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Invest more in 401k or non-tax sheltered?

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    Invest more in 401k or non-tax sheltered?

    So my wife's 401k does not match past 6% so that is all we have been contributing. We have additional money every month so I am debating putting some in the stock market or adding to her 401k. Her 401k has an expense of 1%. Does it make more sense financially to invest in that or to do a Vanguard fund that has an expense ratio of .17? What other options do we have? We already max out our Roth's every year and I have a pension in place.

    #2
    The answer depends on your expectation of future returns. If you only earn a 1% return, then the net gain in the 401k is zero. At a return just above 1%, the two plans will have the same net return.

    However, there will come a point when your wife retires or takes a new job. At that point you can roll the 401k into an IRA. Paying high fees is anoying, but my opnion is the longer term benefit of the tax deferred account will outweigh the annoyance.

    Also check if there is a brokerage option available that lets you trade the 401k like any other brokerage account. If that is available, then maybe you can avoid the costs by purchasing low fee ETFs
    Last edited by violet80907; 02-26-2013, 07:33 AM.

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      #3
      If you only earn 1% if take into account inflation. You are actually losing money...

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        #4
        Private Lending on assets Pros and Cons on

        Anyone here ever lended on Assets before as Private Lender.. How did go for you. Pros and COns

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          #5
          Originally posted by c3troop View Post
          So my wife's 401k does not match past 6% so that is all we have been contributing. We have additional money every month so I am debating putting some in the stock market or adding to her 401k.
          A 401k is an account, not an investment. The stock market and stock based investments, are investments, not accounts. You do not "invest" in a 401k. You put your money into a 401k, to invest in other things.

          Why am I making a big deal about this? Because there are stock market options inside the 401k. So if you want, you can contribute to the 401k AND invest in the stock market with that money.

          I see too many people blame the 401k for their investments. That's like blaming the basket because you put apples in it, instead of oranges. The basket (401k) just holds what you put in it (stock funds).

          Her 401k has an expense of 1%.
          So what you're saying is that the stock fund within the 401k account has an expense ratio of 1%? That's pretty normal.

          Does it make more sense financially to invest in that or to do a Vanguard fund that has an expense ratio of .17? What other options do we have? We already max out our Roth's every year and I have a pension in place.
          Do you want the tax deduction this year? If so, contribute money to the 401k for the tax deduction.
          Do you want to pay taxes on your dividends/gains going forward? If so, use a taxable account.

          If you buy a Vanguard fund outside of the 401k/IRA, you miss the tax deduction and will pay tax on all gains going forward.


          Expense ratios are not the be all and end all of a good investment. If you really believe they are, you shouldn't go to Vanguard as Schwab and Fidelity (and maybe other companies too) have lower expense ratios on some of their index funds.

          http://www.schwab.com/public/schwab/...fs/schwab_etfs
          http://www.indexuniverse.com/section...dex-funds.html

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            #6
            A tax adviser will always tell you to defer taxes on income. A retirement planner, I presume, would tell you to max out your 401k contribution.

            Here's some things to think about:
            consider other goals besides retirement, like a dream vacation, or "pre-retirement" time off work.

            Less pleasant possibilities are 1) Higher tax rates in the future, especially on retirement distributions 2) Means testing & rising age eligibility for SS benefits. That is, it's possible that in the future, it may actually backfire to have more money in tax deferred retirement accounts.

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