Automate Savings

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amd7239
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Automate Savings

Post by amd7239 » Wed Sep 20, 2017 6:24 am

I'm trying to figure out a way to automate my savings so I never see a change in my checking account. For example, automate a 40% savings rate so I never see more than 40% of my take home pay in my checking account.
I get a standard corporate paycheck with direct deposit and a Fidelity 401k.
The only automation option I see is the annual increase program, but after 10+ years that would cause me to go over the 401k limit. I can also add additional checking/savings accounts with direct deposit but the issue with that is I have to update it every year. Perhaps there is a "smart" checking account out there that keeps X% of its deposits and shifts the remainder of the balance to another account.

Also a 401k question: I know you are allowed to contribute the max (18k or so) yourself (and then the employer can contribute more). In that case, is the amount the employer contributes tax deductible? Or does it depend on the employer?
Last edited by amd7239 on Wed Sep 20, 2017 6:42 am, edited 1 time in total.

Grt2bOutdoors
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Re: Automate Savings

Post by Grt2bOutdoors » Wed Sep 20, 2017 6:33 am

Employer contributions to employee retirement programs is considered to be a form of deferred compensation, the employer can deduct this amount from revenues as a cost of doing business. So yes, it is tax deductible for them. The amount they contribute to a qualified plan can not exceed $54,000, which includes employee contributions on a pre-tax and after tax basis.
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nisiprius
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Re: Automate Savings

Post by nisiprius » Wed Sep 20, 2017 6:41 am

The only way I've ever been able to save significant amounts of money is to have it done for me automatically.

If you're talking about "percentage of paycheck" rather than "fixed dollar amount" I don't know. But "fixed dollar amount" is usually easy.

Every employer I've ever worked for has had an option to have some of your paycheck automatically deposited into a savings account. Very typically when I've asked HR or payroll the answer has been "yes, you can have one automatic payment into checking and one into savings." The amount is a fixed dollar amount so you need to tell them to adjust it annually, or whenever you get a raise.

And, almost every bank has had an option to make automatic monthly withdrawals from a checking account (a "push" from that account).

And, the "online banks" have options to pull automatic withdrawals periodically from your brick-and-mortar bank's checking account... and so do investment firms like Vanguard.

Those last two options aren't great because you can't get them perfectly synchronized with your paycheck.

For most of my working life, when I've gotten a raise we've (a) had a small, controlled splurge, and (b) I've upped the automatic savings to take a chunk of the increase, so that what we did see a welcome increase in take-home pay, but savings continually increased.

In the days when I still needed car loans, we would normally keep the cars quite a bit longer than the term of the car loan, and when the car loan was paid off I would arrange for an amount exactly equal to the monthly payments on the car loan to go into savings--specifically, into a dedicated "car replacement" savings account.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

NightFall
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Re: Automate Savings

Post by NightFall » Wed Sep 20, 2017 6:54 am

amd7239 wrote:
Wed Sep 20, 2017 6:24 am
Also a 401k question: I know you are allowed to contribute the max (18k or so) yourself (and then the employer can contribute more). In that case, is the amount the employer contributes tax deductible? Or does it depend on the employer?
Just to be clear, the employer contribution is not added to your taxable income (at least for now). It is typically tax deferred like a traditional 401K contribution. So your contributions reduce your taxable income for traditional contributions. Your employer's contributions should not affect your current taxable income.

cherijoh
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Re: Automate Savings

Post by cherijoh » Wed Sep 20, 2017 6:57 am

amd7239 wrote:
Wed Sep 20, 2017 6:24 am
I'm trying to figure out a way to automate my savings so I never see a change in my checking account. For example, automate a 40% savings rate so I never see more than 40% of my take home pay in my checking account.
I get a standard corporate paycheck with direct deposit and a Fidelity 401k.
The only automation option I see is the annual increase program, but after 10+ years that would cause me to go over the 401k limit. I can also add additional checking/savings accounts with direct deposit but the issue with that is I have to update it every year. Perhaps there is a "smart" checking account out there that keeps X% of its deposits and shifts the remainder of the balance to another account.
I think you are taking "automate" to the extreme. Is updating your allocations once a year all that onerous?

One thing to check is to see if your employer allows you to split your direct deposit to 2 different accounts/financial institutions. My employer allows this although one deposit must be a specific amount and the other gets the remainder. We can't specify a 60/40% split.
amd7239 wrote:
Wed Sep 20, 2017 6:24 am
Also a 401k question: I know you are allowed to contribute the max (18k or so) yourself (and then the employer can contribute more). In that case, is the amount the employer contributes tax deductible? Or does it depend on the employer?
The company match is a pre-tax contribution for which you do NOT get to take a deduction. You aren't taking a "deduction" on your own contribution either - the contribution (which would otherwise be taxed) goes directly into your 401k account.

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CyclingDuo
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Re: Automate Savings

Post by CyclingDuo » Wed Sep 20, 2017 9:20 am

amd7239 wrote:
Wed Sep 20, 2017 6:24 am
I'm trying to figure out a way to automate my savings so I never see a change in my checking account. For example, automate a 40% savings rate so I never see more than 40% of my take home pay in my checking account.

That's simply a mind game to set it up so you "think you don't see it as a change in your checking account". You can set up automatic monthly savings at your bank from your checking account to a savings account where a certain amount of every paycheck is automatically moved into the savings account. Or you can set up automatic monthly contributions to an investment account at Vanguard, Fidelity, Schwab, etc... into a taxable account with mutual funds/ETFs or ROTH IRA if you qualify to contribute. That's the same as "not seeing it" if you check your balance every month as the money will have been automatically moved into the savings vehicle of your choice. It's all considered "paying yourself first" whether you see it on the ledger or not. Why do you want to "hide" it from appearing on your checking account ledger? Is this a joint account and you are trying to contain the investment from your SO? Or are you simply trying to protect yourself from "yourself"? :D

Also a 401k question: I know you are allowed to contribute the max (18k or so) yourself (and then the employer can contribute more). In that case, is the amount the employer contributes tax deductible? Or does it depend on the employer?

No, it is not tax deductible. It is considered a benefit, and you will be taxed on it when you withdraw the money in retirement as ordinary income.

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