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Wondering How Much to Contribute to Your 401(k)? 8 Things to Consider

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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It’s easy to overlook the details of your 401(k) plan when you start a new job — there’s the excitement of learning the ropes, bringing in a fatter paycheck and finding the quiet bathroom.

Unfortunately, neglecting your 401(k) contributions can have a serious effect on your future. That’s because the money you invest early in your career has decades to grow, so even the most modest contributions can become an impressive nest egg with compound interest.

Even if you’re aware that you need to contribute to your 401(k), it can be tough to decide how much, especially if you have competing financial priorities. Here are eight factors to consider when deciding how much to contribute to your 401(k).

1. Know the IRS limits on 401(k) contributions

Your 401(k) plan is a tax-deferred retirement account, which means you deduct your contributions from your annual income at tax time. This also is described as funding your account with pre-tax dollars.

Since Uncle Sam won’t immediately see any taxes on the money you set aside, the IRS sets 401(k) contribution limits to prevent individuals from using their 401(k) accounts as vehicles to dodge taxes on large sums of money. In 2019, the employee contribution limit is $19,000 for participants who are under age 50.

If you are in a position to afford a $19,000 annual contribution, you should plan to send $1,583 per month ($19,000/12 = $1,583) to your 401(k) and call it day. If you’re a mere mortal with bills to pay, you’ll need to use other strategies to maximize your 401(k) contribution.

2. Take advantage of company matching

Many employers offer to match 401(k) contributions up to a certain amount. For instance, your company might offer to match 50% of your contributions up to 6%. This means that if you contribute 6% of your salary to your 401(k), your company will put in 3%, giving you 9% in total contributions.

“Your first goal should be to contribute enough to get the company match. This can be difficult if you’re just starting out, but saving has to be a little bit painful,” explained Jim Blankenship, a certified financial planner and the principal of Blankenship Financial Planning in New Berlin, Ill.

If contributing enough to reach the full company match is unaffordable, Blankenship recommended that you increase your contribution every time you get a raise or set up an automatic increase of 0.5% or 1% every six months. That will help you ease into contributing enough to get the match without feeling the bite all at once.

Another important thing to remember is that your employer’s contributions on your behalf don’t count toward your $19,000 contribution limit. Your employer may contribute as much as $37,000 to your 401(k) in 2019.

3. Contribution goals should not be static

It’s not a good idea to adopt a “set it and forget it” attitude when it comes to your contributions. “Your goals should evolve over time. Even if your initial goal is to get the full company match, you shouldn’t rest on your laurels once you get there,” warned Blankenship.

He recommended that you eventually max out the annual IRS contribution limits or put aside 20% of your annual salary — whichever is feasible. For instance, a worker earning $35,000 per year probably will not be able to afford the $19,000 401(k) contribution limit. However, setting aside $7,000 per year may be an achievable goal.

4. Make sure you understand vesting

While the company match is an excellent perk, it’s important to remember that the matching amount is not necessarily yours the moment it appears in your account. You will have to wait to be vested before you can consider that money yours in retirement.

In many cases, vesting is graduated over time. For instance, you might be vested in 20% of your company’s match after one year, 40% after two years and so on until you are 100% vested after five years of employment.

If you separate from the company prior to becoming 100% vested, then you will lose the nonvested amount. Unfortunately, this is true whether you quit, get fired or get laid off. The good news is that your own contributions are completely vested, so any money you personally put away is yours to keep no matter what happens to the company match or your employment status with the company.

5. 401(k) contributions are pre-tax

While you crunch the numbers to determine how much you can contribute to your retirement account, don’t forget that your take-home pay will not be reduced by the full amount of your contribution. Since your contribution is taken from your pre-tax salary, contributions effectively lower your annual salary, which means your tax withholding for each paycheck also will go down. So for each $100 you contribute to your 401(k), you’ll see less than $100 deducted from your take-home pay.

6. 401(k) vs. debt vs. emergency fund: how to prioritize

Most people have a number of competing financial needs, making it difficult to understand how to prioritize where your money goes. Should you build your emergency fund, focus on maxing out your 401(k) contributions or pay down debt to avoid losing money on high interest rates?

“Your top priority should be building an emergency fund of three to six months’ worth of unavoidable expenses,” said Blankenship. “Unavoidable expenses means true bare-bones minimum: rent or mortgage, car payment, utilities and groceries. You don’t need to recreate your usual monthly spending, just the amount you would need to get by.”

Once that is in place, Blankenship recommended paying the minimum amount on your debt to prioritize getting the company match on your 401(k). Credit card debt or other high-interest debt should take priority over student loan debt; however, you can work on paying down your debt while contributing to your retirement account.

