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401k and Roth IRAs

post #1 of 99
Thread Starter 
My company matches up to 4% and I need to stay 4 years to become fully 100% vested. Does it make sense to put more than 4% or 10% into my 401k? Or put money into a Roth or trad IRA? Or just putting the money into stocks?
post #2 of 99
What tax bracket are you in? That'll determine whether you should contribute to a Roth or a Traditional IRA.

Typical advice is to contribute up to the 401k company match (4% in this case), then fully fund a Roth/Traditional IRA, then contribute to the 401k if you still have money left over. Don't put your money in stocks without filling an IRA first--tax-advantaged space is valuable.
post #3 of 99
Quote:
Originally Posted by 854ca View Post
Typical advice is to contribute up to the 401k company match (4% in this case), then fully fund a Roth/Traditional IRA, then contribute to the 401k if you still have money left over. Don't put your money in stocks without filling an IRA first--tax-advantaged space is valuable.

this x 1000.  Depends what you're time horizons are.  Vanguard has targeted funds for your expected retirement date(2045, 2050, 2055, 2060) that charge a very small fee.  Thats what I use for my Roth IRA and have several different low cost ETF's for my 401k/roth 401k

post #4 of 99
Other factors that might influence your decision to contribute to your retirement accounts include the presence or absence of consumer debt, and estimated commitment to your present job. If you contribute to your 401k to the employer, you are making a 2-year commitment to acquire the match. For young professionals who may need to leapfrog among companies to ascend the corporate hierarchy, two years might be an excessive time frame.

I would avoid retirements altogether if you have any high interest consumer debt.
post #5 of 99
Thread Starter 
Can I pull money out of my paycheck right into a Roth IRA? My company doesn't let me, I can at least pull out for my 401k.
I do have some student loans, but I have money aside to completely pay them off, or pay them so far down that the, accruing 2.3% interest every year may make more sense than dropping $10K to pay them off. $10K into the right fund could earn returns of 10% which would make a better investment.
post #6 of 99
Thread Starter 
Also, I'm in the bracket that still lets me contribute to a Roth IRA wink.gif
post #7 of 99
Max 401(k) unless you are not committing, and even then, don't forget your can rollover to another employer's qualified plan.
If you are maxing out a 401(k), you are already taking care majority of the tax-advantage of being tax-deferred savings. Hence, consider a Roth IRA. If your tax bracket is so high, well I guess it doesn't matter (10)
The way should be 401(k), Roth, then IRA if you have anymore disposable income to set aside.

If you are in debt i.e student loan, pay off as much as you can a month and continue contributing to said employer / retirement plans. For first time home buyers, 401(k) is one great source of income when that time comes.

That is my 2 cents.
post #8 of 99
Thread Starter 
Quote:
Originally Posted by gettoasty View Post

Max 401(k) unless you are not committing, and even then, don't forget your can rollover to another employer's qualified plan.
If you are maxing out a 401(k), you are already taking care majority of the tax-advantage of being tax-deferred savings. Hence, consider a Roth IRA. If your tax bracket is so high, well I guess it doesn't matter (10)
The way should be 401(k), Roth, then IRA if you have anymore disposable income to set aside.

If you are in debt i.e student loan, pay off as much as you can a month and continue contributing to said employer / retirement plans. For first time home buyers, 401(k) is one great source of income when that time comes.

That is my 2 cents.

Most thank you for your 2 cents. By maxing out 401(k) you mean with my employer's contribution or with the $17.5K IRS allowed tax deductible?
post #9 of 99
Max out is the 17.5K of your own contribution via salary deduction [deferral]. Whatever your company matches at year end is just extra money into your savings or a "bonus" (though a bonus may better refer to profit sharing plans).

TBH I have not delved into much of the nitty gritty details of saving 'x' relates to savings 'y' in taxes, however, if you are deferring 17.5K a year and also making a max contribution to your IRA, it should relatively take care of your tax deferral opportunities per tax year. That is when a Roth IRA maybe timely if you want to contribute more to your retirement.

