3% raise - add to 401k?

[michelyn8]

After months of working on it, our project manager has finally gotten the client to agree to giving an across the board increase of 3% to our project group. It was effective yesterday which means it will show in my next check on 9-28. I still have time to make any changes I want to my W-4 or 401k deductions but have to have it in by Friday if I want it to show in that check.

I'm 44 and do not have a lot saved for EF or retirement. I'm in good health but honestly don't want to have to work past 65 if I can afford not to. I'm leaning towards putting the whole thing in my 401k for a few reasons:

1) I'm currently only contributing 3% and my company matches that by 50% up to 6%. This would get me as much of a match as I can possibly get.

2) I did the math and at my new rate, if I increase my deduction, my net will only decrease by $25 per pay period (bi-weekly). While I could definately use that $25, its not enough of decrease that I can't live without it (even while catching up on my past due per my other post this morning).

3) I also found out yesterday that our deductions for will not increase this year so I won't be losing my increase to that like I expected.

4) My personal rate of return on my 401k YTD is 11.62% as of today. 12 month ROR is 12.96% and 18 month ROR is 9.06%. I utilize the planning tools we are offered and that automatically rebalances my account every 90 days (next one in December). I can also go in and change my basic "plan" at anytime and rebalance so I'm not worried to much about an dives the market may take after the election.

Is there any reason NOT to put the increase in my 401k? So far I can't find any but am curious to see what others may think.

[michelyn8]

oops...............didn't realize I was in Off-Topic. Meant to post to the "normal" YM board.

[swamp]

Didn't you just post about creditors calling and having to put some bills on hold while you catch up?

I'd pay the bills, build the EF, and then up the retirement contribution.

[wodehouse]

Saving it sounds like a good plan. Do you have savings outside IRA, 401K, etc (ie: savings that are not in tax-advantaged accounts)? I think it's good to have a healthy amount of savings in taxable accounts as well; in my case they are "earmarked" for retirement but they provide flexibility until retirement, and also some tax diversification as well (who knows, tax rates may go up when I'm retired, not down).

[Rocky Mtn Saver]

Sept 18, 2012 13:48:07 GMT -5 swamp said:

Didn't you just post about creditors calling and having to put some bills on hold while you catch up?

I'd pay the bills, build the EF, and then up the retirement contribution.

I'd work hard on getting rid of any debts in collections before any of them get a garnishment. Then shift the $ into your 401k to get the max match from your employer.

[Deleted]

Sept 18, 2012 13:48:07 GMT -5 swamp said:

Didn't you just post about creditors calling and having to put some bills on hold while you catch up?

I'd pay the bills, build the EF, and then up the retirement contribution.

Getting it into a 401k makes that money judgement proof, though, doesn't it?

[swamp]

Sept 18, 2012 14:05:56 GMT -5 ArchietheDragon said:

Sept 18, 2012 13:48:07 GMT -5 swamp said:

Didn't you just post about creditors calling and having to put some bills on hold while you catch up?

I'd pay the bills, build the EF, and then up the retirement contribution.

Getting it into a 401k makes that money judgement proof, though, doesn't it?

Yes.

[Deleted]

Sept 18, 2012 14:06:35 GMT -5 swamp said:

Sept 18, 2012 14:05:56 GMT -5 ArchietheDragon said:

Getting it into a 401k makes that money judgement proof, though, doesn't it?

Yes.

Then I recommend getting as much as possible into the 401k.

[Rocky Mtn Saver]

Or he could just get rid of the dangerous debts aggressively and avoid the concern about judgement action.

[michelyn8]

Sept 18, 2012 14:04:20 GMT -5 Rocky Mtn Saver said:

Sept 18, 2012 13:48:07 GMT -5 swamp said:

Didn't you just post about creditors calling and having to put some bills on hold while you catch up?

I'd pay the bills, build the EF, and then up the retirement contribution.

I'd work hard on getting rid of any debts in collections before any of them get a garnishment. Then shift the $ into your 401k to get the max match from your employer.

There's no chance of them getting to that stage -none of them are so large that I couldn't borrow from a family member (last resort) to pay them off. Plus in VA you have to get a judgment first and then apply for the garnishment. Even if they filed the motion for judgment today, it would be early October before its heard by a judge, then IF judgment is granted, they have to file the paperwork for garnishment. Both processes together would take about 45 days from today and I will be caught up and paying them down steadily by November. As I stated in my other post, I've sent a letter to those CA's detailing a repayment plan and am just waiting on the delivery receipt and their response.