7. Review the details of your 401(k) plan

How much you contribute to your employer 401(k) may depend on how good the plan is. Blankenship recommended looking at the portfolios offered by your 401(k) to determine if it’s a good low-cost investing environment for your money.

“You should educate yourself on what makes for a good diversified portfolio, and there are a number of resources online that will help you do an analysis of your potential portfolio,” he said. In particular, Blankenship recommended Yahoo Finance.

Blankenship also recommended opening an individual retirement account (IRA) if your 401(k) isn’t up to snuff. You should keep contributing to your 401(k) up to your company match; however, any contributions beyond that should go toward your IRA to take advantage of lower fees or a more diversified portfolio.

8. Determine your desired retirement age

It can be hard to think about retirement when you’re in the thick of your career, but it’s a good idea to do some basic calculations to determine how much you will need, even if retirement is decades away.

Not only will you have a better sense of what you need to set aside to reach your goals, but thinking about what you want from your future makes those goals feel more immediate (which also makes it easier and more satisfying to save money).

The takeaway

The precise amount to send to your 401(k) will depend on a number of factors. Meeting your company match and creating savings goals that evolve over time will help ensure you have a robust retirement account when you need it.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Emily Guy Birken
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Emily Guy Birken is a writer at MagnifyMoney. You can email Emily here

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Investing

Ally Invest Managed Portfolios Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Ally Invest Managed Portfolios is a robo-advisor option from a trusted online-only financial institution.

It can make managing your money simple: Just answer a few basic questions about your goals and risk tolerance and your funds are invested for you. However, while fees are competitive, they aren’t the lowest among other robo-advisors’ offerings.

If you don’t mind the lack of bonus for opening the account, and you want to take a hands-off approach to building wealth, Ally Invest may be a good option.

Ally Invest Managed Portfolios
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The Bottom Line: Ally Invest Managed Portfolios is a decent robo-advisor that’s competitive with other managed portfolios online. But its lack of tax-loss harvesting, and fees that slightly exceed competitors may prompt you to look elsewhere if you’re not already an Ally customer.

  • The minimum deposit to invest in Ally Invest Managed Portfolios is $100
  • The management fee is 0.30%, no matter how high your account balance
  • Customer service is available 24/7, but there are no local branches to visit

Who should consider Ally Invest Managed Portfolios?

If you’re looking for a robo-advisor that allows you to build a diversified portfolio without a lot of advanced knowledge about investing, Ally Invest Managed Portfolios has you covered.

You’ll answer a few questions about your age; timeline for investing and risk tolerance; and whether you’re investing for retirement, wealth-building or a big purchase. Then, Ally Invest comes back with a recommended portfolio you can accept or tweak.

You can open a joint, custodial or Individual taxable account with Ally Invest Managed Portfolios, or can opt for a Traditional IRA, Roth IRA or Rollover IRA. Unfortunately, unlike with Ally Invest’s self-directed accounts, there’s no promotion or bonus for transferring funds into a managed portfolio. And, you’ll need quite a bit of money to get started — more than many competitors in the robo-advisor industry require.

Still, if you don’t mind the lack of brick-and-mortar locations and marginally higher fees, Ally Invest is a worthy competitor to consider when looking for help managing your money.

Ally Invest Managed Portfolios fees and features

Amount minimum to open account
  • $100
Management fees
  • 0.30%
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $50 full account transfer fee
  • $50 partial account transfer fee
  • $0 inactivity fee
Current promotions

Ally Invest offers a $50 cash bonus plus free trades if you deposit or transfer at least $10,000. Bonuses go up from there and increase up to a cash bonus of as much as $3,500 if you deposit or transfer at least $2 million in assets. 

Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • 529 Plan
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • Coverdell Education Savings Account (ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
Portfolio
  • Ally managed portfolios cover 3 asset classes and 9 major market segments
Automatic rebalancing
Tax loss harvesting
Offers fractional shares
Ease of use
Mobile appiOS, Android, Windows Phone
Customer supportPhone, 24/7 live support, Chat, Email

Strengths of Ally Invest Managed Portfolios

Ally Invest Managed Portfolios has some significant advantages worth considering:

  • Investing in a diversified portfolio is easy. You’ll answer basic questions about your investment goals and Ally Invest will suggest a portfolio with an appropriate mix of U.S. and foreign bonds, international and U.S. stocks, and cash. You can also tweak the suggestions Ally Invest Managed Portfolios makes, so you take on more or less risk based on your comfort level.
  • Ally requires a low minimum deposit of just $100 to open a managed portfolio account. While some of Ally’s competitors (such as Betterment) don’t have a minimum deposit requirement at all, $100 still falls on the very low side of the scale and makes this account extremely accessible to new investors.
  • Ally Invest Managed Portfolios offers automatic portfolio rebalancing. This helps to ensure you remain invested in the right mix of assets if certain investments under- or over-perform.
  • Customer service. Ally Invest offers phone, Email, and chat support. Customer service agents are available 24/7 with little or no wait. Agents will do their best to provide answers, although it may take a little time if your questions are technical since you may need to be transferred to an investment advisor.

