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401(k) advice
Posted on 6/19/14 at 8:31 pm
Posted on 6/19/14 at 8:31 pm
I have the option of investing my money into either a standard 401(k) or a Roth 401(k). I know what both means, so I don't need an explanation of that, just advice on which is better.
I see positives and negatives for both.
Keep in mind I'm 22
I see positives and negatives for both.
Keep in mind I'm 22
5
Posted on 6/19/14 at 8:41 pm to rlebl39
Is your salary/tax bracket higher today than you expect it to be during retirement?
If YES, go Traditional 401k.
If NO, go Roth.
More than likely, at age 22, you should go Roth 401k. You may also have a Roth IRA, and want to tax diversify. If you know what the differences are, this should be an easy answer.
If YES, go Traditional 401k.
If NO, go Roth.
More than likely, at age 22, you should go Roth 401k. You may also have a Roth IRA, and want to tax diversify. If you know what the differences are, this should be an easy answer.
Posted on 6/19/14 at 8:43 pm to rlebl39
It depends somewhat on how much you plan on contributing annually.
If you contribute a larger amount each year, it tends to favor doing so in a non-Roth plan because you get to keep more of your money (not taxed) and earn on it thus building your plan's assets faster.
If not, I would probably lean towards the Roth plan.
However, you have to ask yourself if you believe the government will really allow you to have a completely tax free portfolio in 40 years when you would start withdrawing funds from a Roth.
I personally believe that won't happen for assets exceeding a certain amount by the time you retire gets here.
If you contribute a larger amount each year, it tends to favor doing so in a non-Roth plan because you get to keep more of your money (not taxed) and earn on it thus building your plan's assets faster.
If not, I would probably lean towards the Roth plan.
However, you have to ask yourself if you believe the government will really allow you to have a completely tax free portfolio in 40 years when you would start withdrawing funds from a Roth.
I personally believe that won't happen for assets exceeding a certain amount by the time you retire gets here.
Posted on 6/19/14 at 8:45 pm to LSUtigerME
Yeah I will probably go with Roth. Only thing I'm afraid of is the rules changing by the time I'm ready to retire in 40+ years and end up getting taxed on both ends.
Also company matches 4% and I plan on contributing 4% of my salary for now, if that is any help for advice.
Also company matches 4% and I plan on contributing 4% of my salary for now, if that is any help for advice.
This post was edited on 6/19/14 at 8:47 pm
Posted on 6/19/14 at 8:46 pm to rlebl39
Your Roth 401K is through work. Do they match? If so, the match is probably post tax. Without specifics I'd contribute pre tax to the Roth 401K up to the match. Then I'd go to a Roth IRA up to the limit by law. So it depends on how much you can afford to put towards retirement. If you are married and your wife works you need to consider that as well.
Posted on 6/19/14 at 8:51 pm to PlanoPrivateer
They match 4% and I'm going to contribute 4% for now.
I'm only 22 and straight out of school with some debt that still needs to be paid and not much in savings right now, so 4% is all I feel I can afford right now.
I'm only 22 and straight out of school with some debt that still needs to be paid and not much in savings right now, so 4% is all I feel I can afford right now.
Posted on 6/20/14 at 8:52 am to rlebl39
quote:
I have the option of investing my money into either a standard 401(k) or a Roth 401(k). I
If you don't mind me asking, what line of work are you in?
I don't know many people with a Roth 401k option but I see it posted around here semi-regularly.
Posted on 6/20/14 at 9:11 am to rlebl39
quote:
They match 4%
It is critical to contribute enough to get the full amount of the match; the younger you are the more time it has to compound.
Posted on 6/20/14 at 9:17 am to meldawg399
If you can do both and they will match 4 % to your 4% on each, then that would be nice to get another 8 % out of them. If it were a possibility..
Posted on 6/20/14 at 9:31 am to keeton350
I was in a similar situation right out of college. I did Roth 401k, but eventually switched to traditional when I needed to pile up cash for a house down payment. Doing 4% Roth cuts your paycheck's bottom line a lot more than 4% Traditional. With that said, I still max out my Roth IRA contribution every year.
Posted on 6/20/14 at 10:50 am to Oenophile Brah
Engineering firm
Posted on 6/20/14 at 11:05 am to LSURussian
quote:
I personally believe that won't happen for assets exceeding a certain amount by the time you retire gets here.
Agreed.
I personally put in both, but it has been slanted one way or another depending on how much I made or anticipate to make in a given year.
