Maxed the Roths for 2016

[scfr]

I think this is another example of how you are out of touch with the average person.

While there are statistical averages, I don't believe there is such a thing as an "average person" . . . or at the very least, everyone's definition of what an "average person" is probably different.

[StormRichards]

While there are statistical averages, I don't believe there is such a thing as an "average person" . . . or at the very least, everyone's definition of what an "average person" is probably different.

For the purposes of this discussion, average person is used in relationship to income. I thought that relationship would have been clear, but perhaps it wasn't.

The national average wage for 2015 was 48,098.63. Going with that number, sorry if there are more current numbers, a person would need to contribute 36.5% to max out their 401k. That is far from realistic, and near impossible for most anywhere near that average income.

[scfr]

For the purposes of this discussion, average person is used in relationship to income. I thought that relationship would have been clear, but perhaps it wasn't.

OK - noted. And no, it wasn't clear at all that your comment would be about income. This thread is about a Roth IRA, not about income. And even when speaking of income . . . when we say "average" are we talking about world wide? The USA? The SA forum community? Earned income only? Earned and passive? Many interpretations possible.

[StormRichards]

OK - noted. And no, it wasn't clear at all that your comment would be about income. This thread is about a Roth IRA, not about income. And even when speaking of income . . . when we say "average" are we talking about world wide? The USA? The SA forum community? Earned income only? Earned and passive? Many interpretations possible.

I added stats to my prior response. If we are discussing Roth's, then should definitely be clear that the income is referring to US.

[QuarterMillionMan]

If I could I would also max out a Health Savings Account (HSA) at $3350 but I don't have a high deductible health plan.

[sv2007]

No it doesn't. Having both provides you with more flexibility with managing your taxable income during retirement since you can draw on the Roth tax free.

Is that your only reason? If so, then it is way too simplistic view. Simple view/solutions are good, but sometime when you view the world too simply/naively, you'll get hurt.

Tax free, but you've already paid taxes. If you're poor, then I think it is safe to assume that your retirement tax bracket is going to be lower than your pre-retirement bracket. Then... you are losing money in the Roth.

Now, if you have some money, then you won't want to have tiny slithers of investments in separate accounts. Why? You'll lose out of certain benefits like cheaper trading (buying 100 shares of X costs same as buying 1 share, actually, it used to cost more, but anyway, you are paying 100x the commission), account service fees, whether 401k contains enough value to remain at ex-employer, etc.

But the biggest reason is something more than just above. It goes into how the investment is viewed. If you are happy with 401k, then why IRA? and vice versa. Why both if you can't max either out? Do you have a split personality in terms of viewing your investment? They don't offer enough difference in flexibility to warrant duplication.

[StormRichards]

Is that your only reason? If so, then it is way too simplistic view. Simple view/solutions are good, but sometime when you view the world too simply/naively, you'll get hurt.

Tax free, but you've already paid taxes. If you're poor, then I think it is safe to assume that your retirement tax bracket is going to be lower than your pre-retirement bracket. Then... you are losing money in the Roth.

Now, if you have some money, then you won't want to have tiny slithers of investments in separate accounts. Why? You'll lose out of certain benefits like cheaper trading (buying 100 shares of X costs same as buying 1 share, actually, it used to cost more, but anyway, you are paying 100x the commission), account service fees, whether 401k contains enough value to remain at ex-employer, etc.

But the biggest reason is something more than just above. It goes into how the investment is viewed. If you are happy with 401k, then why IRA? and vice versa. Why both if you can't max either out? Do you have a split personality in terms of viewing your investment? They don't offer enough difference in flexibility to warrant duplication.

What has become obvious to me the past couple weeks of seeing your posts is that you honestly believe that since you are wealthy that means you are intelligent when it comes to investing. I suspect that is the furthest thing from the truth. The most likely scenario is that you are intelligent in the field you are in and that extraordinary income, and that alone, is the reason you are wealthy.

[StormRichards]

You'll lose out of certain benefits like cheaper trading (buying 100 shares of X costs same as buying 1 share, actually, it used to cost more, but anyway, you are paying 100x the commission)

No load Index Funds.

[disneysteve]

If I could I would also max out a Health Savings Account (HSA) at $3350 but I don't have a high deductible health plan.

I'm also Maxing an HSA at $6,750 but that's just temporary as it will get spent. I don't count that as savings.

[bennkar]

I just sent in the final 2016 contributions for both of our Roths so they are fully funded at $6,500 each (we're both over 50). I dragged my feet a bit on funding them this year because early on I thought there might be a chance we'd be over the income limit but we won't be so I topped them off.

I was going to question why you waited, but I guess if an income limit comes into the picture then of course waiting was the right choice.

[bennkar]

Is that your only reason? If so, then it is way too simplistic view. Simple view/solutions are good, but sometime when you view the world too simply/naively, you'll get hurt.

