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To 401k or not 401k

To 401k or not 401k

Old Jun 6th 2017, 3:29 pm
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Default Re: To 401k or not 401k

A 401k is never a bad idea. If it comes with an employer match, you gotta be crazy not to sign up.

Open a savings account... have someone else deposit funds into it... and the whole thing is yours to keep. It doesn't get any better than that.
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Old Jul 8th 2017, 11:35 am
  #32  
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Default Re: To 401k or not 401k

I'll be taking advantage of one soon, thanks for all the advice. I think the employer matching will cover the costs of withdrawal, no matter what I do with it. And since I can't continue to pay into UK pension, this makes sense in stead while here...
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Old Oct 17th 2017, 12:48 am
  #33  
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Default Re: To 401k or not 401k

So it's come to the time of year where I enroll in benefits and the 401k is something I've looked at again.

What I hadn't realised was there is a choice here.

401k after tax or Roth pre tax

For me at an early stage and just wanting to take advantage of employer matching, should I just go with the standard 401k for now, to get started?

I honestly don't know where I'll retire at this stage...
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Old Oct 17th 2017, 1:43 am
  #34  
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Default Re: To 401k or not 401k

Originally Posted by LouisB
So it's come to the time of year where I enroll in benefits and the 401k is something I've looked at again.

What I hadn't realised was there is a choice here.

401k after tax or Roth pre tax

For me at an early stage and just wanting to take advantage of employer matching, should I just go with the standard 401k for now, to get started?

I honestly don't know where I'll retire at this stage...
Do you want to pay taxes at today's rates on your current earnings or pay taxes at retirement time rates on your retirement income. For most people they expect to pay less taxes during retirement. However if you put in 18% into 401k% , max out IRA and HSA, you may be in a higher income bracket during retirement. Also tax rates may be higher when you retire.

Traditional you save paying taxes at today's rate, ROTH you don't pay taxes when you take it out.

This article about IRAs may help

http://www.madfientist.com/traditional-ira-vs-roth-ira/

Last edited by mrken30; Oct 17th 2017 at 1:52 am.
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Old Oct 17th 2017, 1:44 am
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Default Re: To 401k or not 401k

Originally Posted by LouisB
So it's come to the time of year where I enroll in benefits and the 401k is something I've looked at again.

What I hadn't realised was there is a choice here.

401k after tax or Roth pre tax .....
It's t'other way around.
For me at an early stage and just wanting to take advantage of employer matching, should I just go with the standard 401k for now, to get started? .....
There are extensive arguments about future tax rates in general, and what future tax rates you will pay, and whether that makes the Roth 401k a good deal. In short if you expect to earn a packet and retire wealthy, or if you expect tax rates to generally go up then the Roth 401k is for you (because Roth money has already been taxed), otherwise stick with a regular 401k.

As a side consideration, the more you earn the harder it is to get money into a Roth 401k.

All things considered, the very fact that you are going to set aside anything for retirement puts you ahead of most Americans!

Last edited by Pulaski; Oct 17th 2017 at 2:10 am.
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Old Oct 17th 2017, 1:48 am
  #36  
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Default Re: To 401k or not 401k

Originally Posted by LouisB
So it's come to the time of year where I enroll in benefits and the 401k is something I've looked at again.

What I hadn't realised was there is a choice here.

401k after tax or Roth pre tax

For me at an early stage and just wanting to take advantage of employer matching, should I just go with the standard 401k for now, to get started?

I honestly don't know where I'll retire at this stage...
So regardless of what you choose, all employer matches are pre tax.

I'd do some calculations on if it's worth roth based on your income now, years till retirement, expected income during retirement.

If you're a us citizen during retirement you'll be taxed on worldwide income no matter where your residence is.

If you aren't a us citizen and not in the USA I would guess your tax bracket would likely be lower than it is now - so probably better to go traditional.

Just my layman's 2c.
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Old Oct 17th 2017, 1:49 am
  #37  
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Default Re: To 401k or not 401k

Originally Posted by Pulaski
It's t'other way around.
There are extensive arguments about future tax rates in general, and what future tax rates you will pay, and whether that makes the Roth IRA a good deal. In short if you expect to earn a packet and retire wealthy, or if you expect tax rates to generally go up then the Roth IRA is for you (because Roth money has already been taxed), otherwise stick with a regular 401k.

As a side consideration, the more you earn the harder it is to get money into a Roth IRA.

