Maxing Out My 401(k)

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Even though my new employer doesn’t offer an employer match on my contribution to my 401(k), I will still attempt to maximize my contribution to my 401(k) in the last four months of 2006. So far this year, in the 8 months I was with my former employer, I contributed less than $4,000 – far less than the maximum contribution of $15,000 a year.

There are two big reasons why I’ve contributed so little this year:

1. Mortgages are ugly ugly creatures that need to be fed, even with only a minimum contribution (6%), my mortgage accounted for nearly half of my income. HALF! If it wasn’t for the blogging income, I would’ve been in sorry shape.
2. See reason 1.

Now, why am I increasing my contribution so much? There are a few reasons:

1. With a healthy increase in my salary, I feel that I should take some of that and put it towards my retirement. I’ve grown accustomed to my current lifestyle at my former salary so why not take a small portion of the windfall and earmark it for a rainy day?
2. This would, of course, decrease my total compensation. Since some tax deductions depend on your adjusted gross income, decreasing my compensation is important especially since I’m nearing the phase-out spreads of several things (like Roth IRAs!). This will become more significant next year when I’ll be at my current salary for a full year but I might as well get it started now.
3. Now my mortgage accounts for a more manageable percentage of my income and I can actually afford to both pay the mortgage and eat (and save for the future).

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