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Started By
Message
Max the 401K vs Roth
Posted on 3/18/14 at 10:07 pm
Posted on 3/18/14 at 10:07 pm
Good evening MT board. I'm as green as you can be in the investing world seeing as how I've been in school for the past 21 years and finally have a job that is allowing me to think outside of the month-to-month box. I have a question about what you recommend for someone with a little extra cash. My current 401K is mandatory and pretty great. I give 9% of salary and they give 12%. However, I will only average about 10K per year doing this without pushing more in myself. I currently qualify for a Roth but do not have one, and I qualify for no more than 3 more years, if not less. Which would the MT recommend I do. Max out the 401K or open and max a Roth for the next 1-3 years? Please bear with me if this is a dumb question. I'm trying to read and further my knowledge in investing, but, as I said, still very new to it all.
5
Posted on 3/18/14 at 10:19 pm to MDTiger 13
Put enough in to get company match, then max the Roth is what I usually see around here
Posted on 3/18/14 at 10:34 pm to MDTiger 13
Go to employer match and then max out Roth first.
Posted on 3/18/14 at 10:38 pm to Lsut81
Max out 401k for the match - then Roth.
Posted on 3/18/14 at 10:40 pm to MDTiger 13
Are you implying your contribution alone is only $9k, or yours + match?
If yours alone, I'd suggest contributing more to the pre-tax 401k. This is based on the likelihood of being in a lower tax bracket at retirement, since it is likely higher now. That is something for you to evaluate. Do you expect to "make" more income in retirement than you do today?
However, you may also wish to tax diversify for retirement, in which case you should do both. 401k up to match, max Roth IRA, then any extra back to 401k.
Is the 3 year limit based on projected income?
If yours alone, I'd suggest contributing more to the pre-tax 401k. This is based on the likelihood of being in a lower tax bracket at retirement, since it is likely higher now. That is something for you to evaluate. Do you expect to "make" more income in retirement than you do today?
However, you may also wish to tax diversify for retirement, in which case you should do both. 401k up to match, max Roth IRA, then any extra back to 401k.
Is the 3 year limit based on projected income?
Posted on 3/18/14 at 10:40 pm to nelatf
There is no maxing out to get the match. It is an involuntary 9% of my salary and is matched with 12% of my salary from employer. Increasing my contribution would just be money going unmatched into my plan. Sounds like the Roth is the way to go
Posted on 3/19/14 at 8:21 am to MDTiger 13
They call it a match by giving you 12% to your 9%? I'd double check to make sure you don't need to increase your contribution to 12% to get their max of 12%.
Posted on 3/19/14 at 9:09 am to RIPMachoMan
Yes, they give 12 to my 9%. I can give more, but 9% is mandatory minimum and that is what gets the 12.
Posted on 3/19/14 at 9:17 am to MDTiger 13
quote:
Yes, they give 12 to my 9%. I can give more, but 9% is mandatory minimum and that is what gets the 12.
I'm in the wrong fricking business then.
My employer matches 50 cents on the dollar for up to 3% of salary, then that is it. I put in 15% and get a match of 1.5%. It blows.
Posted on 3/19/14 at 9:31 am to MDTiger 13
quote:
Yes, they give 12 to my 9%.
Not uncommon in certain fields.
quote:
MDTiger 13
New Doc?
Posted on 3/19/14 at 10:21 am to MDTiger 13
Damn that's a good deal. 
to the free money brotha!
to the free money brotha!
Posted on 3/19/14 at 10:39 am to MDTiger 13
i would max out the 401k. I do not believe for a second that roth distributions will be tax free when I retire.
Posted on 3/19/14 at 2:08 pm to MDTiger 13
quote:
Max out the 401K or open and max a Roth for the next 1-3 years? Please bear with me if this is a dumb question. I'm trying to read and further my knowledge in investing, but, as I said, still very new to it all.
Being that you will likely be in a much higher tax bracket after 3 years I would advocate contributing to a Roth the next 3 years. After that max the 401k, then contribute to a non-deductible traditional IRA if desired and convert those contributions to a Roth. If you have additional free cash flow you could also up your 401k contributions YRs 1-3 as well.
Posted on 3/19/14 at 2:21 pm to Hawkeye95
quote:
i would max out the 401k. I do not believe for a second that roth distributions will be tax free when I retire.
Well hell.....you just pissed in my Cheerios.
But you may be right - had counted on those Roth distributions to be tax free when I am an old man.
Posted on 3/19/14 at 2:52 pm to nelatf
quote:
i would max out the 401k. I do not believe for a second that roth distributions will be tax free when I retire.
I think it's unlikely all Roth contributions will eventually be taxed. I could see the government put a cap on tax free gains at some point.
Posted on 3/19/14 at 3:26 pm to Oenophile Brah
quote:
New Doc?
Indeed. My residency program has a sweet retirement plan. I kept thinking I'd heard them wrong during our orientation until I got home and started reading all of the info.
quote:
i would max out the 401k. I do not believe for a second that roth distributions will be tax free when I retire.
I was introduced to Roth's because my wife has had one for years that her parents set up for her. From day 1 I've told her it will be taxed more, and she think's I'm crazy...
Posted on 3/19/14 at 3:59 pm to MDTiger 13
quote:
From day 1 I've told her it will be taxed more, and she think's I'm crazy...
Meh, I'm not as pessimistic as you apparently. I believe that if/when the Roth protections go away, those who have them will be grandfathered in under the old rules. We may never even get to that point though.
Posted on 3/19/14 at 5:50 pm to Lsut81
quote:
Go to employer match then max out roth IRA
Isn't this only beneficial if the tax rate increases before you retire?
Posted on 3/19/14 at 5:56 pm to TheIndulger
Or you are in a higher tax bracket when you retire. It's best if you're in a low tax bracket now.
Posted on 3/20/14 at 5:55 am to slackster
Yea, you're already chunking a good bit into 401k with those percentages.
I say max the Roth now while you can because once you're done with residency and making the big bucks you'll probably be ineligible to contribute to the Roth.
I say max the Roth now while you can because once you're done with residency and making the big bucks you'll probably be ineligible to contribute to the Roth.
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