this is pretty straight forward. I've been contributing 10% to my 401K the last few years with company match the first 6%. Lately i've been wondering if I'm better off dropping my contribution to 6% (to get the full match) and open my own Roth IRA to allocate the difference I scaled back on (4%) with my employer 401k. Is this a reasonable way to look at it? Any drawbacks that I'm not thinking of?
Your "best" course of action would probably be to keep the 10% in the 401k and start a Roth and contribute another 1% this year. Slowly inch that contribution up every year till you start getting to a comfortable limit. Of course that really depends on your financial situation.
Also you're capped at $5500 per year.
certainly maintain the match with your employer- you are correct there. A Roth contribution is after tax, which should be considered. I agree with Syber- continue your 10% as is and open a Roth and contribute as much as you can afford.Hopefully, with future raises, you can increase your Roth contribution over time.
Haha, i wish i could. Between the new house and daycare starting next week, i'd be stretching things quite a bit if I put any more than 1-2% more. Unless I sacrifice me free cash savings and break even month over month which I guess is an option and we have enough saved for an emergency.
You can pull out Roth contributions penalty free after what, 5 years? Just not on gains?
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max your 401(k) at what I think is 18k per year unless you're 50 which I don't think you are , and then open a Roth IRA as well for the max of $5,500.
Haha, i wish i could. Between the new house and daycare starting next week, i'd be stretching things quite a bit if I put any more than 1-2% more. Unless I sacrifice me free cash savings and break even month over month which I guess is an option and we have enough saved for an emergency.
You can pull out Roth contributions penalty free after what, 5 years? Just not on gains?
the only way I think it makes sense for you to split then between a 401(k) and an IRA (Roth or traditional) is if you feel like your 401(k) investment options are limited and you can do better opening a self-directed IRA or one with a financial institution that has better options.
otherwise it's just a question of when you pay the taxes. with kids, mortgage payments, etc. I'd stick with the pre-tax investment at the 401(k) if you're happy with it and maximize the amount you can invest there.
yeah I'm kinda shocked as well. heard rumblings of them scaling back but so far nothing. i'm fully vested since I've been here a while so i'm good there. if they pull back on contributions then I will definitely have to rethink things more aggressively.
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In comment 12923638 pjcas18 said:
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max your 401(k) at what I think is 18k per year unless you're 50 which I don't think you are , and then open a Roth IRA as well for the max of $5,500.
Haha, i wish i could. Between the new house and daycare starting next week, i'd be stretching things quite a bit if I put any more than 1-2% more. Unless I sacrifice me free cash savings and break even month over month which I guess is an option and we have enough saved for an emergency.
You can pull out Roth contributions penalty free after what, 5 years? Just not on gains?
the only way I think it makes sense for you to split then between a 401(k) and an IRA (Roth or traditional) is if you feel like your 401(k) investment options are limited and you can do better opening a self-directed IRA or one with a financial institution that has better options.
otherwise it's just a question of when you pay the taxes. with kids, mortgage payments, etc. I'd stick with the pre-tax investment at the 401(k) if you're happy with it and maximize the amount you can invest there.
Yeah i may just leave it for now. The bigger question is probably for my wife whom I don't think has a big company match or any at all. If that's the case I may have her contribute the max to the Roth and ditch her 401k if she isn't getting a match.
Second, it's all really just a tax gamble -- do you expect to pay a higher tax rate now or in retirement? Because assume for a second that your tax rate wont change; if that is the case, Roth vs traditional 401k/IRA doesnt matter unless you have a lot of income to shelter. Take these variables: $5000 pre-tax you want to set aside, constant 20% tax rate, and investment will quadruple before you want to withdraw it all. Traditional: 5k*4 = $20k, -20% at the end = $16k. Roth: $5k-20% = $4k, quadrupled = $16k. Same number.
The conventional wisdom is that you're likely to pay more during your working years, making the tax break more valuable for the Traditional IRA/401k. However, I think some of that will be balanced out by generally higher taxes in the future.
