Financial guru question about 401k

[captainsling]

Guys I am currently putting in 12% to my 401k. My employer matches me $ for $ up to 6% for a total of 18%. I raise it 1% every year when I get my raises.

Lately I have been wondering if there is something better I could do with the 6% they are not matching, like a Roth IRA. I know the 401k is pre tax and Roth is post tax.

Real question is should I keep going on the compounding interest of my 401k plus the return, or are IRA’s generally a better return.

Any other suggestions?

[thegrouse]

You can have the same investment options in your 401k and your Roth IRA/IRA. Do you know what your money is invested in? You could have the same investment i.e. VTSAX in either plan. Your situation is very fact dependent but what I do personally is max all tax advantaged accounts before investing anywhere else. Your return on either is determined by the investments you choose minus fees.

[captainsling]

You can have the same investment options in your 401k and your Roth IRA/IRA. Do you know what your money is invested in? You could have the same investment i.e. VTSAX in either plan. Your situation is very fact dependent but what I do personally is max all tax advantaged accounts before investing anywhere else. Your return on either is determined by the investments you choose minus fees.

My elections right now are diversified, but I am limited to what my employer has chosen. I am kind of intrigued by investing where I want to.

[thegrouse]

Take the match and find something that works better for your goals either Roth or regular ira depending on your situation.

[TKK]

An IRA and 401K are the names of the type of retirement account - has nothing to do with you investment options -

[captainsling]

An IRA and 401K are the names of the type of retirement account - has nothing to do with you investment options -

Can you explain? Investment options are very limited with my 401k. I think it has a lot to do with options.

[solocam_aggie]

Tagging

Sent from my SAMSUNG-SM-G890A using Tapatalk

[TKK]

Can you explain? Investment options are very limited with my 401k. I think it has a lot to do with options.

Some 401k plans do have limited options - that is a shame - your company should have the administrator offer more investments - does not cost them anything to do so.

But my guess is that the few options they do have would still suffice - depending on your age, if you are 10 or more years from retirement, I would go with a stock index fund - your employer plan should have that as an option for sure

[Throwin Darts]

Not only do I think it's a good idea to diversify investments but I also think you should diversify the tax treatment of your investments. You'd need a crystal ball to know what future tax rates would be so why not have pretax and post tax investments.

I'd contribute to the 401k up to the match and then contribute to the Roth. Keep working on maxing out the Roth and when you can do that begin increasing the 401k again up to the IRS max of $18,500 a year. Once you can get the 401k and the Roth to the max then it's time to look at a taxable investment account.

[captainsling]

Some 401k plans do have limited options - that is a shame - your company should have the administrator offer more investments - does not cost them anything to do so.

But my guess is that the few options they do have would still suffice - depending on your age, if you are 10 or more years from retirement, I would go with a stock index fund - your employer plan should have that as an option for sure

Gotcha. I am currently in a stock index fund as one of my elections.

[captainsling]

Not only do I think it's a good idea to diversify investments but I also think you should diversify the tax treatment of your investments. You'd need a crystal ball to know what future tax rates would be so why not have pretax and post tax investments.

I'd contribute to the 401k up to the match and then contribute to the Roth. Keep working on maxing out the Roth and when you can do that begin increasing the 401k again up to the IRS max of $18,500 a year. Once you can get the 401k and the Roth to the max then it's time to look at a taxable investment account.

Good info.

[stickman]

Not only do I think it's a good idea to diversify investments but I also think you should diversify the tax treatment of your investments. You'd need a crystal ball to know what future tax rates would be so why not have pretax and post tax investments.

I'd contribute to the 401k up to the match and then contribute to the Roth. Keep working on maxing out the Roth and when you can do that begin increasing the 401k again up to the IRS max of $18,500 a year. Once you can get the 401k and the Roth to the max then it's time to look at a taxable investment account.

Taxable investment account? Does that mean you can withdraw at any time at that current tax rate without penalty?

[tps7742]

Not only do I think it's a good idea to diversify investments but I also think you should diversify the tax treatment of your investments. You'd need a crystal ball to know what future tax rates would be so why not have pretax and post tax investments.

I'd contribute to the 401k up to the match and then contribute to the Roth. Keep working on maxing out the Roth and when you can do that begin increasing the 401k again up to the IRS max of $18,500 a year. Once you can get the 401k and the Roth to the max then it's time to look at a taxable investment account.

Good advice here. Very simple and to the point. They also have financial advisers that will give you recommendations based on what your plan allows. No one can manage your money like yourself if you study for it. At the same time I have seen individuals that have lost it all because they thought they knew it all. You are doing very well for yourself from the information you have given. Congrats.

[TKK]

Not only do I think it's a good idea to diversify investments but I also think you should diversify the tax treatment of your investments. You'd need a crystal ball to know what future tax rates would be so why not have pretax and post tax investments.

I'd contribute to the 401k up to the match and then contribute to the Roth. Keep working on maxing out the Roth and when you can do that begin increasing the 401k again up to the IRS max of $18,500 a year. Once you can get the 401k and the Roth to the max then it's time to look at a taxable investment account.

that is a legitimate argument - over the many years I invested I was fully into tax deferment - I never wanted to give up my money to the IRS until I had to. The tax bracket argument is valid but my thought has always been that I would be in a lower bracket once I retired versus when I was earning income. On top of that Trump just lowered our taxes - so at the end of the day it is all a guess when comparing tax deductible versus Roth. In my case I did all traditional 401k and not Roth - meanwhile I also did regular mutual fund investing along the way - so I will have a choice on where to withdraw my retirement money and balance the taxable versus the non taxable

[BigL]

Not only do I think it's a good idea to diversify investments but I also think you should diversify the tax treatment of your investments. You'd need a crystal ball to know what future tax rates would be so why not have pretax and post tax investments.

I'd contribute to the 401k up to the match and then contribute to the Roth. Keep working on maxing out the Roth and when you can do that begin increasing the 401k again up to the IRS max of $18,500 a year. Once you can get the 401k and the Roth to the max then it's time to look at a taxable investment account.

Good advice here. Max 401k matching in the fund. Then get a self directed Roth and Max it out. If you still have money to invest, go back to contributing to your 401k until you hit max allowed by law. After that go to a regular retail brokerage account.

Taxable investment account? Does that mean you can withdraw at any time at that current tax rate without penalty?

I think he means a regular retail brokerage account. You'll pay capital gains when you close out your position. Less than a year and you'll pay short term capital gains. More than a year and you'll get a tax break with long term capital gains. There is no tax penalty for withdrawing your money.