Yeah I read this. But this seems to be indicating to build up the emergency funds before the 401k. But the general consensus on the forum seems to be 401k match over Emergency funds. Any reason why that is?We have a wiki page for this question.... Would it be better to prioritize the company match over the HYSA?
See Prioritizing Investments.
Regards,
That makes a lot of sense. Thanks. I am making around 70-75% of 401k match. I was wondering if i would be worth putting in the extra 25% at the expense of some emergency funds.This really has to do with your own comfort level and estimated likelihood of needing the emergency funds (hard to predict, since emergencies are inherently unpredictable).
But, I always look at it as opportunity costs and other available options.
If you don't get the full match in the 401k, you can't ever go back and get it again. That is a 100% return on the matched funds lost forever.
The price is that you "lock up" those funds, subject to penalties.
Say you make the match and the worst happens.
Do you have enough cash flow to make deferred payments?
Can you get a personal loan or draw down a HELOC? Even if you were paying interest for a few years at 8-10%, you'd still be ahead on the amount up to the match.
Can you charge to a credit card and use your next paycheck to pay it off? Even if you had to carry a debt at (say) 22% for a year, if the amount is less than your contribution to the 401k, you're still 88% ahead.
Do your plan rules allow for an in-service withdrawal? Even paying the 10% penalty on withdrawn funds if you are under 59 1/2, you're still up 90% on the amount subject to the match.
Can you take a loan from the 401k? Again, still likely ahead and at least you're paying the interest back to yourself.
Similar logic for the Roth: if you don't contribute in the allowed period, the opportunity to do so for that year is lost forever.
The difference is that the Roth itself can be used as an emergency funds because you can withdraw the contributions with no penalty.
There's even a wiki entry for it:
https://www.bogleheads.org/wiki/Roth_IR ... gency_fund
Personally, I would feel comfortable contributing to both the 401k for the match and to the Roth, knowing that I have options to get at the money if needed. But everyone's comfort level will be different.
Hope that is helpful.
Statistics: Posted by rdx1138 — Sun Oct 06, 2024 8:06 pm — Replies 4 — Views 140