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I am 59 and make over 200k per year. I fund my 401k pretax. At what point should someone fund pretax vs Roth?
So I debating this. My job does not match much only 1.5%. The only think is that if I want to retire before 65 I will have to wait till I am 65 to withdraw. It’s crazy your money is tie to the government till you are 65 even if you need it before then. 35 % tax and penalty. As I get older I want to depend on my money at anytime not till I am 65
With employer match doubling my money it doesn't make sense NOT to contribute.
Do you have a video on hidden fees for 401k?
I’ve been concerned about this but as Josh was going through this a thought struck me that someone smarter than me will have to check out. There are two big factors to how well money grows for retirement, interest rate earned and time. Two of the things that silently hurt the grows are taxes and fees. It occurred to me that must be a huge benefit in putting more money into a tax deferred account because you are giving more money a longer time period to grow. I’m not sure how the numbers work out and if this thought is correct. Having said that, I appreciate what Josh is saying about the emotional pain that comes when taking the money out. Another thought that hit me has to do its putting money in buckets. At some point, if it is available, it seems it would make simple sense to switch over to a ROTH to have a bucket of money that can be pulled out tax free depending on current market conditions in retirement (this is of course reliant on your company having that option or you having the additional money to contribute). The reason behind this is that at some point the time factor is not so big as it was for you years ago.
I don’t know if these are reasonable thoughts or not. I tend to overthink things and maybe I’m missing something very basic.
You can invest real estate which would provide depreciation against the property
How about if your making over 100k but live like your making $40K for over 15yrs? That’s all I will need in retirement and if on a occasion I need or want to spend more if I can. I must admit that I am very disciplined
Got 10% in with a 3.5% match. Just switched to Roth. Our paycheck provider now allows Roth. Glad I watched your video.
People also forget about how pretax income bumps up your SS tax bracket and also subjects you to IRMAA.
I'm trying to see what your shirt says
This keeps coming up on numerous channels. The answer isn’t one extreme over the other. Both have their pluses and minuses and we need to be “balanced”.
There are hardly any vids which try to break down where this “balance” should be.
It would seem the more you make then the more the ratio should be towards deferred vs Roth.
Even a MFJ combined income of 100k along with 25k standard deduction can be in the 12% bracket. So these folks need to have a higher ratio in Roth vs traditional.
Even those in the 22% bracket or even 24% should try to put some into Roth IRA before hitting the income limit. Luckily more and more companies are offering Roth 401k and there is no income limit.
The more one has in a Roth then it would seem it’s much easier to retire early. It’s more cost effective.
ACA is a big factor. Paying 25k in insurance premiums is outrageous. Can’t report too much taxable income.
i totally agree . It puts you in a box and at every ones mercy.
Now at 35, I only put 6% in my 401k since my employer match’s 50 up to 6. After 16 years, not even 100k. Definitely need to start this…
Look into self-directed IRAs. Hiding in plain sight in the same legislation that created IRAs we buy from companies who sell us mutual funds. Can invest in real estate, PE and Venture Capital and more.
my bracket will be much lower after retirement when we live on 50% of what we live on now. Why pay so much more taxes on it now. The reason for the penalty and the box is to try to discourage people from raiding their retirement and then they have nothing when old. Investment to small business and it folds, = no retirement.
I've always said this, though the 401k is one of the safest retirement plans, it is not a particularly a good option. Better strategy; Live below your means, Invest 20-30% of your income into the stock market but of course, be well informed about where you want to put your money… I made my first million earlier this year from stocks alone with about 550k after I dissolved my 401k and added little cash (through the help of a pro though). Greatest decision I ever made.
Totally agree. I wish I had contributed to a Roth sooner.
I've never been, am not, and never will be a fan of tax-deferred investing even with an employer match. When investing this way, you're essentially giving the government carte-blanche over your money. $30 trillion dollar US debt and counting. Who among us believes tax rates won't be exponentially increasing in the coming years? There are efficient methods of investing in taxable accounts. This, of course, requires discipline in terms of avoiding spending your money now. If one lacks this discipline, then I'd say it's a good bet you're an idiot who deserves neither the money you're wasting or the precious tax-deferral that most believe is the holy grail of investment goodies. Pay your damned taxes now, render unto Caesar, and be grateful you're in a position of earning enough to pay them in the first place.
We will be using the rule of 55.
It really depends on your tax bracket and remembering why you did what you did. If you are in a lower tax bracket in retirement vs now, it will still suck to pay the taxes, but you have to remember that you would have paid more if you paid it earlier. If you end up in a higher tax bracket in retirement, then congratulations if it's not due to the tax brackets changing by then. If the brackets are relatively the same as today after accounting for inflation, that means you are making more money in retirement than you make today. If you forsee that happening, then a Roth 401K is preferred.
