They also have additional employee contribution. I'm at 15%, thinking I should drop down to 8 and contribute 7 to IRA?
Travis, I am unclear as to the advantage of reducing your 401(k) to contribute to an IRA. There is no advantage .... unless your 401(k) is filled with expensive actively managed mutual funds. Then a low cost IRA index may be a good choice. Otherwise, I would see if your 401(k) plan offers a Roth 401(k). If so, put 8% in Roth and 7% in traditional 401(k). Hope this helps.
For 2015, you may defer from your paycheck up to $18,000 (plus $6,000 if over age 50). If your employer matches your contribution and makes a profit sharing contribution as well, your total of all three (deferrals you make, plus match plus profit sharing contribution cannot exceed $53,000 (plus $6,000 if over age 50). Before saving elsewhere make sure you contribute enough to your 401K to get the max. match.
If you are getting the maximum match, your next choice might be to save via an IRA. Determining whether that additional savings should be to a traditional IRA or a Roth IRA depends on age an income. Assuming you are married, the deductibility of a traditional IRA contribution for 2015 for people covered by a 401K is phased out for AGIs between $183,000 and $193,000. Those same limits also apply to whether or not you can make a contribution to a Roth IRA...eligibility is phased out between those levels and contributions are prohibited for married individuals with incomes above $193,000. Assuming your AGI is below those levels and you are below age 60, I would take a long, hard look at the Roth IRA over the traditional IRA because all qualifying Roth IRA withdrawals are tax free if you meet some simple requirements....it is pretty powerful to be able to escape taxation on the compounded growth in your account over the years...but there may be some sets of circumstances that would suggest the traditional IRA over the Roth. In any case, for 2015 you are limited to total IRA contributions of no more than $5,500 plus another $1,000 if over age 50.
Get in touch if you need more specificity.
Great question. I typically recommend to my clients that they first contribute to their 401k up to their company match so that they take advantage of "free money." In your case, it sounds like your company has a match up to 8% of your salary.
Then depending on my client's overall financial situation, I will typically suggest they start contributing to a Roth IRA. So long as your income (MAGI) is less than $178,000 you can contribute up to $5,500 for 2014. As you probably know already, your 401k contributions come out of your salary before taxes, however when you retire you'll have to pay taxes on the income you get from your 401k. A Roth IRA works in the reverse, contributions are made with after-tax money and then grow tax-free. When you retire, any distributions you take from the Roth IRA will also be tax-free.
After my clients have contributed up to the match for their 401k and maxed out their Roth IRA, I will often suggest they go back to making contributions to their 401k up to the maximum amount. In 2014 the max was $17,500 and in 2015 the max will be $18,000.
Of course everyone's situation is different, so if my clients have a lot of high interest-rate non-mortgage debt or no emergency fund (at least 6 months of living expenses in cash), I will recommend they build those buckets of money before making retirement contributions.
I hope this helps. Let me know if you have any further questions.
All the best,
Aaron Hatch, CFP®
Congratulations on being able to save such a high percentage!
The 8% in your 401k is a no brainer. There isn't much better than free money. Given your age, you should see if you qualify for a Roth IRA. You can contribute up to $5,500/year at your age.
You might also consider doing a monthly investment into a non-qualified mutual fund. This money can be taken out at any time for any reason. It will be taxable every year, but having a chunk of money that is easily accessible can be a huge advantage if opportunities present themselves.
I agree with my colleagues about going up to the company match, and then contribute to a Roth IRA if possible. I prefer an active management style since they protect you in the downturns, but everyone has their own risk profile and management style. Another benefit to a ROTH is that there are no required minimum distributions when you turn 70.5. Here is a quick guide to the difference between a Roth and a Traditional IRA: