newadventure

Hello all,
Firstly, we were told yesterday that our Green Cards had been approved and were on their way! Woo and hoo! Life has become slightly less uncertain

Secondly, need to think about setting up a pension over here and would be interested to hear thoughts on whether we should contribute pre-tax to the company Safe Harbor 401K scheme (limited choice of funds, higher costs), or post-tax to some sort of Roth(?) scheme (presumably greater choice of funds, cheaper costs). Assume no company matching scheme for 401K so same gross amount would be available for both. We will probably be in 33% tax bracket this year. 10 yrs give or take until retirement.

I would have thought the difference in pre and post retirement tax rates would more than make up for the increased costs of the 401K, but willing to hear alternative views. Any other factors i should be considering?

Thank you

Guindalf

These are questions that should be put to a personal financial advisor and NOT an internet forum. The reason being that everyone's situation is different and you'll get very broad answers that are very unlikely to apply to your situation!

The first thing I can see is you're asking to assume no company match for a 401k, which would be unusual.

Rete

Not all that unusual, unfortunately. I am now retired but in my entire work life none of my 401K's were matched by an employer. The last one only contributed profit sharing which always was 5% of annual salary. Indeed far less than what I contributed.

sir_eccles

Company matching is much less common that it used to be. If you have matching count yourself lucky.

newadventure

Thanks Guindalf. The reason i put it out here is that there have been financial threads in the past and some good general contributions that i have found very useful. Yes, everyone's situation is different but i am reasonably financially savvy so hope to be able to convert the general to the specific.

In my case, yes the company has a match scheme but for various reasons this does not apply to me, hence the request to assume no match.

rpjs

I chose a Roth as the income from it when you retire is not taxable. IIRC that applies to the HMRC too if you chose to return to the UK for retirement.

robin1234

There's a follow up question; about how much do you want to save per person per annum? Because there's a maximum contribution level, $18,000 for 2016, with an additional $6,000 for folks 50 and over. So if you want to save more, consider a Roth IRA in addition.

newadventure

Thanks Robin and rpjs, that's a couple of factors to consider: max contribution amount, and whether we might retire to UK. At the ripe old age of 52, i qualify for the top up amount, the wife doesn't (yet!)

Pulaski

It's not an either-or decision. Diversification has real value, and splitting your investments between different schemes is a good hedge against problems with one of the schemes.

Rete

If you are planning at retiring at age 52, with the standard 401K plan you cannot withdraw monies from the plan without incurring an additional 10% penalty on top of the taxes due on the monies withdrawn. The penalty on withdrawals end when you are 59 1/2.

Pulaski

He IS 52.

robin1234

Also significantly different withdrawal rules become very important as you get older. IRAs, 401Ks and similar are subject to required minimum distribution from age seventy, which can be a big disadvantage if you don't need the additional income. Roth IRAs, of course, can remain intact for life, and in fact you can bequeath them.

kodokan

If he's in the 33% tax bracket, he's probably passed the max income level for contributing to a Roth IRA. Backdoor Roth via a non-deductible IRA is a possibility.

OP, do you have an idea what your post-retirement income/ tax bracket might be? That'll help your decision making process.

Any possibility of badgering your work into switching 401k providers, and getting a better choice of funds? Hubby's is managed by Schwab and includes Vanguard's index trackers, starting at the princely annual fee of 0.04%.

robin1234

Well, remember, post retirement income up to age 70 is entirely within the individual's control. After RMD less so, because you have to take income whether you want or not, although there are all kinds of tax mitigating choices like life insurance.

Trying to get the employer to offer good choices is a minefield. My employer offered just TIAA-CREF, then offered Fidelity as another choice, when a group of employees worked with HR and compared proposals from different plans. Within five years, Fidelity withdrew, because TIAA-CREF had somehow undercut them, or offered the university some carrot or stick that made choice impossible. People who had switched to Fidelity were forced to move back to TIAA. We never found out what happened behind the scenes...

newadventure

Thanks again
@Kodokan - will depend on the performance of investments of course, but probably going to be the current 15% bracket. You have mentioned the backdoor Roth before, i like the sound of this and will investigate further
@Robin1234 - more useful thoughts, thanks
@pulaski - i agree re: diversification. I already have a personal pension fund in the UK, but maybe the backdoor Roth AND the 401K should be considered.

I would happily talk to a Financial Adviser if i could find one that was familiar with US and UK regimes and didn't cost huge amounts. Last time i went down this route, i ended up with a $2,000 quote to do my (pretty straightforward) tax returns