Maximize 401k?

[fe_us_2000]

Recently my tax person recommended my wife and I to max our 401k contribution. I understand that it will lower the tax bracket. However, I am thinking if someday I am retired at age 70, isn't it that I still have to pay the tax from the 401k money that I take it out? By the way, my wife employer and my employer do not do any contribution matching at all.

If this is the case, what is the difference? Why not pay more taxes at this time and invest the cash into other properties such as house. There is a chance of the house market appreciates much more than putting the money into 401k.

Thank you for any feedbacks! Greatly appreciated.

-Frank

[autoxer]

Recently my tax person recommended my wife and I to max our 401k contribution. I understand that it will lower the tax bracket. However, I am thinking if someday I am retired at age 70, isn't it that I still have to pay the tax from the 401k money that I take it out? By the way, my wife employer and my employer do not do any contribution matching at all.

If this is the case, what is the difference? Why not pay more taxes at this time and invest the cash into other properties such as house. There is a chance of the house market appreciates much more than putting the money into 401k.

Thank you for any feedbacks! Greatly appreciated.

-Frank

You do still have to pay tax when you withdraw from the 401k, but you have more principal compounding because you have deferred the taxes. The 401k is even more beneficial if you contribute when you are in your peak earning years in a high tax bracket, and withdraw the money in retirement while you are in a lower tax bracket. If you expect to be in a higher tax bracket in retirement, then you are better off paying the tax now and using a Roth or taxable account.

As far as investing in a house, are you going to use that to fund your retirement?

[mholl95]

Hi Frank....Your question may seem like a simple one, but there's a lot that has to be unraveled to give you very specific suggestions. For example, information that would be helpful include:

- Age
- Income
- Years to retirement
- Total outstanding debt
- Total retirement savings/investments
- Cash available to invest

But since I don't have that info, I'll give some quick basic feedback as best I can.

1. With regard to your 401k, even though there is no matching, you can contribute up to $17,500 for 2013/14. And the taxes are deferred. Compare that to an IRA where you can only contribute $5,500 (or $6500 if you're over age 50).

2. I love the Roth IRA. I have a book called Roth Revolution by James Lange that makes a compelling argument for maxing out your Roth. He performed an analysis of going with a Roth vs a Traditional IRA, and his conclusions were scrutinized by the American Institute of CPA's. It doesn't get any tougher than that. So if they upheld his results, that's good enough for me.

But I wouldn't bemoan anyone who prefers a Traditional IRA. After all, the point is to save and invest for your retirement years. Many people aren't doing much at all.

3. With regard to investing in real estate, that can certainly be an excellent investment. It just depends on what you have in mind and how much you can afford to invest. It also depends on if the real estate market in your area is falling, stagnant or appreciating. Timing matters.

Cheers,
Michael

[fe_us_2000]

Thank you all for the feedback.

They are very helpful. I think my wife and I decided to max our 401k contributions.

In addition to 401k maximize, can I contribute to my IRA/ROTH IRA that I have from my previous company? It is an account that converted from 401k to IRA/ROTH IRA after I left the company.

-Frank

[autoxer]

Thank you all for the feedback.

They are very helpful. I think my wife and I decided to max our 401k contributions.

In addition to 401k maximize, can I contribute to my IRA/ROTH IRA that I have from my previous company? It is an account that converted from 401k to IRA/ROTH IRA after I left the company.

-Frank

You can still contribute to your other IRA, but depending on your income, it may not be tax deductible. There are also income limits for a ROTH IRA.

[snafu]

Good on you and DW to max out contributions to your 401 k. The most important next step is to know exactly what you are investing in, the allocation, any fees you are being charged and any management expense ratio [MER] if you are holding any mutual funds. Your ROTH specifics need to support that 401k allocation.