No credit card required
Browse credit cards from a variety of issuers to see if there's a better card for you.
I maxed out my Roth IRA for the year and I need help deciding what percentage to adjust my 401k to. My employer does not match and it’s pre tax.
Thanks in advance.
I agree with all the advice given here.
My employer only matches 2%. It's nice, but it is only a small benefit. And good for you on maxing out your Roth. My employer offers a traditional 401k as well as a Roth, but I would guess that about 1% (or less) of my co-workers take advantage of it. Why? Because they don't want to pay taxes on it now. They need their money for cigarettes, alcohol, starbucks, etc. Others don't understand how a Roth works and those are the ones I try to reach out to, should they bring up the subject.
I have to potentially disagree with above posts urging 401K contributions. There are
some common situations where a non-matched 401K is a poor choice for savings.
A couple important considerations:
1. What is the difference between your current tax bracket and where you expect to retire
at ? (Takes some guesswork and uncertainty)
2. What are the expenses for investments offered in the 401K?
3. What are the quality of the investments within the 401K?
When you eventually withdraw from a 401K, you will pay taxes at your ordinary income
bracket. As a comparison, if you had invested that money in a regular taxable account,
you will pay capital gains rates on the gains made. Generally, if you can't reasonably
expect to be in a lower tax bracket in retirement than you are when you defer a
non-matched 401K contribution, it is advantageous to invest the money outside
of the 401K.
Many small employer 401Ks have horrible investment options with annual ERs (expense
ratios) above 1%. As a comparison, index funds at a major brokerage average ~.04% ER.
Index funds are generally very tax efficient in a taxable account, generating only small
annual qualified dividend payments that will be taxed at cap-gains rates, while most of
the gains will be deferred until you eventually sell.
A 401K is a great vehicle, but there are some situations where it isn't the best choice.
Generally it is always worth getting any matching offered, but beyond that you have to
evaluate it carefully.
Not really, but it depends on how long you think you'll be with your current
employer. 401K accounts are locked in before age 59.5 unless you leave the
employer. Some plans will allow roll overs while still employed after age 50.
A 401(k) plan cannot permit in-service distributions of employee
elective deferral accounts prior to age 59½. ... However, an age
restriction does not apply to an account balance that was
previously rolled over from a prior employer's plan or from an IRA.
In fact, rollover accounts often are unrestricted.
This board is great resource for credit topics, but there are much better places
for investment/retirement savings topics. Bogleheads.org would be one good
place for investing questions. What I posted is not just my opinion, but is widely
held conventional wisdom - Making unmatched contributions to a poor 401K is
very situational.