Lately I've noticed alot of opinions on the boards of JUST contributing up to the employer match on 401's... My employer is modest in their match, although it's better than nothing. I've choosen to max out the 401 and feel it's a good deal because of the pre-tax status of monies going to it. Fortunatly, I am also able to max my Roth as well as contributing to other taxable accounts... am I all wet and out of date with the latest thinking of only 401-ing to the match?

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am I all wet and out of date with the latest thinking of only 401-ing to the match?

Not necessarily.

The thinking is that many 401k plans offer ... ummmm, how shall I put this ... less-than-stellar investment choices. Witness the current thread of someone stuck with mutual funds carrying a 5% front-end load. So you ***might*** be better off investing the money outside a 401k plan.

Further, with the current tax laws (which are subject to change at the whim of Congress) you might be increasing your ultimate tax burden by using tax-deferred plans like 401Ks. That is because long-term capital gains and qualified dividends get a preferential, low, tax rate. And that rate is not available to distributions from a 401k plan.

Then again, if you never get around to actually saving and investing the money if you don't have it automatically sucked out into the 401k plan, that advice would be hurting you instead of helping you.

As someone else has said recently, there are several right answers to investing your retirement money, not just one.

--Peter

These are just some thoughts on it.

It's a matter of taxes now and taxes in the future.

Whatever comes out of the 401k will be taxed at ordinary income rates in the future.

Will your rates be higher or lower in the future due to a general tax hike or due to your retirement income being higher? If so, then maybe a taxable account that you hold long term is better since the long term capital gains tax will be lower than the ordinary tax rate. Or will it?

If you're in a high bracket now, say 25% marginal or higher, then maybe the tax break now is better if you expect your retirement income to be lower, say putting you in the 15% bracket so the tax bite then would not be so bad when you pull it out of the 401k.

It's a guessing game. Myself, I took the bird in the hand. I just figured that if my investments did really well and I ended up with gobs and gobs of money in the future and had to pay lots of taxes because of those Required Minimum Distributions, I would just grin and bear it.

You should in no way take my comments as anything but comments and my thinking may even be wrong. It is not advice.

DC

You can speculate too much about the different possible outcomes when you retire. The main thing is to make as much money as you can in the different investment vehicles available.

So if you like the stuff available in your 401K, go for it all the way, and do the Roth thing also, so long as you qualify for the Roth.

Maybe your career will prosper and you will no longer qualify for a Roth.

Yeah, thank you guys for all the opinions....I do have satisfactory choices with the 401 and its done well for the 15 years I've been contributing and never seeing the $ beforehand makes it painless (or at least lost pleasure I never knew ;-) Ditto also on who knows what tax tricks will be up their sleeves by the time I'm ready for the easy chair in 10 or 15 years...I'm convinced you just can't try and second guess what "might be" but stick to a plan.


110intheshade

I've choosen to max out the 401 and feel it's a good deal because of the pre-tax status of monies going to it.

Unfortunately math doesn't work on "feel" it works on facts.

Why not do the actual calculation, or use a spreadsheet like the "401k Shaft Detector" to determine if your feeling is correct?

http://www.retireearlyhomepage.com/401ksft.html
http://www.retireearlyhomepage.com/shaft2.html

Unfortunately math doesn't work on "feel" it works on facts.

Why not do the actual calculation, or use a spreadsheet like the "401k Shaft Detector" to determine if your feeling is correct?

http://www.retireearlyhomepage.com/401ksft.html
http://www.retireearlyhomepage.com/shaft2.html


Thanks for the links jrr, I'll run those numbers this weekend!
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