The key to me is that 401k gives you the tax break right now. You lock it in. If you go Roth, you're counting on a tax break in 30 or 50 years. What if Congress gets stingy and comes up with a "surcharge" or something on Roths (which arent that popular I believe). Or it goes the other way and people in traditional IRAs/401ks get some extra tax break on them in the future as a political give to seniors? I think it's better to lock in the break now.
I'm sure you know this, but child care is also a tax deduction if you itemize (and with a house I assume you do).
I was happy when my kids started kindergarten since it meant no more childcare (and I complain, but it was two-days a week, my mother-in-law provided us free child care for two days a week and my wife only works 4-days a week so was home the other day), but once that ended I lost the tax deduction. Which even for just two days a week, with twins it was $6 - 8k (cost to us per year) (and it was only 5 hours a day or so). Full time day care is much more.
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thanks, that helps a lot. The tax break now is definitely helpful and keeps us from owing each year which is a pain. With the house and baby we make out much better on taxes than we did, but additional savings to help with childcare works best. You are right, no idea what things will be like in 30 years when I start thinking about retiring.
I'm sure you know this, but child care is also a tax deduction if you itemize (and with a house I assume you do).
I was happy when my kids started kindergarten since it meant no more childcare (and I complain, but it was two-days a week, my mother-in-law provided us free child care for two days a week and my wife only works 4-days a week so was home the other day), but once that ended I lost the tax deduction. Which even for just two days a week, with twins it was $6 - 8k (cost to us per year) (and it was only 5 hours a day or so). Full time day care is much more.
Yeah I reviewed the childcare deductions with my accountant. I can also set aside $5k pre-tax to what's essentially an HSA to use for childcare so that's good too.
This will be fulltime daycare and will cost just about as much as my mortgage, haha. Hopefully a nice deduction will be coming.
$410 a week for just 1 starting Monday...can't wait!
I hear that a lot and i'm trying to figure out what will cost $20k+ per year for my kid/s especially if they are in public school, which they will be. What am I missing?
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They get more expensive as they grow up!
I hear that a lot and i'm trying to figure out what will cost $20k+ per year for my kid/s especially if they are in public school, which they will be. What am I missing?
Well college for one, but yeah the 12-13 years in public school are a relief.
Bottom line, if your plan has decent, low cost, choices like Vanguard, stick with the plan.
Just don't take advice from Phil (I kid). Has anyone seen Phil lately?
LOL, very true, however, I would not change one thing about my kids, other than I would have had more if I could convince my wife or catch her in a weak moment or even roofied her (ok I wouldn't roofie my wife), but it's probably the only thing we've ever had a disagreement over.
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In comment 12923858 WideRight said:
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They get more expensive as they grow up!
I hear that a lot and i'm trying to figure out what will cost $20k+ per year for my kid/s especially if they are in public school, which they will be. What am I missing?
Well college for one, but yeah the 12-13 years in public school are a relief.
Yeah im holding off on college prep. I think there are going to be big changes in that whole world and I'd rather focus on my mortgage and longterm security. State/local school is always an affordable (or more affordable) option, or she may not go at all.
My wife and I met with a financial planner after my 3rd child was born and he crunched all the numbers based on how we wanted to live when we retired, when we wanted to retire, etc...
and the net was with assuming a moderate 7% or something like that annual return on our retirement investments, and adequate life insurance coverage we were under-funding our 529 plans by 2000% if we expected them to pay for any portion of college.
At the time I was contributing $100 per month per kid.
I'm up to $250 per month per kid, but it will come nowhere close to paying for college, it might pay a couple years for one kid all said and done, but you can't do everything unless you have the funds to do it. And life just happens.
My wife and I both paid for our college (i did get partial help) so we will do what we can. But there's value in a child paying for their own school so that will likely be the route we take.
My wife and I met with a financial planner after my 3rd child was born and he crunched all the numbers based on how we wanted to live when we retired, when we wanted to retire, etc...
and the net was with assuming a moderate 7% or something like that annual return on our retirement investments, and adequate life insurance coverage we were under-funding our 529 plans by 2000% if we expected them to pay for any portion of college.
At the time I was contributing $100 per month per kid.
