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I currently contribute 10% to 401K with a company match of 5%. I have $30K in a Roth account that I converted many years ago. I have not contributed to Roth since. I want to boost my savings by about $400 a month. The easiest thing to do is max out my 401K, but I'm wondering if I should consider contributing after tax dollars to my Roth instead. Obviously, the advantage to the 401K is the tax deferral now and the Roth for tax-free income in retirement. Are there any calculators out there to help me decide which is the right move now? I'm about 10 years from retirement.
It's pretty simple. What do you expect your post-retirement income to be vs. your current income? If it's going to be higher, pay the tax now and invest in the Roth. If it's going to be lower, max out the 401K.
And of course you should consider how each is performing, as well.
Does you company match dollar to dollar up to 5%, or do they match 50 cents to every dollar, up to their 5%?
In either case, invest in your 401k up to the max they will contribute. Put the rest towards maxing out a Roth IRA. Once you have maxed out the Roth, you could invest more in your 401k, or possibly look for other investments.
Not to hijack the thread, but can someone clarify how to estimate your retirement income?
I'm thinking about Roth, we are currently in 25% bracket, pushing 28%. We have kids, one is 15 years old, so we may end up in 28% very soon, once we can't claim him as a dependent. Or if salary increases
So far I chose to contribute more to 401K (or, rather, 403B in my case), but maybe I'm wrong and should pursue Roth IRA instead? How can I estimate my tax bracket at retirement? (We are in our mid-late 30s).
It's pretty simple. What do you expect your post-retirement income to be vs. your current income? If it's going to be higher, pay the tax now and invest in the Roth. If it's going to be lower, max out the 401K.
And of course you should consider how each is performing, as well.
I'm planning on post-retirement income of what we make now minus the money we're funneling into savings now.
Quote:
Originally Posted by houstan-dan
Does you company match dollar to dollar up to 5%, or do they match 50 cents to every dollar, up to their 5%?
In either case, invest in your 401k up to the max they will contribute. Put the rest towards maxing out a Roth IRA. Once you have maxed out the Roth, you could invest more in your 401k, or possibly look for other investments.
They match 100% of the first 3% and then 50% of the next 2%. The problem is, the extra money I want to invest will take me to the 401K limits - since I'm over 50, I can contribute more. So, I don't have extra to allocate to Roth after that. That's why I'm having a hard time understanding the benefit to paying taxes now vs later.
Currently, we are contributing to Roth 401Ks, but we also have money (we'd previously contributed) in Traditional 401Ks. Our objective is tax diversification. Since you never know what the tax brackets will be when you retire, we have our retirment money spread across in Trad 401Ks, Roth 401Ks, Trad IRAs and Roth IAs. The plan would be to withdraw money depending on what incurs less taxes.
The real question is whether to contribute to a ROTH 401k/IRA or not.
I suppose that question may exist for a few.
Care to describe the profile and/or estimate the percentage it might apply to?
And if you suspect the OP or anyone else reading this thread might be one of them?
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