Max out 401 K or start Roth?
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Anonymous
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My employer contributes to my 401K whether I do or not. I currently put 5% in there as well. Want to go up and not sure if I should go up to 10% or put at least some into a Roth offered by my employer as well. I make about 100K, single mom. No reason to expect to be in a higher tax bracket in retirement, if I ever retire.
I'm thinking go up to 7.5% in 401K and put 2.5% in Roth? Don't have a ton to put in either actually so may not matter too much. |
Anonymous
| Is it a Roth TSP or regular Roth IRA? If IRA, I'd do that first. We max out Roth IRAs in years in which we are income-eligible. |
Anonymous
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OP: it's a Roth IRA
So you think I should max out on that before upping my contribution to the 401K? |
Anonymous
| The one advantage to a Roth IRA is it's the best way to save for dbs' college too. |
Anonymous
is it better than a 529? |
Anonymous
I'm also interested in the answer to this question. |
Anonymous
| Max out Roth IRA first, then contribute the rest to 401K. |
Anonymous
Yes, it's better than a 529 because it's a retirement account first but the funds can be used for college and first-home purchase. So it generally has more utility. Although you have to be wary of a financial aid penalty for using a Roth IRA as a college savings source. But it's not as good as a 401K that comes with a company match. That should be fully exploited first. |
Anonymous
| Yes but there is still a 10% penalty if used before 59 1/2 assuming you take out more than half of your initial investment. Doesn't apply to those who will be 59 1/2 while their kids are in college though. Learned that the hard way. |
Anonymous
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If your employer is offering it then it is almost certainly a Roth 401k, which is similar to but has some different rules from a Roth IRA.
Generally speaking, unless you are very wealthy or taxes get significantly higher for the middle class, it is unlikely you will be paying taxes at a higher rate in retirement than now, in which case you are likely to be better off contributing as much as you can to the traditional 401k (taking advantage of the tax deduction) than paying taxes now and contributing to a Roth 401k. If you still have money left over to save, then a Roth IRA is a very good option, because it is both tax deferred and fairly flexible (easier to withdraw contributions than a regular IRA/401k). |
Anonymous
| I have a traditional TSP at 10% plus I contribute $200 a month to a Roth. I tried to go down to 5% (matching) and contribute the extra to my IRA, but found that I really needed the cash flow today that comes from contributing tax deferred, so I went back to where I'm at now. I make less than you though so you might be better able to absorb the cost. |
Anonymous
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Our financial advisor has recommended we do ROTH when possible. His argument is that tax rates in 30 years will almost certainly be higher than they are today.
HHI here is about 260k. |