I'm up to $250 per month per kid, but it will come nowhere close to paying for college, it might pay a couple years for one kid all said and done, but you can't do everything unless you have the funds to do it. And life just happens.
Absolutely true. It is very hard to balance it all.
All that said, people will often be surprised at how much you can really save by taking a razor blade to some purely discretionary spending. Shop in a cheaper grocery store. Buy what's on sale. Make your own coffee. Lose your landline. Dont have full cable, HBO, Netflix, Prime and Hulu. And just dont buy so much stuff.
But I'm a fairly frugal person. My wife just scolded me for wearing shirts that are falling apart. It's entirely plausible to me that I've spent <$100 on clothes in 2 years.
My wife and I both paid for our college (i did get partial help) so we will do what we can. But there's value in a child paying for their own school so that will likely be the route we take.
College? I saving for high school!
All that said, people will often be surprised at how much you can really save by taking a razor blade to some purely discretionary spending. Shop in a cheaper grocery store. Buy what's on sale. Make your own coffee. Lose your landline. Dont have full cable, HBO, Netflix, Prime and Hulu. And just dont buy so much stuff.
But I'm a fairly frugal person. My wife just scolded me for wearing shirts that are falling apart. It's entirely plausible to me that I've spent <$100 on clothes in 2 years.
Same here. I buy next to nothing for myself. Maybe go shopping for clothes 1-2 times a year at $100-$200 a pop. Cable is really the only thing I covet and even then its not terribly expensive. I chose to buy a bike to commute to work rather than get a 2nd car so we save a lot there. We maybe pay $1,000 a year in gas as my wife works close. I don't have any expensive hobbies and really the only money i've spent this year is upgrades and small fixes to the house.
Thankfully my wife shares the same mindset and doesn't spend on crap she doesn't need. Couldn't be happier about that.
All that said, people will often be surprised at how much you can really save by taking a razor blade to some purely discretionary spending. Shop in a cheaper grocery store. Buy what's on sale. Make your own coffee. Lose your landline. Dont have full cable, HBO, Netflix, Prime and Hulu. And just dont buy so much stuff.
But I'm a fairly frugal person. My wife just scolded me for wearing shirts that are falling apart. It's entirely plausible to me that I've spent <$100 on clothes in 2 years.
LOL, my wife yelled at me for my clothes too. She said there has to be something in my wardrobe in between Brooks Brothers and Old Navy.
LOL, my wife yelled at me for my clothes too. She said there has to be something in my wardrobe in between Brooks Brothers and Old Navy.
That is literally my wardrobe. And BTW, the BB shirts I've been living in for years are all falling apart. They're much crappier than they used to be. The sleeves of several are literally splitting mid-forearm. And they've gotten disgustingly expensive. I need a new non-iron shirt source.
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LOL, my wife yelled at me for my clothes too. She said there has to be something in my wardrobe in between Brooks Brothers and Old Navy.
That is literally my wardrobe. And BTW, the BB shirts I've been living in for years are all falling apart. They're much crappier than they used to be. The sleeves of several are literally splitting mid-forearm. And they've gotten disgustingly expensive. I need a new non-iron shirt source.
I wear Charles Thyrwhitt and they are a reasonable alternative to BB (always lots of sales and discounts once you are a customer). I only see wear in the elbows, but that's more of a function of how I sit.
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LOL, my wife yelled at me for my clothes too. She said there has to be something in my wardrobe in between Brooks Brothers and Old Navy.
That is literally my wardrobe. And BTW, the BB shirts I've been living in for years are all falling apart. They're much crappier than they used to be. The sleeves of several are literally splitting mid-forearm. And they've gotten disgustingly expensive. I need a new non-iron shirt source.
Agree. I only buy new shirts unless it's an emergency once a year, in January when BB has their 3 for $180 sale (or whatever it is now). so I get at least one white and a couple others, sometimes two white because the necks get gritty.
the wrinkle-free aspect is key. I travel and can't spend time ironing because I suck at it. Sometimes I still hang them near the shower to steam them, but that's the extent of my maintenance.
Well if I could do more i'd love to, that's a given. But i wouldn't be dropping to 6%, i'd drop my 401k to 6% and put the rest elsewhere.