Now you having me scratch my head as I remember computing a start-up plans actual savings when taking into consideration the TPA fee & admin, employee contributions etc., but that is more from the plan sponsors viewpoint. I digress.

Back on topic, if you cannot afford the 17.5K a year, you can just as easily calculate how much you need to contribute and the difference (you mentioned 4% employer match) can cover the remaining amount so to be sure you are optimizing your 401(k).

Remember that 401(k) salary deduction is based on a calendar year, Jan 1. - Dec. 31 while IRA / Roth IRA are by tax return deadline, April 15. So, the cycle is 24 pay periods (in general) for 401(k) and something like 30 for individual retirement plans, if you are contributing per pay period.
post #10 of 99
Thread Starter 
Well, I haven't looked into a Roth IRA yet, just that my 401k seems to make sense (this will be my first 401k plan). My thought was to max it out. At the end, whatever is left, either go into a Roth, or roll it over if I leave the company.
post #11 of 99
Thread Starter 
Do you recommend one fund or multiple funds?
post #12 of 99
Personally, participating in my new simple IRA plan, I will perhaps look and make adjustments in increments like 5K, 10K, 15K etc. That is when I will probably consider the fund lineup and how to diversify in terms of 1, 3, 4 different funds.

If you are making consistent, ongoing contributions, consider multiple funds where the current asset is allocated into something a bit more conservative so to preserve the assets while new money being more aggressively allocated. I know certain platforms allow for auto-rebalance every quarter. Ask your plan sponsor / trustee, or perhaps HR. 401(k) should have more options then say a simple IRA as the latter is more 'simplified'.

Research what type of fund lineup you are open to then make the allocations per your risk tolerance, investment goals, short term or long term etc. Sounds generic but it is a basis as where to start when planning, and TBH not a lot of participants understand the general 60/40 models et al or just do not have the time. This is why perhaps someone mentioned earlier about target date funds, which do give you a general fund lineup / exposure based on age vs. risk, but does a poor job in really addressing your goals. Check if your plan has the SDO. If available perhaps you may want to consult a broker / CFP. Of course it will then cost more money in order to manage the asset via 3rd PMM.

Until your portfolio grows to a considerable size, you can probably ignore the latter and just make sure you are consistent and monitoring the portfolio quarterly, semi-annually, or annually.

I know you also mentioned a vesting schedule, which may effect your rollover dollars if you have employer contributions i.e. matching. Elective deferrals are always 100% vested.
post #13 of 99
The reason an IRA/Roth IRA is typically more useful than a 401k (after the match of course...never forego an employer match--it's free money!) is because of expense ratios.

I've seen some truly gruesome 401ks where the expense ratios are above 1%. If you open an account with say Vanguard or Fidelity, you can get a perfectly fine index fund or target retirement fund for no more than 0.2% in expenses. You also have MANY more funds available to you in an IRA, whereas in a 401k you're stuck with whatever the company decides to provide you with.

Another plus of the Roth IRA is that you can always take out the *contributions* without any penalty if you should ever need it. Because of this they can serve as a type of "emergency fund." Still, I would advise you to leave your money in the Roth until retirement because once a year passes or you take money out, that's $5k of money that you'll never be able to put back in.

Decision on IRA vs. Roth IRA comes down to your taxes now and your taxes in retirement. If you are paying very low taxes right now and believe you will retire in a higher income tax bracket, put it into a Roth...you'll essentially pay taxes now, but your money will grow for decades without taxes and also will NOT be taxed upon withdrawal (a pretty sweet deal). If, on the other hand, you are paying high taxes now and/or believe you'll be in a lower tax bracket when you retire, it makes more sense to put it into a traditional IRA.
post #14 of 99
Thread Starter 
Does it make more sense to max out and try to put $17.5K into my 401k? I can, one day, roll it over into a Roth IRA? Won't everthing I put into a Roth IRA be post-taxed anyways, so aren't I getting taxed twice?
post #15 of 99
I have heard of backward Roth conversion but never for a rollover from 401k unless perhaps it's a Roth 401k
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