Why I Increased my 401k Contribution

This has been a long time coming.

For over 3 years, I’ve invested 5% of my salary into our company 401K.  That’s the amount I needed in order to get the 4% match from my company – which everyone in the personal finance world knows is free money never to be left on the table.

The problem was, our company 401K was in Fidelity with crazy high expense ratios.  I hated knowing how much money they took just to run these investments, and I’ve seen the documentaries and calculators showing you just how much it can affect your returns.

But then, last year, we (amazingly) pushed through a switch to a Vanguard 401K! WOOOOT! and ever since – I’ve been meaning to increase my contributions.

See, to my knowledge (and I need to learn more) – we no longer qualify for any Roth IRA investments, and we no longer qualify for any tax deductions from any Traditional IRA contributions.  I had been doing my 5% 401K, and then maxing out IRA contributions for tax benefits.  Both of those accounts we have at USAA, also with pretty high fees.  But since learning that we don’t qualify – over the last year I’ve simply been investing post-tax dollars into by taxable investment account at Vanguard.  All into VTSAX.

With the 401K now at Vanguard, however, it makes more sense to increase my contribution and take advantage of the tax-savings.  Every year for the past three years we’ve had a huge bill come April.  Much of this is from some residual share payouts I received each year from a start-up that sold to Microsoft with no tax taken out.  I’m trying to do whatever I can to not owe a couple Gs come April this time around.

So – two weeks ago – on a whim – I went into my online account and increased my contributions from 5% to 10%.  My paycheck just decreased $178.82 cents, which is going to be $357 a month.  For sure noticeable when I’m budgeting our money, but worth it since we usually have savings left at the end of each month and now it’s automatic.

Next step – sign up for my husband’s 401K when he hits his year in December and max it to get his 4% free money.  And see another hit to the total income amount each month…