Company Investing (401k) Question

[Like2Plan]

The You can postpone SS to age 70 (currently. this may rise over the next 40 years). If you retire at say age 63, that gives you 7 years w/o SS to worry about. And even then, there are still amounts you can take that do not make your SS taxable. You still get all the deductions, and the amount up to the threshold.

My point is that that I don't believe the OP will be drawing 100% from the 401k in retirement, SS was just one example. And, I do not believe the tax rates are going to be as favorable as they are now.

If all your money is in Roth accounts you don't get to use any of that. If the majority of your money is in Roth accounts, you may run out of 401k money before taking full advantage, and waste at least your deductions for the rest of your life.

Again, I don't believe anywhere near 100% of the OPs money will be in a Roth at the time of retirement.
OP is 24 and just starting out and is making an above average income. I doubt that all the OPs retirement income will come exclusively from the 401K (or the roth). I would reserve the traditional contributions to the higher earning years. In future (higher earning) years, OP may have to put 100% of the contribution into a traditional 401K in order to drop down to a lower tax bracket--at that time, OP won't have much choice. That is going to bring the percent of taxable retirment income up. I can think of events which would instantly trigger this situation such as if the OP gets married to someone who makes about the same income, for example.

I think the OP is currently focusing on paying down SL debt and that is why he has not yet reached the 15% retirement goal.. Also, OP has two jobs and only part of the income (45,000) is covered by the 401K match.

[jpg7n16]

My point is that that I don't believe the OP will be drawing 100% from the 401k in retirement, SS was just one example. And, I do not believe the tax rates are going to be as favorable as they are now.

Again, I don't believe anywhere near 100% of the OPs money will be in a Roth at the time of retirement.

Look, I have no idea why you're arguing over this. I never said the OP would have 100% in Roth money. Why are you arguing over this??

I brought it up because you said you saw no benefit in having a traditional 401k at age 24. So I used 100% as an example to make it clear that there is benefit in general for having Traditional 401k money. That 100% figure had nothing to do with the OP's situation.

I think you're arguing w/ me for no reason.

The 100% figure was to make a point about the benefits of trad 401k, not a calculation for the OP's situation.

I think the OP is currently focusing on paying down SL debt and that is why he has not yet reached the 15% retirement goal..

Then he probably needs to reprioritize his goals. Retirement savings > paying down cheap debt.

As stated in previous posts, I believe that people should invest 15-20% for retirement, not including company match. And I believe that they should do so before paying off cheap debts. SL debt is typically cheap (mine is around 2%). Unless his student loans are charging more than say 6%, should increase savings before paying it off early.

[Like2Plan]

Look, I have no idea why you're arguing over this. I never said the OP would have 100% in Roth money. Why are you arguing over this??

Sorry, Maybe I am reading your remarks too literally:

If 100% of your money is in Roth accounts, you do not get this benefit.

I do not mean any disrespect, but I am responding to the above narrow comment you made. I feel it would be extremely difficult to get enough funds into a Roth type account that would constitute a majority of retirement funds over a 40 year career even if the OP contributions were 100% in the Roth to start with. The contribution allocation can be adjusted over time. But, if OP has reached the point where he is in the highest tax bracket in the future, it would not make any sense to go from traditional to Roth.

I brought it up because you said you saw no benefit in having a traditional 401k at age 24. So I used 100% as an example to make it clear that there is benefit in general for having Traditional 401k money. That 100% figure had nothing to do with the OP's situation.
I think you're arguing w/ me for no reason.

I don't disagree with your point that there is some benefit to having traditional 401K money. But, I believe the benefit might be far greater utilized in a few years when the OPs income has doubled or who knows--tripled or quadrupled (this is not far fetched over a 40 year career, is it?).

As stated in previous posts, I believe that people should invest 15-20% for retirement, not including company match.

I am in total agreement with this. I think the OP is phasing in the contributions and at his age-he is off to a great start!

And I believe that they should do so before paying off cheap debts. SL debt is typically cheap (mine is around 2%). Unless his student loans are charging more than say 6%, should increase savings before paying it off early.

I don't know the rate, I believe the OP mentioned in another post that he intended to retire the SL debt in about 3 months time.

[Vpxggmr17]

And I believe that they should do so before paying off cheap debts. SL debt is typically cheap (mine is around 2%). Unless his student loans are charging more than say 6%, should increase savings before paying it off early.

My student loan totals are as follows:

$11,800 at 7.9% interest
$1,450 at 4.5% interest

I picked up the second job, in the restaurant ($30-35k additional income), in order to pay off my credit cards, student loans and build an emergency fund. When I started my main job ($45k) I had $300 in my checking account, $2400 in monthly bills and over $4000 on credit cards. That's where moving across country for unpaid internships for most of the year (2011) will get you.

That said, my goal was to get my financial picture stable and moving in a positive direction in 2012. All credit card debt is gone and I will have enough in cash by 1/1/13 to completely remove the student loans. All the while still saving about 6-8% for retirement out of my own pocket.

I will be keeping the restaurant job (as much as I hate to say it) through 2013 in order to really put away significant money, somewhere between $30-$40k in order to give myself the stability to pursure the next step in my career where hopefully my income from the new job would equal or come close to the two incomes I'm drawing now.

[thesimplemoneyblog]

A Roth 401(k) is contributed to with after-tax dollars (you pay payroll (Social Security & Medicare) and federal income tax on the money in the year you earned the income), but the money grows tax-free and you will never (never say never with taxes as the IRS could change how any of these account types work) pay taxes on what is earned within a Roth. Additionally, when you leave the employer and roll over to a Roth IRA, you can defer taking money out of a Roth IRA indefinitely (at least at this point in time).
A traditional 401(k) is tax deductible in the year of a contribution, but you must pay income taxes on it when you take money out. Additionally, you might be contributing enough to the 401(k) that it drops your marginal tax rate to a lower tax bracket. Also, when you leave the employer and roll over to a Traditional IRA, you must begin taking distributions out beginning at age 70 1/2.

Neither the Roth nor Traditional 401(k) are inherently better than the other. You are mostly making a chance on what your future tax rate may be and thus it highly depends on your situation. In particular, since you are young and likely expect to be in a higher tax rate later in life (and in retirement whether that's due to an increase in tax rates themselves or a change in your income level), then a Roth could be the better choice. Also, if you have other money you might be able to draw on first during retirement, then a Roth can be an even better tool (since a Roth IRA does not have mandatory distributions at age 70 1/2 like a Traditional IRA does) to continue to defer distributions.

[Bayspieler]

One I had those loans paid off, I suggest increasing your 401-K contribution to the maximum and putting it all toward a Roth.

At your age, the biggest favor you can do for yourself is to learn how best to live below your means. It sound like you are doing a good job already, but there's no send in resting on your laurels once you get the loans paid off. Start paying your future self instead.

Best,