Drawbacks of Ally Invest Managed Portfolios

You’ll also want to consider the potential downsides of choosing Ally Invest Managed Portfolios.

  • Ally Invest Managed Portfolios charges fees that are slightly higher than several competitors. You’ll pay .30% for Ally’s robo-advisor service, compared with .25% for Betterment’s digital account or for Wealthfront.
  • Ally Invest Managed Portfolios currently does not offer tax loss harvesting, which involves selling investments at a loss to offset taxable gains (although they do offer tax advantaged portfolios which add municipal bonds to Ally’s core portfolios). Competitors such as Betterment do offer this feature. However, Ally representatives indicate tax loss harvesting is expected to be rolled out in 2019 and investors with managed portfolios will be able to transition their accounts into a portfolio with tax loss harvesting.
  • No physical branches. If you’d prefer to go into a branch for local customer support, you’ll need to look elsewhere, such as E-Trade, which has more than 30 branches across the country.
  • Mobile apps aren’t very advanced. While Ally Invest allows you to use mobile apps on iPhone and Android phones to access basic account information, the offered apps aren’t as feature-rich as competitors such as Betterment.

Is Ally Invest Managed Portfolios safe?

Whenever you invest your money, there’s a risk you may lose some or all of it. This is no different with Ally Invest Managed Portfolios. The assets your robo-advisor invests you in could decline in value and your portfolio could lose money.

But Ally Invest is as safe as any trusted online brokerage, and there’s little risk of losing assets if the investment firm goes bankrupt. Ally Invest is in compliance with regulatory requirements according to FINRA’s Broker Check tool. Ally Invest is also a member of the FDIC and SIPC, both of which ensure cash in bank and brokerage accounts respectively.

Final thoughts

Ally Invest Managed Portfolios is a viable choice for investors looking for an easy, hands-off way to invest — especially with its low $100 minimum deposit requirement. Ally also promises to offer a broad range of socially-responsible portfolios, which should interest investors who want to consider more than just financial returns. But the lack of a promotional offer, higher management fees, and the fact tax loss harvesting isn’t currently offered makes Ally a less-than-ideal option for investors looking for the most affordable way to build a diversified portfolio. If you want a lower-cost option that does offer tax-loss harvesting, consider robo-advisors such as Betterment or Wealthfront.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Christy Rakoczy
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Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here

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SogoTrade Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

SogoTrade is a relatively new face in the world of discount brokers, having joined the fray in 2010. While less well-known than some of its larger peers, SogoTrade quickly set itself up as a low-cost player that could offer high-volume traders prices that undercut those larger competitors. And even low-volume investors have a way to get those low commissions without significant amounts of trading. SogoTrade is a solid choice for frequent or high-volume traders, such as penny stock traders.

SogoTrade
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The bottom line: SogoTrade offers a low-frills experience at a competitive price.

  • Volume-based pricing that can lower trading costs substantially
  • Discounts on commissions for prepaid trades
  • Limited education and research offerings

Who should consider SogoTrade

SogoTrade really pitches itself to high-volume traders who need a low-cost way to get in and out of the market. If you’re in this demographic, SogoTrade may be for you. The ability to trade up to 100,000 shares for one low flat rate (not including stocks below $1 a share, which have an additional per-share fee) also may lure penny stock traders. Investors who aren’t in these two categories will find SogoTrade a harder sell.

SogoTrade is not especially well-suited to beginners, with limited education and research components, though it does have some of each. Those investors who don’t need those features may still find the broker an apt choice, however, especially if they’re willing to take advantage of SogoTrade’s discounts for prepaid trades.

SogoTrade fees and features

Current promotions

100 free trades in the first 30 days

Stock trading fees
  • $4.88 per trade (fewer than 150 trades per quarter)
  • $2.88 per trade (150 or more trades per quarter)
Option trading fees
  • $4.88 / trade + $0.50 / contract (fewer than 150 trades per quarter)
  • $2.88 / trade + $0.50 / contract (150 or more trades per quarter)
Amount minimum to open account
  • $0
Margin rate range6.25% - 11.00%
Tradable securities
  • Stocks
  • ETFs
  • Mutual funds
  • Options
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $75 partial account transfer fee
  • $50 annual inactivity fee if account drops below $100 and has not made at least one trade
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Coverdell Education Savings Account(ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • Trust
Commission-free ETFs offered
Mutual funds (no transaction fee) offered
Mobile appiOS, Android
Customer supportPhone, Chat, Email
Research resources
  • SEC filings
  • Mutual fund reports
  • Earnings press releases

