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There’s a contribution limit ($19,000 per year this year). You have to contribute during the year, and it’s usually taken from your paycheck pre-tax. When people say ‘max out your 401k’ they typically mean set a % of each paycheck so that over the course of the year you contribute all $19k. In your case, you could start now and just contribute a higher amount for the rest of 2019 and still max it, assuming that won’t affect your cash flow Also helpful to note - for a standard 401k the money you contribute doesn’t count as income for taxes, so it can adjust your taxable income down
Note that the $19k limit is your contribution for the year. Employer matches can bump it higher.
You can change your contribution every month, a % of your pre-tax paycheck.
The “max out” is either referencing contributing as much as your company matches (a good company will at least match up to 6%) the alternative of maxing out is putting in as much as you are allowed as a % or total dollars for the year.
Does that help?
The match also depends on your specific company. There are a few ways they could go about matching your contributions. Sorry, this is where it gets fuzzy for me, and complicated. I always just tried to contribute to the yearly max and the company match was just a bonus.
Too late for the 2018 tax year, but you can still max out an IRA (up to 5500, depending on your income), which will lower your adjusted gross income (the amount you are taxed by). Maxing our your 401k means contributing to the federal limit, which is something like $18,800 a year. The advantage of this is that the money in a 401k is not taxed. Unfortunately, I don’t remember exactly how this works. However the consensus is that a 401k is the best way to contribute towards your retirement, for most people who have them.
Yes to all these fine answers here! Ask HR about setting yours up and how it works at your agency. It’s usually fairly easy to change the amount you contribute each month but the process is different at different agencies.
Not an immigrant (but my parents were) and I get confused by 401k contributions/limits/matching. I really found this to be super helpful. Probably one of the most helpful threads in the bowl. Thanks OGCD.
And "max out" also refers to putting in as much as you possibly can, keeping in mind that you have living expenses and will pay a penalty if you take the money out before you retire. In other words, this is your savings and also pension account. Most private companies don't maintain a "pension fund", the 401 k is essentially your pension fund. Or "retirement savings" as it is called.
Right. See above. Also look into penalties about taking money out of 401k early. It locks your money in which in some ways protects it and keeps it growing and invested. On the other side let’s say you want to buy a home or need it sooner than retirement then you pay a hefty penalty to access it. So think long term. That’s why a lot of people only invest to the limit “max” the company will match because that’s like found money you wouldn’t get otherwise from the company. Beyond that it’s up to your long terms goals and savings plan if you would want to lock up more of your money in long term retirement plan
Fellow immigrant here. It is still worth saving in a 401(k.) You would be saving into a retirement account and not touching the money for 30 years if you were in your home country.
Follow up question that a lot of HR folks don’t know how to answer: if we go back to our home country in 30 years, are we taxed in a different way? Or is it just plain old transfer fees? Ex if I have $1 million hypothetically. Won’t they want to tax that if I bring it out of the US?
Someone said it’s too late to start this year. I don’t think that’s true. Talk to your HR people. And advice from someone (old) who has over a million in my account: save the max every year no matter how painful it is, and never touch it.
It just means they take the most the gov allows each paycheck to go to your 401k. The gov caps the amount.
Thank you! What’s the amount the gov usually caps? I remember reading about max being around 18k. Does it mean the max is for me to save 18k from my paycheck? What happens to that 18k, is it matched by the company? Like the company gives an extra 18k => 36k saved? I know this sounds ridiculous but this helps.
Thanks again!