All things considered, the very fact that you are going to set aside anything for retirement puts you ahead of most Americans!
Think you're crossing IRAs and 401ks here. Roth 401ks are separate contribution limits to IRAs.
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Old Oct 17th 2017, 1:52 am
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Default Re: To 401k or not 401k

Originally Posted by tom169
Think you're crossing IRAs and 401ks here. Roth 401ks are separate contribution limits to IRAs.
I didn't say anything about contribution limits.

Last edited by Pulaski; Oct 17th 2017 at 2:10 am.
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Old Oct 17th 2017, 1:54 am
  #39  
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Default Re: To 401k or not 401k

Originally Posted by Pulaski
I didn't say anything about contribution limits, nor for that matter did I mention IRAs.
Uhm re-read what you wrote...

This is the sentence that made me think IRAs and their limits.

"As a side consideration, the more you earn the harder it is to get money into a Roth IRA."
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Old Oct 17th 2017, 2:07 am
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Default Re: To 401k or not 401k

Originally Posted by tom169
Uhm re-read what you wrote...

This is the sentence that made me think IRAs and their limits.

"As a side consideration, the more you earn the harder it is to get money into a Roth IRA."
Ooops ..... Why did I say IRA? [Been back and fixed it. ]

If you earn more than a certain amount you are no longer allowed to put money into Roth 401k, I don't recall what the number is, but I think it's pretty high .... unless you work in NYC, in which case it is probably relatively attainable.

Last edited by Pulaski; Oct 17th 2017 at 2:11 am.
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Old Oct 17th 2017, 2:30 am
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Default Re: To 401k or not 401k

Originally Posted by Pulaski
Ooops ..... Why did I say IRA? [Been back and fixed it. ]

If you earn more than a certain amount you are no longer allowed to put money into Roth 401k, I don't recall what the number is, but I think it's pretty high .... unless you work in NYC, in which case it is probably relatively attainable.
The income limits only apply to ROTH IRA, you can still contribute to a traditional IRA. The limits aren't that high, $130k ish single, $180k ish married. These numbers are obviously after deductions.

https://investor.vanguard.com/ira/ro...-income-limits


Today's taxes are on the lower side of the historically average tax rates( for high earners). My guess is they will probably go up in the future.

U.S. Federal Individual Income Tax Rates Over Time - Supporting Evidence

Last edited by mrken30; Oct 17th 2017 at 2:33 am.
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Old Oct 17th 2017, 2:51 am
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Default Re: To 401k or not 401k

Originally Posted by mrken30
..... The limits aren't that high, $130k ish single, $180k ish married ....
I expect Rete will be along shortly to advise you how huge those numbers are, almost unimaginably large for most Americans.
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Old Oct 17th 2017, 2:57 am
  #43  
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Default Re: To 401k or not 401k

Originally Posted by Pulaski
Ooops ..... Why did I say IRA? [Been back and fixed it. ]

If you earn more than a certain amount you are no longer allowed to put money into Roth 401k, I don't recall what the number is, but I think it's pretty high .... unless you work in NYC, in which case it is probably relatively attainable.
I'm afraid you're still confused with a Roth IRA. There is no income limit for contributing to a Roth 401k, only for contributions to a Roth IRA.

But then Roth 401k shares its contribution limits with the traditional 401k, and traditional makes more sense for anyone in a high tax bracket, so contributing to a Roth 401k with high income is possible, but foolish.
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Old Oct 17th 2017, 5:00 am
  #44  
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Default Re: To 401k or not 401k

Originally Posted by mrken30
The income limits only apply to ROTH IRA, you can still contribute to a traditional IRA. The limits aren't that high, $130k ish single, $180k ish married. These numbers are obviously after deductions.
No, they are based on adjusted gross income.

Additionally, although you can always contribute to a traditional IRA, you may not be able to deduct the contribution if you also are covered by an employer's retirement plan (which includes a 401(k)), depending on your adjusted gross income.

https://www.fool.com/retirement/2016...-and-2017.aspx
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Old Oct 18th 2017, 12:20 am
  #45  
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Default Re: To 401k or not 401k

Ok thanks for the replies.

Tax rate could be lower on retirement if you draw less (live more modestly) having paid for most things, like a house and so on? If you fall into a lower bracket?

A new term has been mentioned here, IRA?

I think my benefits offer employer matched contributions that can be 401k, Roth or a mix of the two at any ratio you pick.

I'm still not clear what's best but I'll check as I might be able to change it anytime in which case I could make a start on a plain 401k perhaps.

Also considering I'll be saving for a 2nd house I guess it's a balance between that and retirement savings. My UK pension frozen for now, so was hoping for something to offset that.

Will check the details of the plans tomorrow, see when they can be changed.

I hope this won't over complicate my tax reporting.

I'm still not clear what the IRA bit is though.
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