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Wow, what a wonderful problem to have! :) Congratulations on your promotion and raise and for being with such a generous employer.

My $.02:

I would say that there's no hard and fast amount that one "should" contribute. Here are some ideas to consider:

- When/if you ever leave this job, you will have the option (assuming the current rules don't change *too* drastically :) of rolling the 401k account into an IRA. Your IRA could be in a mutual fund or in a brokerage account where you could direct the investment of the money yourself.

- Tax deferred investments are an incredibly powerful way to build wealth. Investments in a taxable account have to perform around 33% better (than the equivalent tax deferred investment) if they're to offset taxes for a person in the 28% bracket.

- Taxable investment accounts are more accessible and liquid than tax deferred accounts, as you pointed out. For that reason, it's often desirable to have some money in a tax deferred account (401k, IRA, whatever) and some in a taxable account.

- 401k's typically have fewer investement options than other approaches (IRA's, taxable accounts, etc.).

- There are circumstances in which you can access the money in a 401k early without penalties. Examples are to make a down payment on a primary residence, for educational purposes, etc. You'd need to research the details for yourself. Also, some 401k plans allow you to borrow against the funds in your account without penalty. So, money in a 401k may not be as illiquid as it first appears.

And now, some questions to ask yourself:

- How much of a raise would you *like* to receive? Give yourself that much in your paycheck.

- How much of what's left of the 40% would you feel comfortable putting into a taxable account that you could manage directly? This money you'd pay taxes on, and you'd be able to invest it however you wanted to to maximize your return. If the answer here is 0, that's fine.

- Is there anything else you'd *rather* do with what's left of the 40% raise than set it aside for retirement? If so, do it. Otherwise, you have your number for your 401k contribution. If you want to decide ahead of time that the 401k contribution will be at least 5% to get the employer match, that's fine. Then just start from the beginning considering your raise to be 35% instead of 40%.

I hope this helps a little.
Tom
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