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I'm 28. I put 17% of my before tax gross into a 401k. I can afford to invest just a little bit more. I can put an additional 5% (after tax) into my 401k. Which one is more the better move if they make comprable returns? 5% after tax into a 401k or have a go with all this foolishness?
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Greetings, JeremySturgill, and welcome.

<<I'm 28. I put 17% of my before tax gross into a 401k. I can afford to invest just a little bit more. I can put an additional 5% (after tax) into my 401k. Which one is more the better move if they make comprable returns? 5% after tax into a 401k or have a go with all this foolishness?>>

If you mean by "comparable" the returns are identical, then a choice between your 401k and a taxable account hinges solely on your tax rate now versus that of later. The earnings on that extra contribution accumulate tax deferred in the 401K. At retirement, they will be taxed at the rates in effect in that year. If that rate falls from something like 28% today to 15% later, then the 401k will almost certainly be better. If the rate stays the same, then your choice probably doesn't matter (but the taxable account may have an edge if lower capital gains rates are involved).

With extra money over and beyond that needed for getting any additional employer match, you will be much better off in a Roth IRA. In that vehicle, the earnings can ultimately be withdrawn totally tax free. That's an edge you don't get with after-tax contributions to either the 401k or a taxable account. Just a thought FWIW.

Regards….Pixy



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