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401k advice

Discussion in 'Anything goes' started by Evil ... Thy name is Orville Redenbacher!!, Jul 16, 2013.

  1. CNY

    CNY Member

    Almost every financial adviser I've talked to has offered advice along these lines:

    http://www.thesimpledollar.com/2008/08/11/the-big-debate-1-401k-or-roth-ira/

    Basically, if you think your investments will do well and push you into a higher tax bracket as you get older and you expect that tax rates will rise in the future, the Roth is a better bet. The Roth, in most cases, will also give you many more options than your 401k provider.

    That said, I invest in both. Contribute to the 401k the amount that gets the maximum employer match, then max out the Roth IRA, then contribute whatever else I can to the 401k.
     
  2. LongTimeListener

    LongTimeListener Well-Known Member

    Yeah I've read that. But what you think might happen in 30 years is for most people not as valuable as what will happen now.

    You can put $5,000 into a 401k now and you lower your tax bill by about $1,500. Reading Evil's case study, it appears to me that the immediate tax benefit outweighs the later gains. And he can always convert to a Roth if he does have the cash to do it later.

    I don't know. I have both. But reducing today's tax bill is, for most people, usually the more advantageous route.
     
  3. imjustagirl

    imjustagirl Active Member

    My 401K from my last job is 51 percent aggressive fund, 26 percent growth fund and 23 percent conservative fund. It's grown 5.9 percent since Jan. 1.
     
  4. EStreetJoe

    EStreetJoe Well-Known Member

    If you can't transfer the money to open it as an IRA somewhere (a rollover) then leave it in there, stop contributing and make contributions to an Index fund at Vanguard or somewhere else with low costs to maintain the fund.
     
  5. buckweaver

    buckweaver Active Member

    If you're not getting a company match, then it really doesn't make sense to put that much into a 401k. The biggest benefit of doing that is the company match.

    Just start your own Roth and/or traditional IRA (depending on what makes sense for you, tax-wise and income-wise) and contribute the max to those accounts. Then it doesn't matter where you work, the money is yours and you can invest it however you want.
     
  6. doctorquant

    doctorquant Well-Known Member

    Even if you're going to stop contributing to the 401K and begin contributing to an IRA (which is sound advice, but make sure you're eligible to do this), you still need to make sure you're getting the most out of those funds invested in your 401K while they're stranded there. To that end, you need to get your information together and get a sense of what it is you're actually invested in.
     
  7. Thanks for the advice. I really appreciate it.
     
  8. Dick Whitman

    Dick Whitman Well-Known Member

    Here's a question I always wrestle with: How much should you save outside of your 401(k) fund? In other words, how much liquid savings should you have around?

    I feel like the answer is, if you aren't saving for something specific like a car or a home or college, "not much," because there are no tax benefits.
     
  9. LongTimeListener

    LongTimeListener Well-Known Member

    You should always have six months' worth of expenses for an emergency, and that idea alone puts people in a near-constant state of savings. (This can be fudged with a HELOC or some other money source you can tap if needed, so it isn't always a hard six months' worth, but it's a good rule of thumb at least.)

    It's also a good idea to have savings or investments outside of the retirement accounts so you don't end up with an imbalance when you're, say, in your early 50s. You don't want to have all of your money socked away in an account that can't be accessed until for another eight years without a hefty penalty, while you're grinding away to pay month-to-month bills. This is not much of a concern regarding college payments, because you can withdraw penalty-free from a retirement account for most qualified expenses. But for anything else that might come up, or if you have any hope of an early retirement or semi-retirement, you're going to want that cash in a spot you can access it.

    I'm a big proponent of the 401k over the Roth in Evil's case because of the tax advantages, but I wouldn't go so overboard on tax deferral that I totally neglect the "now" portion of the account.
     
  10. EStreetJoe

    EStreetJoe Well-Known Member

    Agree completely with Long Time's advice here.
    You need to have that emergency account in case you get laid off or a major unexpected expense pops up.
    It's also good to have that investment account outside of the IRAs set up for the reasons that Long Time gave and also so you can have that emergency fund (hopefully) growing in a place outside the bank or retirement accounts.
     
  11. Good advice on here, but I also question if that is really your growth rate. The market's been doing well and my 401k has done extremely well over the last few years. If you've got a rate that low it sounds like you're in ultra-conservative holdings like bonds.

    The rule of the thumb is be aggressive when you're young and get progressively more conservative as your retirement age approaches. I like the Target retirement date funds that adjust automatically as your retirement approach.

    Also, I echo the poster who questioned whether 12 percent contribution with no match is wise. You should always maximize your company's match, but otherwise the value of a 401k versus other investment instruments isn't always so meaningful.
     
  12. Blood diamonds are a sure investment.
     
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