I'm looking for a bit of perspective on my 401k plan for 2025 to make sure I'm approaching this correctly. 2023 was my first year hitting the normal IRS limit for 401ks. This year, I pushed it a bit harder and saw our plan allows for Roth Megabackdoor conversions. Hence, I'm trying to maximize how I contribute into the 401k for next year.
For context, I'm an hourly employee with generous opportunities for overtime pay. My base rate is $38.26, but ended up grossing $127,000 after overtime this year. Last year was approximately a $34.25 rate ending with $115,000. I don't have a strict budget or breakdown of expenses since I usually save highly first and splurge any remainder. I do not own a separate IRA. With that in mind, 2024 totalled to a $38,000 spend, $20,000 of personal savings, and $44,000 of retirement contributions. I just purchased a new vehicle (not included in the annual spend) so 2025 will have a lower personal savings rate. On the other end, I'm expecting at least a 3% merit increase. I might also get a small promotion to my next paygrade. These could soften the blow of the increased spending and saving I'm planning for next year. My current 401k balance is $163,000 of which $73,700 is nontaxable balances. I have $12,000 set aside as my emergency fund.
In 2024, most of the year I had a 20% traditional, 7% Roth contribution rate to my 401k. My job also matches 8%. I ended up filling the $23,000 limit in September. Following that, I saw additional contributions go towards an After Tax account, which I can immediately convert to a Roth balance. It's not automatic, but I do the rollover weekly. The After Tax contribution seems to reflect the 27% rate I'm elected into.
I'm thinking about changing my rate to 30% Traditional with 0% Roth. I feel like I missed the opportunity to save Traditional dollars by doing the 20-7 split last year since the After Tax and Roth contributions dwarfed the Traditional value. Is this the correct approach to start the savings year? Is there something major I'm not considering in this evaluation? Thanks in advance for any help!
[link] [comments]