I really enjoy your content and your delivery style. Keep them coming…..the different scenarios and your various approaches to critically think…..much different than the majority of content available. I always feel reassured and better prepared for dealing with those future financial situations that can bring anxiety and question to an individual.
thanks
Don't forget you can access your 401k without penalty if you leave the company in the year in which you turn 55 or later. Look it up.
Our tax code needs to be replaced with a 3 line tax code..1. Prior tax code is null and void. 2. anyone making less than 250K pays 10% anyone making more pay what it takes to pay for schools roads army ect. No deductions for retirement kids houses or anything. If the country wants a collosal plan like the green new deal then the 10% rate goes up to 12 % and the top rate also goes up 2 % as well. Politicians need to stop pandering for votes. Our tax code is a total mess and then who ever wins the elections changes it. How did we get to this situation light years away from the original tea party. ..
I agree with this. I used to drink the Dave Ramsey koolaid, but no more. I have investment property + learned how to trade options and I think you will win if you do both of these vs. invest in the SPX via 401k / IRAs.
IMO one cannot retire comfortably without paying off their mortgage. That is how you end up needing $80k a year to live. Ideally, we should eliminate housing cost (which is usually the biggest monthly expense) as much as possible
I know this is an old video but I just saw it. I'm going to contribute 6% to get the dollar for dollar match and in January I can get a Roth 401k
In my case I don;t want to pay Iowa income tax of 8.5% now when I plan to retire to a no income tax state. I will just to a Roth rollover once I retire and move out of the state. Why pay an additional 8.5% when I don;t have to?
Roth is the only way to go. Afterall you are anticipating significant growth after decades of investing. Why pay taxes on that huge amount?
Who the fuck is spending 100k per year in retirement? I don’t understand what some people do with their money. Do you burn it?
Can't you take out in distribution, to not pay penalties, like when you're 70? Sure, that money will probably run out. But you're always looking at depleting the taxable stuff. At 6% withdrawal rate, we will still be in lower tax rate than top third of my wife's income. I am 64. Still wish most was Roth.
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You can only contribute a limited amount to a Roth vs the 401k or 403 b. I am also not sold that a tax advantage later is better than a tax advantage today. There are too many variables and unknowns about the future.
"what if" is what the 10 percent penalty is for. You can get your money if you pay the fee. You got the advantages of tax free growth by promising to not use it until retirement.
Someone with $10,000,000 in a 401K can pull out $100,000 and pay the 25% or $25,000 tax no big deal
So you think it’s the governments job to take care of you?
What do you think about retirees having a part time hourly job?
The best way I see it, is to be debt free and draw an 80% teacher pension!
Any chance Congress will ever change it so 401K withdrawals are tax free?
if somebody was disciplined enough to save $2m+ in their 401k/IRA…I dont think they are going to have a problem. Deal with the emotions and get that off the table. Damned if you saved it, damned if you didnt. The tax problem is the problem I want to have vs. not having enough money period.
I don't think this is great for everyone. I pay high taxes now, so lowering my taxable income is good in a 401k. in retirement, I will need a low income, about 30k per year, and the next bracket is 42k. so I plan on converting to a roth every year to get that tax free stuff going. is this wrong? I will start that now, of course, with my "extra" money every month, up to the limit. so I will have that 5 year build in the meantime.
I love the fact that you referenced the uneducated economist. His and your channel are my 2 favorites!
Well the problem you're talking about is based on you being in a position in need of cash, which already means you haven't taken care of your finances, and then you're going to compound the mistake by losing 10%? Then to take it out of your pre-tax retirement account, which means you haven't really embraced the idea of a "RETIREMENT" account!
As for taking advantage of opportunities that MIGHT come up, including real estate, maybe you should really look into a self-directed IRA. These are there specifically for people who want to do non-market investments. I would think much preferable than paying penalties and taxes and losing so much of your value and the future compounding. More paperwork and record keeping though.
Finally, why I have THREE (actually four) types of retirement accounts. I have my pre-tax accounts, my roth accounts, my regular taxable brokerage account (that in my mind has always been part of my retirement and treated that way) and I have an HSA. Even then you have to play the tax games, but at least you have more flexibility.
I max out my ROTH and my 403b plan. Besides my primary job I also have 3 other PT jobs that I pretty much use to fund my individual accounts. ok to do in your book? I'm 50 and planning on retiring from my main job in 10 years. Mtg will be paid off in 7 years
Josh is there some reason why you don't specify PRE- TAX 401K in the title?