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401k Questions
Posted on 12/28/17 at 12:09 pm
Posted on 12/28/17 at 12:09 pm
Alright guys. New job, new investments
1. I have the option of traditional 401k or Roth 401k. I'm solidly in the 22% federal tax bracket. I'm already maxing my Roth IRA. I understand the differences between the traditional and Roth 401k, but am unsure how a Roth 401k is affected if I were to change jobs. Does a Roth 401k rollover into a Roth IRA? I'm assuming I can find a calculator to help decide between the two options but any input is appreciated
2. I get a 100% company match up to 4%. Will definitely be doing this. However, with expenses upward of 1%, is it still advantageous to put money in 401k past this amount when I can invest in a taxable with a 0.05% expense ratio?
Thanks.
1. I have the option of traditional 401k or Roth 401k. I'm solidly in the 22% federal tax bracket. I'm already maxing my Roth IRA. I understand the differences between the traditional and Roth 401k, but am unsure how a Roth 401k is affected if I were to change jobs. Does a Roth 401k rollover into a Roth IRA? I'm assuming I can find a calculator to help decide between the two options but any input is appreciated
2. I get a 100% company match up to 4%. Will definitely be doing this. However, with expenses upward of 1%, is it still advantageous to put money in 401k past this amount when I can invest in a taxable with a 0.05% expense ratio?
Thanks.
This post was edited on 12/28/17 at 1:02 pm
4
Posted on 12/28/17 at 12:15 pm to jimbeam
quote:
Does a Roth 401k rollover into a Roth IRA?
Yes.
Posted on 12/28/17 at 1:17 pm to jimbeam
quote:
I get a 100% company match up to 4%. Will definitely be doing this. However, with expenses upward of 1%, is it still advantageous to put money in 401k past this amount when I can invest in a taxable with a 0.05% expense ratio?
In addition to the expense ratios, you'd also need to think about how hard your gains are going to get taxed in the future in the taxable, whereas in the Roth 401k, you're tax free (until there's some future "tax reform" that attacks that).
I don't know how old you are or where you are in your retirement planning timeline, but if I was mid 30's or below, I'd probably be maxing the 401k's (60/40 or maybe 75/25 Roth 401K/Traditional 401k) after I maxed my HSA and Roth IRA.
There's not really a wrong answer. But you have to form something of a WAG (wild arse guess) on what the future tax landscape might look like in your case.
Posted on 12/28/17 at 1:25 pm to Jag_Warrior
Mid 20s. I was planning on continuing to max HSA and Roth (vanguard).
Leaning towards traditional 401k to hedge bets on retirement tax changes in the future.
Leaning towards traditional 401k to hedge bets on retirement tax changes in the future.
Posted on 12/28/17 at 4:10 pm to jimbeam
I would say for most people the traditional 401k is the better route. You're saving on taxes now and more importantly your investments are growing tax free. I think that gets overlooked way too much.
Unless you're certain that income tax rates will be higher in the future, but no one knows what will happen.
Unless you're certain that income tax rates will be higher in the future, but no one knows what will happen.
Posted on 12/28/17 at 4:20 pm to jimbeam
Are you absolutely certain expenses are required to be 1%? I was automatically enrolled in one of those guided investment things with Fidelity for mine, but just called to cancel immediately and invested in super low cost index funds.
Posted on 12/28/17 at 7:13 pm to jimbeam
quote:
However, with expenses upward of 1%, is it still advantageous to put money in 401k past this amount when I can invest in a taxable with a 0.05% expense ratio?
Yes, the tax advantages - whether pre- or after-tax - plus tax deferral greatly outweigh the 95 bps. Also, the returns are shown net of fees.
If the options in your 401k are expensive and suck, find the smartest, highest up person there and ask him/her for help choosing so they can recognize the options suck. Your company has a fiduciary responsibility to provide you with a decent plan.
Posted on 12/28/17 at 7:15 pm to gpburdell
quote:
Unless you're certain that income tax rates will be higher in the future, but no one knows what will happen.
Yes we do. usdebtclock.org
We can spend less, default, or raise taxes. Those are the options. Think about it.
Posted on 12/28/17 at 7:25 pm to UpstairsComputer
Does it cost themes to switch to vanguard? 
Posted on 12/28/17 at 7:30 pm to jimbeam
I get it was a joke, but yes, there would most likely be a cancellation fee at the current firm and an installation fee (depending on the size of the plan) at Vanguard - but they aren't the only game in town.
You can check on the size of your plan at brightscope.com.
You can check on the size of your plan at brightscope.com.
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