How do I calculate what % to contribute to my 401k?

Submitted by beatplusmelody t3_126r6er in personalfinance

Hi PF, I just started a new job and need to set up my 401K contributions. I need some help figuring out the percentage to set it to in order to max out.

I started on March 20, 2023, there are 27 pay periods according to our payroll calendar. Based on my start date I'm starting on #7.

Salary: 175,000

Target Annual Bonus: 30% subject to end of year reviews.

Employer Match: 100% up to 9,000 annually

I'd really appreciate any help figuring out what % to set my contributions to.

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Default87 t1_jeadj3z wrote

General recommendation is to save at least 15% of your income per year for retirement. For your salary, that would mean maxing out your 401k to the limit and then contributing additional money to an IRA and/or a taxable account.

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CrimsonRaider2357 t1_jeaemnt wrote

How much can you afford to contribute?

Assuming your goal is to max it out, that would be $22500. Assuming you have 20 paychecks left, it will probably take a full paycheck cycle for the contribution to update, so I will assume you are splitting that among 19 paychecks, for a contribution of $22500/19=$1184 per paycheck remaining. Each paycheck has a gross salary of $175k/27=$6481, so you would contribute $1184/6481=18.2%. Note this does not include your bonus.

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beatplusmelody OP t1_jeaiq5b wrote

Thank you so much, I do plan to max it out. This is my first time having a bonus, its a target of 30% but subject to end of year reviews so should I calculate the bonus into my total salary when setting the 401K percentage? Or do you think you would just calculate it on the base salary?

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CrimsonRaider2357 t1_jear6md wrote

I would just calculate based on your base salary. If you get the bonus, you can recalculate and adjust the percentage down afterward. Most bonuses are paid at the beginning of the following year anyway, which means your 2023 bonus will probably be paid in 2024 and count towards the 2024 limit, not 2023.

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beatplusmelody OP t1_jeavnub wrote

Awesome thank you for your advice! :)

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CrimsonRaider2357 t1_jebmvo4 wrote

Glad to help! Keep in mind that if you contributed to a 401(k) at a different employer in 2023, you will need to subtract those contributions from your 2023 limit to avoid overcontributing.

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GeorgeRetire t1_jeaor32 wrote

>Salary: 175,000
>
>Employer Match: 100% up to 9,000 annually

​

What was your prior salary?

Presumably, you were able to live on the prior amount, and you certainly should contribute 9,000 so you get the full match.

Consider contributing up to (175,000 - prior salary).

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