Max the 401K vs Roth | TigerDroppings.com
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MDTiger 13
LSU Fan
Brandon, MS
Member since Nov 2010
643 posts

Max the 401K vs Roth

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.


Teddy Ruxpin
LSU Fan
New Orleans, LA
Member since Oct 2006
21193 posts
Online

re: Max the 401K vs Roth
Put enough in to get company match, then max the Roth is what I usually see around here


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Lsut81
USA Fan
Member since Jun 2005
65730 posts

re: Max the 401K vs Roth
Go to employer match and then max out Roth first.


nelatf
Louisiana Tech Fan
NELA
Member since Jan 2011
1528 posts

re: Max the 401K vs Roth
Max out 401k for the match - then Roth.


LSUtigerME
LSU Fan
Walker, LA
Member since Oct 2012
1030 posts

re: Max the 401K vs Roth
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?


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MDTiger 13
LSU Fan
Brandon, MS
Member since Nov 2010
643 posts

re: Max the 401K vs Roth
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


RIPMachoMan
LSU Fan
Nola
Member since Jun 2011
1111 posts

re: Max the 401K vs Roth
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%.


MDTiger 13
LSU Fan
Brandon, MS
Member since Nov 2010
643 posts

re: Max the 401K vs Roth
Yes, they give 12 to my 9%. I can give more, but 9% is mandatory minimum and that is what gets the 12.


slackster
LSU Fan
Houston
Member since Mar 2009
7079 posts

re: Max the 401K vs Roth
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.


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Oenophile Brah
LSU Fan
The Edge of Sanity
Member since Jan 2013
6170 posts

re: Max the 401K vs Roth
quote:

Yes, they give 12 to my 9%.

Not uncommon in certain fields.

quote:

MDTiger 13

New Doc?


RIPMachoMan
LSU Fan
Nola
Member since Jun 2011
1111 posts

re: Max the 401K vs Roth
Damn that's a good deal. to the free money brotha!


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Hawkeye95
Iowa Fan
Member since Dec 2013
6007 posts

re: Max the 401K vs Roth
i would max out the 401k. I do not believe for a second that roth distributions will be tax free when I retire.



tirebiter
LSU Fan
ATL
Member since Oct 2006
5293 posts

re: Max the 401K vs Roth
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.


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nelatf
Louisiana Tech Fan
NELA
Member since Jan 2011
1528 posts

re: Max the 401K vs Roth
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.


Oenophile Brah
LSU Fan
The Edge of Sanity
Member since Jan 2013
6170 posts

re: Max the 401K vs Roth
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.


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MDTiger 13
LSU Fan
Brandon, MS
Member since Nov 2010
643 posts

re: Max the 401K vs Roth
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...


slackster
LSU Fan
Houston
Member since Mar 2009
7079 posts

re: Max the 401K vs Roth
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.


TheIndulger
LSU Fan
Member since Sep 2011
12589 posts

re: Max the 401K vs Roth
quote:

Go to employer match then max out roth IRA


Isn't this only beneficial if the tax rate increases before you retire?


ell_13
USA Fan
Member since Apr 2013
30882 posts

re: Max the 401K vs Roth
Or you are in a higher tax bracket when you retire. It's best if you're in a low tax bracket now.


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jso0003
Auburn Fan
Birmingham/Atlanta
Member since Jun 2009
5163 posts

re: Max the 401K vs Roth
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.


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