ETA: I did the math of what my net would be if I left everything as is and it would only increase by $14. While that's better than nothing, my taxes would also increase by $20 versus $3 if I increase my 401k deduction. I'm not knowledgeable enough to say if that's really good or bad.

[midjd]

Have you resolved the issue that led to you getting behind on your bills?

If so, I'd say throw it all into the 401(k).

[michelyn8]

Sept 18, 2012 14:22:10 GMT -5 midjd said:

Have you resolved the issue that led to you getting behind on your bills?

If so, I'd say throw it all into the 401(k).

Its as resolved as it can be at this point. I don't know what I did but I started having really bad shoulder pain after DGD was born so I had it checked out. Turned out I had injured a muscle in my back that was affecting my posture and causing a problem in my rotator cuff so off to PT I had to go. Between the $100/week co-pays for that and the newly added expense of supporting my granddaughter it pushed me to the limit. I could have handled one or the other but both was to much. Now my daughter gets some aid for DGD plus sporadic child support and I no longer have PT I'm back to my original budget minus the extras I cut until I caught up.

[Deleted]

Stupid question: why are you the one supporting your granddaughter?

[michelyn8]

Sept 18, 2012 15:21:22 GMT -5 TheHaitian said:

Stupid question: why are you the one supporting your granddaughter?

Because my hard-headed youngest daughter didn't listen to me all those years I told her and her sister that they needed to finish school, get a good stable job that allowed them to support themselves and any kids they might have without assistance from a boyfriend or hubby before getting herself knocked up at 19. Its live with me and go to school or go on the public dole. She started getting WIC back in May or June but those first 6 months of expenses came out of my wallet since DGD's father preferred to whine about life instead of manning up and taking responsiblity. He's obligated to pay CS now but conveniently lost his job for cause right before the amount was set.

[thyme4change]

I did the math and at my new rate, if I increase my deduction, my net will only decrease by $25 per pay period (bi-weekly).

If you get a 3% raise, and you raise your 401k deductions by 3%, how would your net pay change?

[Deleted]

Sept 18, 2012 16:01:06 GMT -5 thyme4change said:

I did the math and at my new rate, if I increase my deduction, my net will only decrease by $25 per pay period (bi-weekly).

If you get a 3% raise, and you raise your 401k deductions by 3%, how would your net pay change?

the tax man cometh.

[imawino]

Sept 18, 2012 16:01:06 GMT -5 thyme4change said:

I did the math and at my new rate, if I increase my deduction, my net will only decrease by $25 per pay period (bi-weekly).

If you get a 3% raise, and you raise your 401k deductions by 3%, how would your net pay change?

Because the 3% raise is 3% of the original, lower salary. The 3% that would go to 401k would be 3% of the new, higher salary.

Also, 401k contributions are exempt from federal tax but not from state, local, social security, medicare or any other taxes. Well, I don't know about all states - some states may exempt that income from state and local tax but mine does not.

[movingforward]

I would probably concentrate on building an EF to ensure you are not put back in the same predicament as before if something unexpected were to happen. Once that is built up then I would put the money toward retirement. If might help us a little more if we had numbers regarding your debt and how much you currently have in your EF. At any rate, it sounds like you are on the right track in getting your finances in order. Glad your health is better and things coming together for you.

[michelyn8]

Sept 18, 2012 16:01:06 GMT -5 thyme4change said:

I did the math and at my new rate, if I increase my deduction, my net will only decrease by $25 per pay period (bi-weekly).

If you get a 3% raise, and you raise your 401k deductions by 3%, how would your net pay change?

It decreases by $25.

[Peace77]

Get your bills current first!

It doesn"t matter that it takes time for them to garnish your wages. You don't want them to file suit against you in the first place.

Is your daughter getting her GED now? Is she receiving TANF or SNAP (food stamps) benefits or, is she working/

After your bills are caught up, Put your raise into savings until you have at least 2 months worth of expenses in savings. Then, increase your 401(k) contribution by 1%. Continue to contribute to savings. Each time that you increase your EF by 1 month's worth of expenses, increase your 401(k) by 1%.

The cost of getting the funds out of the 401k) in an emergency is more that you can earn.

[Taxman10]

Sept 18, 2012 16:03:27 GMT -5 ArchietheDragon said:

Sept 18, 2012 16:01:06 GMT -5 thyme4change said:

If you get a 3% raise, and you raise your 401k deductions by 3%, how would your net pay change?

the tax man cometh.

yes, yes he does.....