<p>My H said definitely fund the 401 first, but just up to what the company will match. Then do the Roth. He is a believer that taxes will go up, so better to pay now. Hope that helps.</p>
<p>Tell your husband, thanks. I am also a believer that even though tax rates are high now, they will continue to go up. I don’t see any way around it. Our employer only matches a mere $500, so we’ll definitely do that first, then the Roth. I just wish I’d realized there was a way to way to fund a Roth earlier, I didn’t know about the “backdoor” option.</p>
<p>jym, while most of us believe tax rates will go up, the absolute tax on a hundred dollar withdrawl may be lower because your gross income may have dropped significantly after retirement, so you may be in a far lower bracket.</p>
<p>But the best thing about this thread is it reminded me to call my son to begin converting his regular IRA (since he’s no longer eligible for a Roth) to a Roth since he has perhaps 40+ years before he begins drawing. Who knows what the tax laws will be then, but as of now Roths look better.</p>
<p>BD, if you want an even more complex scenario, think of a small business owner who can put in up to 51K or 56.5K if you include profit sharing and 401k. The question is balancing whether to maximize the profit sharing or the 401k.</p>
<p>I agree to fund whatever employer matches first, then ROTH, then more 401K. He’s doing this and saving in addition, since his expenses are so low–no debt at all. He’s always been a good saver, lives below his means, and has no dependents or obligations. His job pays enough for all of this and his hobby has worked into a second job he enjoys and gets good returns on.</p>
<p>We always figured we’d be in a lower tax bracket at retirement, but they rehired H temporarily, so we will actually be in a higher tax bracket this year, so you can never tell, just make your best guess.</p>
<p>I dont think its likely we will be in a lower income bracket, which is why he made the choice he did. I happen to be a small business owner, but dont/can’t pay myself much. That said, we fund as much as possible into the retirement account. He is pretty convinced, though certainly may well be wrong, that we are better off paying the tax piper now than later.</p>
<p>** forgot to mention-- when my s’s did work for my business (IT, computer repair, website type stuff) I “paid” them and then converted it, minus the taxes, to a Roth. So they have had Roth accounts since they were in HS/college. Younger s joked that he was the only kid he knew who couldnt drink (this was before he turned 21) but had a retirement account.</p>
<p>You probably know this, but a non-tax related reason for the match → IRA → rest of 401k order is that you can open an IRA pretty much anywhere whereas employer 401ks typically have limited options, so you can save on fees and set an asset allocation more closely matching your goals. An important exception is the federal TSP, whose fees are lower than anything in the private sector.</p>
<p>Yes, we almost transferred our money out of the federal TSP but realized the fee difference in time. Whew! We may be transferring funds from H’s IRA into his federal TSP instead.</p>
<p>^The tradeoff is that the TSP is missing some things like emerging markets and REITs, so a lot of people use their IRA for those things and use the TSP for everything else.</p>
<p>Yes, I have my small Vanguard ROTH in a REIT. Have federal TSP in various other options. Plain vanilla suits us fine, especially with low fees and a pension.</p>
<p>Do you folks with 401k plans also have the option of a Roth 401k plan? My son recently started his first real job and that was one of his options. He figured out on his own that he should at least max out the company match, and he did choose the Roth 401k. He may buy a condo this year with parental help, so I explained to him that he probably wouldn’t need the lower income from the pretax 401K contribution and might as well go with the Roth.</p>
<p>Busdriver,</p>
<p>I’m a little concerned about your IRA and advisor. Does he work for a brokerage firm or a bank? Do your statements come from them, or do they come on his letter head from him?</p>
<p>The nature of IRA accounts is such that they are separate from other accounts and can’t be a subset of a mingled account. This means that some trustee has an IRA account for you (bank, brokerage firm, etc.) and you should have access to that statement. </p>
<p>That record is remarkable, and you owe it to yourself to be careful. I would especially be concerned if there has never been a down year. </p>
