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IF I may ask, what is the point of going back to your 401(k) plan after maxing out your employer match on your 401(k) and then maxing out your Roth IRA? Most 401(k) plans offer limited fund selections (easier to administer) that have higher loads or fees than other available options. Why wouldn't you want to go to a taxable fund with infinite investment choices, easier access to your assets in case of a need for withdrawal or change, as well as being to choose a company that gives you the information you need. I, personally, like having access to my money without having to take a loan or having to prove financial hardship in case I have to tap my assets. I know there are tax advantages but you are significantly limiting yourself in options in most cases. Perhaps your personal investment choices could not beat the pre-tax gains but I see it as a toss-up (my 401(k) is administered by a large company and it only has 1 index fund for example). Also, I think a lot of people of a younger demographic realize the need to be self-reliant in old age and are starting to enroll in 401(k) plans and Roths but then will put 0-20% (if they are lucky) down on a home and be stuck paying interest their whole lives. Does your $5000 a year into a Roth really offset hundreds of thousands of dollars in interest you pay on mortgages? I'm looking at buying a cheap 1 bedroom condo in a good area with 40-50% down that I could immediately rent out for more than the payments and then continuing the cycle while still investing ~16% of my gross salary. This alone will save almost 90K in interest over the life of the loan. I don't exactly make a grand salary but I am frugal.
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Jul 10, 2008 01:25
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"[panic posted:"] You bring up some great points [panic]. Personally, I started at 17 so I have a bit of a headstart due to a lot of work. I think young workers can save up a significant amount very quickly if they made some simple choices (understandably not always feasible) early in their stable employment, such as not getting a new car right out of college, not buying every toy in sight, and so on (not preaching extreme frugality here by any means). Thanks for the discussion!
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Jul 10, 2008 05:45
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What does the collective group think about traditional 401(k) versus Roth 401(k) options? I have an option for both at my work. The max employer match is 6% (plus an additional 4% gratis) but that can be split however I choose to invest. I can, potentially, invest in both at the same time. There is no difference in the funds; merely the pre and post-tax treatment. What I was thinking of doing is switching my contributions from my traditional 401(k) to the Roth 401(k). That way I have a balance of both. Additionally, I could couple the Roth 401(k) with a regular Roth IRA and get double the benefit. That is assuming the tax environment 40 years from now will be at a higher rate than is now (highly likely I believe). One last thing, I've also read various reports that call into question that one will need 80+% of your current income during retirement. During retirement your taxes generally go down, you have a paid off residence (hopefully), a simpler lifestyle, and so forth. These reports also assume Social Security will still be around, that inflation hasn't eaten away 50% of your portfolio, and you made smart medical choices and are still covered relatively inexpensively. Thoughts?
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Jul 10, 2008 21:15
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80k posted:-tito-, I presume that the company match is then taxed upon withdrawal in retirement like a traditional 401(k) then? Thanks for the great info. 80k
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Jul 11, 2008 03:25
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Ravarek posted:Yeah, but what's the alternative, dude? What do you suggest? That the average person should save nothing for retirement and just work until death? I think what he is advocating is moderation in one's investment strategy and not wholesale abandonment of saving or investing. If you think about it, why should you invest much more than 15% of your income on the upper-end? Why should you save and skip vacations, going out, etc. due to extreme saving and miss out on what life has to offer? When you are 65 and in a diaper or full of many illnesses, and are too old to go visit all the wonderful places you've wanted to go to your whole life...what is the point? There are many stories out there of people that have lived a hard-working life, been successful, finally retired only to be too sick (or die) to fulfill their dreams. Would you rather have a harder time in old age when you have lived a full, happy life or face regret? As with everything, moderation is key.
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Jul 14, 2008 02:22
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