Tax free, but you've already paid taxes. If you're poor, then I think it is safe to assume that your retirement tax bracket is going to be lower than your pre-retirement bracket. Then... you are losing money in the Roth.

Now, if you have some money, then you won't want to have tiny slithers of investments in separate accounts. Why? You'll lose out of certain benefits like cheaper trading (buying 100 shares of X costs same as buying 1 share, actually, it used to cost more, but anyway, you are paying 100x the commission), account service fees, whether 401k contains enough value to remain at ex-employer, etc.

But the biggest reason is something more than just above. It goes into how the investment is viewed. If you are happy with 401k, then why IRA? and vice versa. Why both if you can't max either out? Do you have a split personality in terms of viewing your investment? They don't offer enough difference in flexibility to warrant duplication.

There are lots of reasons to split contributions. Besides the ease of access of the Roth money, other reasons can include

• funds available inside a 401k and their associated expenses,
• different withdrawal rules when in retirement,
• wanting some tax benefit now (401k) and having some tax benefit later(Roth IRA),
• 401(k)s vs IRAs have different legal standings in courts making one account "safer" than another.

I'm sure there are other reasons, but these are a few that are important to me. Splitting contributions can be a very good long term strategy that can apply to many people.

[bennkar]

Since this thread has gotten into general retirement investment strategies, I figure I'll throw in my basic strategy. I will have a pension in retirement, so it is highly likely with a pension, social security, and retirement account withdrawals (especially with mandatory withdrawals after 70) that my income won't decrease in retirement. Add in the likelihood of higher marginal taxes (they gotta go up, right?), and I figure Roth is the way to go if practical (for me).

My 457 plan (a 401k plan for gov't workers) also includes a Roth option (going on 5 years now), so I max out the plan ($24k) + Roth IRA ($6k) for $30k total, and of that, about $20k is in Roth funds.

This year will also be my first using a HSA plan (also maxing it out), so overall I will get some tax benefit.

Finally if you want to charge up your savings, you can do my strategy. I front load my contributions so that my money has more time to grow. Yes, if the market goes down that will work against me, but most years its to my benefit, including this year. I put in my Roth money the first week of January, and I max out my 457 plan by August. Its nice sitting back and watching my accounts grow over the last third of the year even when I am not contributing anything.

[sv2007]

What has become obvious to me the past couple weeks of seeing your posts is that you honestly believe that since you are wealthy that means you are intelligent when it comes to investing. I suspect that is the furthest thing from the truth. The most likely scenario is that you are intelligent in the field you are in and that extraordinary income, and that alone, is the reason you are wealthy.

I don't think I'm all that good at investing, but I'll tell you that there is no possible way for me to even approach my net worth without investing my income and getting higher than an average return.

To be successful at something, you either have to be naturally talented (which I think very few are) or work very hard at it. I'm the former. Growing that savings wasn't easy for me, and I learned a bunch on the way. Here, I'm sharing what I've learned and worked. It may not work for you; but at least it's worked for me.

As for being wealthy, it is all relative. I feel that I'm at a comfortable position financially speaking; I can do whatever I currently want to do, so I'm comfortable. I don't consider myself wealthy BTW.

[StormRichards]

I don't think I'm all that good at investing, but I'll tell you that there is no possible way for me to even approach my net worth without investing my income and getting higher than an average return.

To be successful at something, you either have to be naturally talented (which I think very few are) or work very hard at it. I'm the former. Growing that savings wasn't easy for me, and I learned a bunch on the way. Here, I'm sharing what I've learned and worked. It may not work for you; but at least it's worked for me.

This makes absolutely no sense, not unlike the majority of your posts.

You state that you don't think you are good at investing then you state you are naturally talented at it.

When you ramble the way that you do, you increase the risk of contradicting yourself. This is just one of many examples.

[sv2007]

There are lots of reasons to split contributions. Besides the ease of access of the Roth money, other reasons can include

• funds available inside a 401k and their associated expenses,
• different withdrawal rules when in retirement,
• wanting some tax benefit now (401k) and having some tax benefit later(Roth IRA),
• 401(k)s vs IRAs have different legal standings in courts making one account "safer" than another.

I'm sure there are other reasons, but these are a few that are important to me. Splitting contributions can be a very good long term strategy that can apply to many people.

Well, certainly all valid points.

My point is mainly to avoid spreading your money too thinly, and 401k vs IRA differences are too small to justify the very real disadvantages of keeping small amounts of money in separate accounts.

Just recently, on this forum, somebody asks what to do with his $2000 of 401k when he changes employment. Well, that's troublesome, because most 401k plans have a minimum amount requirement to keep the account when a person leaves. And $2k is (I'm pretty sure) too small for most (if not all). Not to mention the forced change in investment options.

If a person likes 401k and cn't max it out, I see no reason to start an IRA (just put that money into 401k, unless he can't then that's a different case than my post above). If he likes IRA, then put it there before 401k.