I’m middle-aged and contributing 3 percent to my 401K.
This 3 percent is fully-matched by my employer.
I can get a full match for up to 6 percent.
Is there any downside to increasing my contribution to
6 percent if there is no concern about needing that extra
3 percent for an emergency?
Fried Kitten: 401K is also a tax deferral.. It is absolute financial mismanagement NOT to put in at least the matched amount.
$100 generally has a tax bracket of 25% more of less. You net out only $75.
Deferred and matched gets you $200 plus whatever it grows in investment, even if only a safe 3% a year in conservative investing.
Consider 5 years only putting in $100 net of taxes on 3% taxable in a savings plan versus the 401K for 5 years.
75, 151.62, 229.89, 309.86, 391.55, 475.01
Vs 401k matched
200, 406, 618.18, 836.73, 1061.83, 1293.68
And if withdrawing without penalty but taxed, 1293.68 x 0.75 = $970.26
2.04 times the net amount
In a 20 year progression, $1851.62 versus 0.75x$5374.08 = $4030.56
Over 20 years you end up 2.18 times the net amount
You are turning down a free gift. Even paying a 10% penalty and taxes in pulling it out later you still come out way ahead.
I am really surprised you turned down free money by only putting 3%.
If it was me I would take that extra money and start a Roth IRA. You would not get the right off at the end of the year, but any money you earn in the Roth is not taxed. Say you had a $1,000 in the Roth which you invested in stocks and made $500 for the year. You would then have $1500 no taxable funds. A problem with any IRA is if our government get in a bind they can come in and take all of it with no questions asked.
there are limits in the amount you can contribute to a 401(K)
however if you are looking at the difference between $75 and $100 that wil probably depend on what tax bracket you fall into
if $100 would reduce your bracket significantly it would be beneficial to do so, if not, and $75 is convenient for you that's the way to go
bear in mind what you do contribute earns as you go along, meaning the more you have contributed the higher the amount interest is calculated
there is NO downside and if you are contributing pre-tax money you are making out better in taxes. I am in the 25% tax bracket, so if I decide to contribute 1000 I will only lose 750.00 as I will not be paying 250.00 taxes on that 1000. win win win
Other than exceeding the maximum contribution (which would be taxable), there's no downside.
not is it has enough investment options.
If you get a full match for 6% that is the least that you should contribute, double your money. By middle age you should be socking away more than that somewhere, it not to 401k then to IRA (which is a separate annual limit). However, the availability of a company retirement plan (whether participating or not) limits deductions for a traditional IRA contributions, so if considering an IRA you might consider a Roth IRA in which contributions are not deductible anyway.
In recent years I was putting 22% of my income in my 401k, which turned out to be a good thing because after 40 years with the company, I was suddenly out of a job Nov 2015 at age 63.5. I transferred my 401k to IRA, got some investing education, and have grown my IRA more than I have withdrawn since then. My goal is to not start collecting social security until age 70.
You should contribute as much as you are legally able. If you still have disposable income after that, then start on secondary investments (brokerage account, real estate, etc.).
the only downside would be if the stock market crashes and stays crashed
Particularly at middle-age, it's a good idea to put as much into your 401K as you are permitted under law, assuming (as you noted) that there is not a critical need elsewhere for the money. The money will hopefully keep working for you until you retire.
Doing enough for the match is really the minimum you should contribute–it's not the optimum level.