OK I’m looking at my friends 401k, what would be the best strategy for retirement if their 401k options are awful and someone is hard pressed to open an IRA? I would put in my 401k the matched percentage and fill up a ROTH but are there any other options? -Thanks.
100% Cash 
Hard to imagine a Roth is right. How many finance professionals are planning on a higher tax bracket when they retire than when they are working? Anyway, you just live with the least awful choice in the 401-k. Beat up your HR department and tell them that the choices suck. Usually they don’t know and they bought a package deal from somebody. Tell them you want the company to open up a 401-K plan at Vanguard (or Fidelity or T Rowe Price or …) as well as the current option and move your money there.
Max it out, even if the choices aren’t the greatest. Remember, you still get a tax benefit for putting $s in.
JoeyDVivre Wrote: ------------------------------------------------------- > Hard to imagine a Roth is right. How many finance > professionals are planning on a higher tax bracket > when they retire than when they are working? I’m young and not really close to high tax bracket at this point (and no state tax:woo-hoo) so I figure all those yrs compounding tax free and paying out tax free in 45+ yrs is going to be a nice reward. Maybe his friend is young and underpaid too.
Yea I know you should max it out for matching purposes but after that it seems like they should be in an IRA (tax benefits and choice) instead of pumping excess funds into a crappy 401k after they met that match. It’s through Fidelity it’s just crappy funds. Anyhow I guess the Roth is hedging your bets and they are not a finance professional but agreed Joey maybe they should open a traditional. If you have both a traditional and roth you the limit is 5k total correct? You cant put in 5k to the traditional and 5 k to the roth correct? -Thanks!
s23dino Wrote: ------------------------------------------------------- > Yea I know you should max it out for matching > purposes but after that it seems like they should > be in an IRA (tax benefits and choice) instead of > pumping excess funds into a crappy 401k after they > met that match. It’s through Fidelity it’s just > crappy funds. Anyhow I guess the Roth is hedging > your bets and they are not a finance professional > but agreed Joey maybe they should open a > traditional. If you have both a traditional and > roth you the limit is 5k total correct? You cant > put in 5k to the traditional and 5 k to the roth > correct? > > -Thanks! Thats correct. A 401k/IRA and a Roth is a slick combo. Financial advisors are starting ‘tax diversification’ with their clients. One should allocate aftertax proceeds to a roth and pretax proceeds to a 401k/IRA to take advantage of all available tax breaks.
^thanks and agree the combo is slick and is what I ideally want for my friend but I don’t know if they will do it, I may have to settle for the best options in the 401k, they should really give more options in 401k plans it seems they limit the options for the people that don’t know anything at the expense of people that either know what they are doing or have the sense to learn it or get the help they need.
> so I figure all those yrs compounding tax free and paying out tax free in 45+ yrs You’re not paying any tax on any capital gains in 401k yearly. Therefore the only sensible reply is: if you expect your taxes to be higher, choose Roth; lower - choose 401k.
Why not do both, ROTH and 401K?
your tax rate is based on how much you take out once you retire i believe. Also give the historic lows in tax rates right now it certainly isnt crazy to go Roth. Go both I say.
JoeyDVivre Wrote: ------------------------------------------------------- > Hard to imagine a Roth is right. How many finance > professionals are planning on a higher tax bracket > when they retire than when they are working? > > Anyway, you just live with the least awful choice > in the 401-k. Beat up your HR department and tell > them that the choices suck. Usually they don’t > know and they bought a package deal from somebody. > Tell them you want the company to open up a 401-K > plan at Vanguard (or Fidelity or T Rowe Price or > …) as well as the current option and move your > money there. I agree with Joey. If you friend starts to make some noise and gets some others aboard too it might catch the eye of the sponsor. They have a fiduciary liability (read a lot of risk) and they won’t want the participants unhappy.
kevinf12 Wrote: ------------------------------------------------------- > Why not do both, ROTH and 401K? In some cases you can’t. Depends on income level, marital status and plan coverage.
glebzhgun Wrote: ------------------------------------------------------- > > so I figure all those yrs compounding tax free > and paying out tax free in 45+ yrs > You’re not paying any tax on any capital gains in > 401k yearly. > > Therefore the only sensible reply is: if you > expect your taxes to be higher, choose Roth; lower > - choose 401k. irs not nearly that simple bc if you are in a higher tax bracket TODAY but your money will be compounding for many yrs (meaning you are young), you may still benefit from ROTH bc in 401k distributions you are taxed on the amount taken out while your tax break is on amount put in. There are lots of interactive calculators on the benefit that you can google- and they take into consideration tax bracket (current and expected) as well as yrs to retirement. Hit one up to see the “breakeven.” You can also roll a 401k/IRA into a ROTH and pay tax at current rate if you don’t surpass a max income level (but I think in 2010 there is a loophole where anyone can do it). I plan on converting when I’m in school and my income will be nearly nothing- meaning I will pay a little tax and never let the man get at that acct again!! ahahahhhahah *sinister laugh*
“In some cases you can’t. Depends on income level, marital status and plan coverage.” Aware of all of these, but the original post doesnt suggest this to be the case. I think current phase out on ROTH stats at 95K AGI, but dont know if that changed…
akanska 45+ years, how old are you 15,17?
kevinf12 Wrote: ------------------------------------------------------- > “In some cases you can’t. Depends on income level, > marital status and plan coverage.” > > Aware of all of these, but the original post > doesnt suggest this to be the case. I think > current phase out on ROTH stats at 95K AGI, but > dont know if that changed… In 2008 the phaseout range for contributions to a Roth start at 101K for singles (159 for joint).
ssdnola Wrote: ------------------------------------------------------- > akanska 45+ years, how old are you 15,17? I guess I forgot how old I am- edit: 40+ I plan on beginning to tap that ~70. Nice added benefit from the ROTH is that that there are no minimum distributions. If you’re really nice (arguably: stupid) you can actually pass all of it along to your survivors tax free and avoiding a lot of inheritance red tape where it can continue to compound tax free through the generations.
Future generations have to take RMD on the Roth though.
I think it is generally a bad idea to take out money from 401k, but under CF issues or an oppurtunity to make money else where (other than market) you may want to look and see if he has any high interest debt or any needs and take out loan from 401k. I recently decided my money would be better served in another way due to my outlook on market for 2 years or so and took money out of 401k and bought fix up house in dallas area for 50 k plus cash money I had w a loan of 2 years out my 401k. I don’t pay anything to set up other than flat $50 charge for initial dispersion and the interest I am paying back goes to me and not another company. No penalty pr tax consequence to do it. Could I get a 6% return in my 401k over next 2 years and could I get a loan for 6% May be something he could think about about if he had any other things he could invest in. In that way his 401k is much more flexible than ira would be