white people problems - 401(k)

[Caliga]

So we switched to Wells Fargo for our 401(k) provider at work.  I currently invest 6% of my income into my 401(k) and the company matches that @ 100% for the first 1% and 50% for the next 5%, so in other words 9.5% of my income goes into my 401(k) plan.  Pretty standard stuff.

What this new plan offers that I don't recall having before is the option to put some or all of your retirement savings into an IRA instead of a 401(k), which shifts the tax liability.

What do people think about that?  Does it make sense to try to hedge against future tax shifts by putting half of my retirement into one plan and half into the other?

[The Brain]

Put your money into 40k. For the Emperor!

[MadImmortalMan]

Keep going in the 401k like you are. Any that you want to add to your retirement savings over and above that, put in the IRA.

[derspiess]

Frankly if I had the option I'd do the IRA.  Take the tax hit now-- your taxes will probably be higher when you start drawing from it.

The two guys who do the "Simply Money" show here on 550AM in the evenings are big proponents of either going full IRA or 50/50 IRA/401k.

[mongers]

Frankly if I had the option I'd do the IRA.  Take the tax hit now-- your taxes will probably be higher when you start drawing from it.

For christ sake, they gave up the armed struggle several years ago.   

[Admiral Yi]

Frankly if I had the option I'd do the IRA.  Take the tax hit now-- your taxes will probably be higher when you start drawing from it.

Standard IRA you don't take the tax hit now.  Roth IRA you do.

Cal, only difference i can see is IRAs and 401s have differrent tax free limits. 

Hopefully for you Fredo will see this thread.  He is some sort of level 13 Master Paladin Mage Bean Counter I think.

[MadImmortalMan]

First criteria is the matching money. That's immediate 100% profit for Cal, and contributing less to the 401k and missing out on it would be dumb, regardless of taxes.

[Tonitrus]

Frankly if I had the option I'd do the IRA.  Take the tax hit now-- your taxes will probably be higher when you start drawing from it.

The two guys who do the "Simply Money" show here on 550AM in the evenings are big proponents of either going full IRA or 50/50 IRA/401k.

I have a Roth IRA myself, but I wonder...while at the same time, Congress could make taxes higher later, they could just as easily roll back the Roth tax-immunity on earnings. 

And don't even try to sell me that politicians would never break that "promise". 

[alfred russel]

In theory there are Roth 401ks and Roth IRAs--both of which are after tax contributions. But most employers don't offer the Roth 401k.

The easiest answer is that you should definitely take advantage of the Company's 401k match before anything else.

The next easiest answer is that you should max out both your IRA and 401k--they have separate limits. The 401k is $17k, I think the IRA is ~$5k but decreases to zero after you get to higher income levels.

But in terms of whether you should prefer after tax or before tax contributions, the answer is it depends. Do you expect to be making decent money in retirement (say out of a pension fund)? If so after tax may be better, otherwise, before tax may be the way to go. It may be smart to have tax diversification and mix the two. Since after tax contributions aren't considered income in retirement, having some income from those sources can keep you in lower tax brackets in retirement.

[derspiess]

I guess I misunderstood. I thought he would get the matching with either option,. So yeah I would never leave employer contributions on the table.

[Admiral Yi]

The next easiest answer is that you should max out both your IRA and 401k--they have separate limits. The 401k is $17k, I think the IRA is ~$5k but decreases to zero after you get to higher income levels.

  Not sure if serious.

You want Cal to put 22 K/year  into his retirement savings?

[MadImmortalMan]

The next easiest answer is that you should max out both your IRA and 401k--they have separate limits. The 401k is $17k, I think the IRA is ~$5k but decreases to zero after you get to higher income levels.

  Not sure if serious.

You want Cal to put 22 K/year  into his retirement savings?

I do. I max everything I can.

[alfred russel]

The next easiest answer is that you should max out both your IRA and 401k--they have separate limits. The 401k is $17k, I think the IRA is ~$5k but decreases to zero after you get to higher income levels.

  Not sure if serious.

You want Cal to put 22 K/year  into his retirement savings?

If you have the $$$ and don't need the money soon, why not take advantage of the tax benefits?

Also, there are some caveats, but if you use Roth funds you can generally withdraw the amount of your contributions without a penalty.

[DGuller]

The next easiest answer is that you should max out both your IRA and 401k--they have separate limits. The 401k is $17k, I think the IRA is ~$5k but decreases to zero after you get to higher income levels.

  Not sure if serious.

You want Cal to put 22 K/year  into his retirement savings?

Is there anything wrong with that? 

[Admiral Yi]

You guys are making a lot of bread.