Posted on 6/20/14 at 11:13 am to Volvagia
We had a wealth advisory firm that handles our 401k come talk to all new enrollees into the program. They basically just gave pros and cons to both a standard and a Roth, but obviously left it up to us to decide.That's why I came here for further guidance.
My main concern with Roth was mostly the government changing rules in the future. I just don't trust government after what they've done with other things like social security and health care, but that's a whole different discussion I don't care to dive into.
Thanks for all the help though, I will probably go with the Roth for now and reasses in a couple years.
My main concern with Roth was mostly the government changing rules in the future. I just don't trust government after what they've done with other things like social security and health care, but that's a whole different discussion I don't care to dive into.
Thanks for all the help though, I will probably go with the Roth for now and reasses in a couple years.
This post was edited on 6/20/14 at 11:16 am
Posted on 6/20/14 at 1:24 pm to rlebl39
If you are honestly concerned about the government changing rules in the future (I'm not as concerned as most seem), contribute all to the traditional.
The only potential loss is the difference in tax rates between now and today. If tax rates go up base case (ie. for same salary brackets), your traditional will be taxed more than a post tax contribution account. In which case even if big government decided to tax your Roth at the end, it may end up being the same.
It's all speculation. Unless you expect to make significantly more relative to your tax bracket IN retirement than you do today, just contribute to traditional.
To diversify, open up a Roth IRA and put some money in it, serving as your emergency fund as well since you are cash strapped.
Last thought, if you contribute to Roth 401k, the match likely goes to traditional (it does in my case). That's one way to tax diversify as well.
The only potential loss is the difference in tax rates between now and today. If tax rates go up base case (ie. for same salary brackets), your traditional will be taxed more than a post tax contribution account. In which case even if big government decided to tax your Roth at the end, it may end up being the same.
It's all speculation. Unless you expect to make significantly more relative to your tax bracket IN retirement than you do today, just contribute to traditional.
To diversify, open up a Roth IRA and put some money in it, serving as your emergency fund as well since you are cash strapped.
Last thought, if you contribute to Roth 401k, the match likely goes to traditional (it does in my case). That's one way to tax diversify as well.
Posted on 6/20/14 at 1:25 pm to rlebl39
quote:
My main concern with Roth was mostly the government changing rules in the future.
This would be pretty far down my list on consideration points on whether or not to go with the Roth.
Posted on 6/20/14 at 1:47 pm to rlebl39
I struggled with this question for quite a while trying to basically predict the future. Finally I decided to go 50/50 401(k)/Roth 401(k). I figure that diversification seems to be a good idea in investing so why not diversify my tax risks as well.
Posted on 6/21/14 at 3:59 pm to elposter
quote:
I struggled with this question for quite a while trying to basically predict the future. Finally I decided to go 50/50 401(k)/Roth 401(k). I figure that diversification seems to be a good idea in investing so why not diversify my tax risks as well.
There's something to be said for distributing the exposure but you are going to eventually probably going to realize (pun intended) which one was more correct. That will be sad as in "what could have been".
Everybody's situation can be different, I'd talk to a CFP or the like before I decided. (I took my own advice and did so years ago.)
Posted on 6/21/14 at 10:16 pm to soccerfüt
To OP. I say Roth and wouldn't think twice about tax free growth you will have for 40 years. Also, eat PBJ sandwiches for a couple of years and put every penny in you can. The more you get in early to grow that long will be unreal.
My 18year old daughter has $37,000 in ROTH IRA (working at family business and other jobs contributing max to ROTH IRA since age 12). If she NEVER adds another penny at modest 6% she has over $800,000 at retirement. If it grows at historical 10% year she has several million without ever adding another penny because of length to grow and a nice amount at start. So try to max it out for a couple years early if you can.
My 18year old daughter has $37,000 in ROTH IRA (working at family business and other jobs contributing max to ROTH IRA since age 12). If she NEVER adds another penny at modest 6% she has over $800,000 at retirement. If it grows at historical 10% year she has several million without ever adding another penny because of length to grow and a nice amount at start. So try to max it out for a couple years early if you can.
This post was edited on 6/21/14 at 10:18 pm
Posted on 6/21/14 at 10:26 pm to jondavid11
Your company almost for sure does not contribute to your Roth IRA with their match. It is a tax nightmare to deal with and affects their ability to write off taxes on 401k match. Typically they will match in a traditional regardless of what you choose.
Posted on 6/21/14 at 10:33 pm to jondavid11
quote:
My 18year old daughter has $37,000 in ROTH IRA (working at family business and other jobs contributing max to ROTH IRA since age 12).
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