<p>Roths make a lot of sense. It was better to convert last year before taxes went up, though. The better the investor you are, the more sense they make. Its a perpetually untaxed investment pool…no gains, no interest, no dividend tax, and no other taxes either.</p>
<p>Dad-of-three-
Your son is no longer eligible for a Roth? Wow! Congrats!!!</p>
<p>Don’t worry, dadx, but thanks for your concern! He does not work for a brokerage firm (he has his own company), but the account is through a big name brokerage firm. We get the statements from this firm quarterly, and every time he trades. Plus we can track everything online, and we can call the brokerage firm and tell them to do anything we need. We don’t make any trades on the account, though we could. He additionally sends massive quarterly reports detailing everything, but I don’t get past the first page…</p>
<p>He trades a great deal, so we pay a number of small fees for buying and selling to the large brokerage firm. Fortunately he does not charge us per trade, but as an overall percentage of the account. It is very much to his benefit to have the account grow as large as possible. I know his return sounds very high, but each client is different, based upon when they started investing. This is just our return, but I think it may be skewed because the first year he chose some great stocks and got 70%. Never did that one again! He was asked to manage a hedge fund but wasn’t willing to do that.</p>
<p>"“BD, if you want an even more complex scenario, think of a small business owner who can put in up to 51K or 56.5K if you include profit sharing and 401k. The question is balancing whether to maximize the profit sharing or the 401k.”</p>
<p>I can’t imagine how complicated that would be!
I also never heard of the Roth 401K that NJres mentioned.</p>
<p>The fed govt now offers ROTH 401ks (for its employees), which we encouraged S to participate in. Looking forward to when he won’t qualify for ROTH. That only happened recently for H and me.</p>
<p>
To show you how messed up I am, I’m actually unhappy about it, and if anything our relations have actually strained a bit. He was in the West coast having been seduced by the whole “startup” magic, which was great. Then he discovered several of his graduating class had gone into finance with much high salaries, so he took the plunge. I honestly couldn’t believe just how much money people have around to pay for a bunch of early 20s kids with zippo experience in that line of work. I don’t know where you live, but just try talking to someone in the trading/hedge fund companies in Manhattan or Chicago to see how much they are willing to pay - it is totally mind boggling, and it’s not even something like commissions. </p>
<p>Still feel sad that someone who could have been a great computer analyst/engineer to be “wasted” in a job that I feel is quite peripheral to what is needed in society - what exactly does a company doing “high frequency trading” give us? [/rant]</p>
<p>^^Hopefully, at least, he enjoys the job and finds it challenging. That, combined with great money, is better than most jobs offer. We can’t all be Mother Teresa and save the world! And at least he has the skills for both fields, so if he decides to do something else, he has options.</p>
<p>Coincidentally, I was just driving and listening to Clark Howard on the radio a few minutes ago. He was talking about the backdoor Roth, and encouraging it. But he said that you have to wait a year after you fund the non-deductible IRA to convert it. I can’t find that information anywhere, in fact, what I’m looking at says you can convert immediately.</p>
<p>I don’t work so I can not put money into a 401k. We make too much for an IRA deduction for me and too much for a Roth. Can I use the backdoor method to put money in a Roth? We are just over the AGI for a Roth for the 2013 tax year. I was only able to put a partial in 2012. We would not be able to deduct any money from our taxes anyway with an IRA. I am looking for any investment vehicle for my retirement. Figures the years I could have done a Roth, I was only able to put away money 3 years out of the 10 because of financial needs. I have a 401k from my last employer but left my last employer ten years ago. My 401k has both pre and post tax contributions. Can I just roll over the pre tax part to a Roth?</p>
<p>“Still feel sad that someone who could have been a great computer analyst/engineer to be “wasted” in a job that I feel is quite peripheral to what is needed in society - what exactly does a company doing “high frequency trading” give us? [/rant]”</p>
<p>I worked for a hft and I agree with you.</p>
<p>But… For your son to get a gig at a hft is quite an accomplishment.</p>