How much money are you putting in your 401-ks?

Based on the most helpful WSO content, here are some key points to consider regarding your 401k contributions:

1. Roth IRA vs. 401k:

   • Prioritize Roth IRA contributions before maxing out your 401k unless you're certain about going to grad school. The Roth IRA is especially valuable if your 401k contributions push you into a higher tax bracket (above $91K in taxable income).

2. Emergency Savings:

   • Ensure you have six to twelve months of emergency savings before focusing heavily on retirement accounts.

3. Home Downpayment:

   • If you're planning to buy a home, it's crucial to save for a downpayment. The advantages of owning a home with a substantial downpayment may outweigh the benefits of maxing out your 401k.

4. Investment Strategy:

   • If you're concerned about market volatility, consider a diversified portfolio within your 401k, such as 30% cash and 70% stocks. This allows you to take advantage of tax-free growth while maintaining some liquidity.

5. Retirement Contributions Order:

   • Recommended order for retirement contributions:
     1. Get employer 401k match (free money).
     2. Contribute to Roth IRA.
     3. Max out 401k.

6. Tax Considerations:

   • Traditional 401k contributions provide immediate tax savings but are taxed upon withdrawal. Roth contributions are taxed now but offer tax-free withdrawals in retirement. Consider your current tax rate versus your expected tax rate at retirement.

7. Liquidity Needs:

   • If you need liquidity for a downpayment or other expenses, you might reduce 401k and IRA contributions temporarily.

8. Long-term Planning:

   • Even if you plan to retire early, having a well-funded 401k can provide financial security and flexibility in the long run.

In summary, balancing your 401k contributions with other financial goals like emergency savings and a home downpayment is essential. Prioritize employer matches and Roth IRA contributions, and consider your liquidity needs and tax situation when deciding how much to contribute to your 401k.

Sources: How much do you put into your 401k?, How much do you contribute to your 401k?, The Last "what should I do with my money?" Thread (hopefully), Plan on Buying a House in 3 Years - What to Invest in Until Then, When Should You Start Saving for Retirement?