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Originally Posted by Scanner
Jim,
I hadn't thought about Roth IRA fees entering the equation. Good point.
Peak earning years are generally 35 to 55. . .so I am not sure we can make too much judgement on what the earning potential of this couple is. One is a teacher - that says to me that there will be a pension 25-30 years down the road, much earlier than 65 y.o. I think pensions are taxed as income so it's why my gut went with the Roth.
I know you mean well by punching the numbers but I think you are overwhelming him here.
I think you told me that a Roth has a potential for prinicipal withdrawal and there's a good chance they'll need that for something someday (house, medical bills, college, home improvement). The 401(k) is entirely hands off.
BTW, I'm the one with commodities - no biggie. You and Steve are the CEO guys  My silver recoverd like .25% today, LOL. |
At age 24, he would be in zero % tax bracket with what he has saved, Roth is not realistic advantage. His primary issue (IMO) is he needs to save more (and not worry about taxes NOW).
31k of income is in 15% tax bracket, and he can make up to 61k (double his income) before he hits a higher tax bracket. I don't think Roth makes full sense, unless OP KNOWS with high certainty, he'll be making more than 70k per year real soon.
The pension and fiance being a teacher did factor in... but it did not "overwhelm" me to adjust advice above (with info available).
If a checkpoint is reached with a 9% assumed return, I think OP would be a candidate for early retirement, and then the Roth needs to ramp up.
This would be tax free income in retirement and access to this money is possible for early retirement. A 401k could have access via a loan (which I think is better than a Roth withdraw). Under proper circumstance (I have used 401k loans twice when I needed money). It's like a bond fund in 401k with me paying the interest to myself. From a tax standpoint it's not a good deal, but it's a way to leverage the assets one has.