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I'm not sure I agree. The answer probably lies somewhere in between. He would like to save money for car and a house. Having it locked into a 401k is good and bad. He's also funding his Vanguard Roth at $6k.
If you do it now you won't miss it and you will learn to save in other ways. Maxing out now will drastically help on the back end. It allows the maximum growth which once that egg starts rolling it picks up steam quickly. I know it's hard because you want to do x, y, or z right now because it's probably the most money he's ever had. But that is all the more reason to max out now. You don't miss it. In addition since it's pre-tax you are not really losing that much out of pocket. That is the biggest benefit.
Every day I wish someone would have tied me to a chair and tortured me into maxing out my 403b from day 1. I waited about 6-7 years too long. I am 39, and my 403h balance would easily be double what it is now, if not more.
Not sure you're comparing apples to apples.
I would maybe shift some from Roth to 401K to gain the pre-tax benefit. It is a shuffle to maximize your contributions and still be able to live. My point was to make sure he maximizes what he can put away because if he starts off high he won't miss it if he can maintain that contribution level. If it turns out to be too much he can lower it incrementally as needed.
Something nice if you let him live with you a year or two.
No to be argumentative, I know your trying to be helpful. But, if the maximum was lower when you were his age, wouldn't he be contributing the same amount and perhaps the same percentage of income your were.
This is becoming a stress point between myself and my wife.
When I first started I think (if I remember correctly) there were two different caps. There was a percentage cap which I think was around 16% and there was a dollar cap. My company wouldn't allow you to go over the percentage (maybe that was just my companies own 401K limitation) even if you weren't at the dollar limit. I was maxing out the percentage and upping it every time I could and I was making $40K. So at the 16% limit I was putting in $6400. I believe he is making about the same as that and putting in "only" 10% (which i think is great as most people his age aren't doing that) which would be about $4K.No to be argumentative, I know your trying to be helpful. But, if the maximum was lower when you were his age, wouldn't he be contributing the same amount and perhaps the same percentage of income your were.
So it a way, he is doing what you suggested. The specifics are just different.
You didn't account for the additional $6k in Roth IRA annually. Add that to the $4k for his 401k + matching money from the company (can't remember if it was 3 or 5%), he's contributing well above $10k per year towards retirement. Which would be 25% of his gross.
I said that I would recommend cutting back on the ROTH contribution and shift to more of the 401K to take advantage of the tax benefit.
Then it doesn't really matter. He'd still be putting 25% of his income towards retirement. Currently, that's split 50/50 between traditional and roth. At this point in time, nobody knows what changes will take place over the next 4 decades in regards to roth iras. Until then, and at a very young age, I thin a a 50/50 split gives him the most versatility moving forward.
He would be. His "rent" is maxing out his 401k. A year or two. Then boot him out. Just think what that 40 grand will grow in to by the time he is thinking of retiring. It would be more than most people will retire with at that time.
Perhaps. But, if he's saving 25% of his gross, what is he doing with the rest?
If you don't need the rent money from him I think ghostguy123 has it right. "Charge" him rent by having him put that $200-$300 into his 401K for the year. He is still learning to budget his money while really helping his future. It might also be a nice compromise with the wife.
