(Closed) 401k and Other Investing

posted 6 years ago in Career
Post # 3
Member
9181 posts
Buzzing Beekeeper
  • Wedding: August 2013 - Rocky Mountains USA

I try to max out my personal Roth IRA every year ($5,000) and I’m going to get close to maxing out my work IRA ($11,000) this year (new job so I’m newly eligible for it).  It’s a great way to get a tax break and have savings for retirement.  

Post # 4
Member
7311 posts
Busy Beekeeper
  • Wedding: October 2011 - Bed & Breakfast

We don’t max our 401K contributions because we want some of our investment money to be available prior to retirement. It would be awesome if we could afford to max out AND invest seperately, but the timeline for our upcoming expenses requires us to make some hard decisions. We have Teen LK’s college to pay for, a new deck to put on the house, new cars to buy (we intend to pay cash for them) in the future. We”d rather invest some money now in non-retirement accounts that will not have additional penalties for cashing out at our conveniance and let that investment make money for us that we can use to pay for these upcoming big ticket items.

Basically every 6 months we sit with our financial advisor, go over our short-term and long-term goals, review cash flow, and decide how much needs to go into each of our 3 “buckets” (our advisor’s term). Bucket 1 is for daily/monthly expenses (aka our checking and the savings account that is linked to our checking). Bucket 2 is our emergency savings in a high-yeild savings account, and our short term investments that we can easily cash out for planned expenses like tuition and major home projects. And bucket 3 is for retirement. We’re 401K for retirement right now because of the tax benefits. It makes more sense for us than Roth, but we may diversify in the future.

Post # 5
Member
3885 posts
Honey bee
  • Wedding: September 2011

Maxing the 401(k) makes a lot of sense if you’re in a higher income bracket because it lowers the amount of income you are taxed on in the year when you make the contributions. The Roth does not offer the same tax savings benefits, and this may not be as attractive if you are in a lower income range, because you pay taxes after you retire and start drawing on that money— so if you are earning $30k/year and expect to draw $30k/year post-retirement between Social Security (if it’s around) and 401(k) then the actual tax you pay on that income really is a wash.

I contribute to get my max tax deduction and when I hit the max each year, I lower my contributions significantly, and put the rest in a mix of stable/low-return and risky/potential high-return investments (blue chip stocks vs small cap stocks for example).

Post # 6
Member
8 posts
Newbee
  • Wedding: November 2012

I am not offered a 401k through my work, but I do contribute the full amount each year to my personal Roth IRA. I have a few other accounts, but I would suggest looking into an index fund for folks looking for a start to investing. I have an index fund through Vanguard so it has very few fees and very easy to set up. 

Post # 7
Member
13096 posts
Honey Beekeeper
  • Wedding: July 2010

We’re 25/26 and Darling Husband and I each have 401k accounts through work and I also have a Roth IRA and a mutual fund account (that’s he’s been added to).

I’ve had the Roth IRA and mutual fund accounts since late middle school or early high school.  At that point, I didn’t have access to a 401k and we decided (with my / my parent’s financial advisor) that those were the best ways to invest my money.

Darling Husband and I both put enough in our 401ks to take full advantage of company matching policies and also contribute a little more on top of that.  We definitely don’t max to the IRS limit though (the limit is over half of my pre-tax income!).

I personally think it is good idea to diversify your investments, so I wouldn’t want to put everything into just one type of account.

Post # 8
Member
1144 posts
Bumble bee
  • Wedding: December 2011

We both max our 401ks but we both make good money. We have extra left over that savings te using to build our second investment property savings account.

Post # 9
Member
6123 posts
Bee Keeper
  • Wedding: August 2012

@peanuthead:  We both are university employees so our 401k is actually a 401a in education land.

Our 401a’s are employer sponsored only at 14.2% of each of our income, this is part of our benefits package.  

But we have a variety of other retirement accounts that are offered through TIAA-CREF.

457b – pre-tax contributions, $17,500 for 2013.  Monies can be taken out prior to retirement as long as you are not working for that company.  Taxes will be paid on withdrawals.  We plan to use this in early retirement before age 59.5.  We max out two of these.

Roth IRA – post-tax contributions, $5,500 for 2013.  You can take out your own contributions at any time penalty free, so this money can be used before retirement.  If you start taking interest prior to 59.5 then you are paying a penalty.  We max out two of these.

HSA – pre-tax contributions.  HSA goes only with a high deductible health plan.  H and I are both on this.  The max for a family is $6,450.  This is the only triple-tax deferred account out there.  The money goes in pre-tax, Any HSA earnings through investment are tax free, Monies withdrawn for qualified expenses are always tax free.  Once after you read 59.5 – then you can use the monies for anything, even non-health related things but it comes out tax free!  We max the family plan.

403b – pre-tax contributions.  You can only use this after age 59.5 and it is taxes when you take it out.  $17,500 is the 2013 max.  We are contributing to one of these (not maxed yet).

403b ROTH – post-tax contributions.  Use at 59.5, no tax when money used, $2,000 max limit, must have been done from job for at least 5 years.  We don’t have one of these.

 

I am not sure of all these are available to you through your employer though. 

The rest that doesn’t go into retirement accounts goes into our general savings for bigger purchases and emergencies.

Post # 10
Member
2622 posts
Sugar bee
  • Wedding: November 1999

we max 401K to IRS limit(DH is the only one who has it right now), because its pretax money and it you dont feel the hit.

We no longer qualify for Roth

We also put cash into savings (right now earmarked for downpayment/baby fund/emergency fund) and cash into a brockerage firm to invest (earmarked for retirement)

Basically, we follow the rule of thumb of “save anything we can” Its shocking how much you will need to retire.

In 2013 the average life expectancy is about 68 and the number is only going to rise in the future. Many many more people will live to be over 100 by the time you retire.

So the question is for how many years will you have to pay to live? Are you generally healthy and take care of yourself? you may be one of the longer living people then

There are some 5.7 million Americans age 85 and older, amounting to about 1.8% of the population, according to the Census Bureau. That is projected to rise to 19 million, or 4.34% of the population, by 2050, based on current trends. The percentage of Americans 100 and older is projected to rise from 0.03% today to 0.14% of the population in 2050. That’s a total of 601,000 centenarians.

http://online.wsj.com/article/SB10001424053111904875404576528841080315246.html

And then there is of course the Time Value of Money. On average the buying power decreases by 70% in 30 years. 

So if you save $1,000 this year, it will have the same buying power as $300 in 2050.  so you need to keep saving as much as you can however you can!!! 

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