lot for me to stay… like 75% pay increase.

One thought is to stay a little longer and dump it all into retirement plan…

I also have 400 hours of earned vacation that would be paid out if I stay and classified as a Director.

Maybe move as much as possible of the vacation payout to retirement savings?

What is the 2026 max a individual can throw into a retirement 403B plus anything else?

 

[Richard]

A Roth isn't tax free to you until you have owned a Roth (ANY Roth) for 5-years AND you are 59 1/2. So if you have a Roth somewhere, that clock is ticking. If not, you are looking at a 5-year wait. If you work say, four more years, then it's essentially a one year question (your fifth year)

If you are age 54, then somewhat moot because by time you are 59 1/2, you are at 5-years. If you are say, 61, then you are looking at 66.

You get the idea.

Too bad I didn't see you say this last say, November. I would have said (with respect) "Just shut up, go to your local bank, slap$100 on table and open a roth"

Why? You can walk to bank immediately....second, you opened account (and importantly FUNDED it) prior to December 31, so you get credit for ENTIRE year and today, you have a 4-year wait.

403B: (quick google search, copy & paste)

For 2026, the standard 403(b) employee contribution limit is $24,500, with an additional $8,000 catch-up for age 50+, totaling $32,500, plus a special "super" catch-up of $11,250 for ages 60-63, allowing up to $35,750. Total employer/employee contributions are capped at $72,000, and those earning over $150,000 in 2025 must make their age-50+ catch-up contributions as Roth in 2026.

Does your 403b allow for after tax (Roth) contributions? I don't deal with them so am not sure.

If you are 59 1/2, a 401K allows you to do an "in service" distribution (or rollover). I would expect same with 403b (but didn't look). So maybe you could maximize 403b, add to Roth IRA, then each year, roll some from 403b to IRA (Roth). You'd have to pay the tax on the conversion and each rollover event (as best I recall) would have its own 5-year holding period so if you did that, what you did in your third year (three years from today) would still have a 5 year wait (for the earnings to be tax free) so that would be eight years, from today.

I'd call them and see if they have an after tax contribution election.

 

[Richard]

(side comment, I'm not a fan of bank investment accounts, but they DO allow you to take action "right now" since you can walk in "right now")

 

[Richard]

More of a meandering comment.

As I approached 59 1/2 (I'll soon be 66), I knew the 10% premature distribution penalty would go away. I also knew that my Roth would then become tax free....'forever'.

I didn't stop & think that I would also be able to do an In Service distribution.....meaning, though I'm still working, I can take any amount out of my 401K even though I'm still putting money INTO it.

Then, I had my "Wow, I could have had a V-8" moment.

(then) "now that I'm 59 1/2, I can essentially put as much into my Roth/401K account AND, were my HVAC or something to blow up on me, I can turn right around and take some/all of it back out"

My 401K account had just become a retirement, savings account that I can put up to the limits in AND it's all 100% tax free to me AND I don't have any penalties AND I can put my investments into the stock markets so it's a totally liquid investment account that is a very low cost account since it's a 401K.

(though I don't worry about any of the expenses my Schwab account might incur, which is different than the 401K)

 

[KennyG]

OMG, your retirement fund is earning more money than your required minimum distributions. That sounds like a first world problem. You have my sympathy.

This is actually the norm. RMD starts around 4% and my retirement accounts have been making 10 to 20% over the last few years.

 

[ultrarunner]

A Roth isn't tax free to you until you have owned a Roth (ANY Roth) for 5-years AND you are 59 1/2. So if you have a Roth somewhere, that clock is ticking. If not, you are looking at a 5-year wait. If you work say, four more years, then it's essentially a one year question (your fifth year)

If you are age 54, then somewhat moot because by time you are 59 1/2, you are at 5-years. If you are say, 61, then you are looking at 66.

You get the idea.

Too bad I didn't see you say this last say, November. I would have said (with respect) "Just shut up, go to your local bank, slap$100 on table and open a roth"

Why? You can walk to bank immediately....second, you opened account (and importantly FUNDED it) prior to December 31, so you get credit for ENTIRE year and today, you have a 4-year wait.

403B: (quick google search, copy & paste)

For 2026, the standard 403(b) employee contribution limit is $24,500, with an additional $8,000 catch-up for age 50+, totaling $32,500, plus a special "super" catch-up of $11,250 for ages 60-63, allowing up to $35,750. Total employer/employee contributions are capped at $72,000, and those earning over $150,000 in 2025 must make their age-50+ catch-up contributions as Roth in 2026.

Does your 403b allow for after tax (Roth) contributions? I don't deal with them so am not sure.

If you are 59 1/2, a 401K allows you to do an "in service" distribution (or rollover). I would expect same with 403b (but didn't look). So maybe you could maximize 403b, add to Roth IRA, then each year, roll some from 403b to IRA (Roth). You'd have to pay the tax on the conversion and each rollover event (as best I recall) would have its own 5-year holding period so if you did that, what you did in your third year (three years from today) would still have a 5 year wait (for the earnings to be tax free) so that would be eight years, from today.

I'd call them and see if they have an after tax contribution election.

Wow… appreciate the response…

Staying wasn’t on my radar and retiring January 2026 was so my 400 hours of PTO would not be on my 2025 W2.

So much for that plan.

I never ever expected pushback could result in a leadership offer and all that goes with it.

In my mind I saw a rough road ahead for the hospital because of the last 9 years of outsourcing leaving no one to carry on…

It looks like opening a Roth at my age is not advisable… but the 403B does allow Roths now.

As I’m over 63 it looks like the super catch up is also not available?

I never meant my leaving to be a power play and who knows what would have happened had I said I was leaving a few years back?

I’ve been doing the 15% contibution since the new company took over back in 2017.

I guess the real question is how to best position myself should I stay another year or so?