Strengths of SogoTrade

  • Volume-based pricing: SogoTrade has a multitiered system for charging commissions — one that’s highly advantageous for frequent traders and even penny stock traders who transact thousands (or even tens of thousands of shares) at a time. SogoTrade’s basic commission is $4.88 per trade — and with Charles Schwab and Fidelity both at $4.95, that’s not substantially different. But if you’re making more than 150 trades per quarter, SogoTrade slashes the fee to just $2.88 per trade (150 or more trades per quarter) . That’s great for high-volume traders. And for penny stock traders? SogoTrade’s commission allows you to trade up to 100,000 shares for the same flat rate, though you’ll have to pay a supplement for stocks trading below $1 per share. That supplemental fee comes to $0.0003 per share (10% of principal max) or 0.25% of principal.
  • Discounts for prepaid trades: Even if you’re not a frequent trader, you can reduce your commission to $3.88 or $2.88 per trade by buying prepaid packs of trades at that rate. SogoTrade allows you to buy 20 trades for $3.88 per trade or 50 trades for $2.88 per trade, and they cover stock trades and the base commission for options. So that could be an attractive (albeit unconventional) option for realizing low-cost trades without trading a lot. However, the prepaid trades are valid for only a year after purchase, so it’s a “use ‘em or lose ‘em” scenario.
  • Low options commissions: Given its rabid focus on low costs, it’s not surprising that SogoTrade also has low commissions on options. Pricing ranges from $2.88 to $4.88, depending on volume or whether you buy prepaid trades. Then options trades tack on a $0.50 per-contract fee, which is toward the lower end of the range. For example, Fidelity and Schwab charge their base rate plus $0.65 per contract. Even the low-cost Interactive Brokers typically charges $0.70 per contract, though with no base commission and volume pricing for very large orders. Always nice for traders executing more complicated options orders, SogoTrade charges only one base rate for multilegged options orders. So those complex three- and four-leg trades won’t ring up any extra base fees.

Drawbacks of SogoTrade

  • Limited education and research: For beginners, the lack of substantial educational support at SogoTrade may be a deal breaker. While there are some resources on the site, the entire education section feels more like an afterthought than a valuable addition to the SogoTrade experience. For example, the site’s educational links refer to articles on a third-party site. Similarly, while the broker offers a research center on its site, it feels too basic — even if it does offer some key functionality, such as identifying stocks at 52-week highs and lows and linking to a company’s press releases and SEC filings. The broker does point you in the direction of a free third-party monthly newsletter and stock reports. These resources may be a place to begin for newer investors, but more experienced traders will already have their own preferred resources lined up, so this likely won’t be much of a drawback for them.
  • Cheap but maybe not cheap enough: There’s no question that SogoTrade is targeting customers who are looking to minimize commissions. But the broker looks somewhat caught in the middle here. For the same base commission, rivals like Schwab provide a better educational and research component. Meanwhile, at the other end, cut-rate brokers can offer lower commissions, with Just2Trade providing $2.50 trades without customers having to pony up for prepaid trades (and no expiration dates on trades either).

Is SogoTrade safe?

SogoTrade is a relatively new player in the discount brokerage space, having debuted in 2010, but that doesn’t mean it’s not covered by the same protections as larger and more well-established brokers. Investors’ accounts are covered by the Securities Investor Protection Corporation (SIPC), which protects their value up to $500,000, including a cash limit of $250,000 in the event that the brokerage ceases to operate.

In addition, the broker’s clearing firm, Apex, has coverage up to an aggregate $150 million, with a maximum of $37.5 million for any single account, including a cash-only maximum of $900,000. Of course, these coverages do not protect against declines in the value of the securities in the portfolio.

Final thoughts

Cheap trades really are the priority at SogoTrade, and it shows throughout the website. If you’re a high-volume trader and can meet SogoTrade’s quarterly trade threshold, you may find a home here with the broker’s $2.88 fees. Even lower-volume traders who don’t mind the clunkiness of prepaying for trades may find SogoTrade interesting.

Still, SogoTrade seems caught in the middle of the market, especially for newer investors and many low-volume traders. Its service doesn’t offer enough education and research, relative to Schwab and Fidelity, for its base commission, and it’s not as cheap as other discount rivals such as Just2Trade and eOption (especially for options trades), brokers that are just as cutthroat about costs.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

James F. Royal, Ph.D.
James F. Royal, Ph.D. |

James F. Royal, Ph.D. is a writer at MagnifyMoney. You can email James here

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