I read a lot about people only contributing to a 401K or 403b to the point where the employer match is capped and then investing elsewhere. What is the point of not contributing more to the 401K just to diversify?
I max out my 401K since we are not eligible for IRAs, so I am just curious.
The strategy where you contribute to the match then switch over to to Roth IRAs usually applies only where the person can only afford to do one or the other (and is eligible for Roths). That doesn't sound like you.
the thinking is that it's better to contribute now to an IRA with money taxed at your current tax rate, than to contribute tax free and have the money taxed at the future rate (since your current tax rate is probably much less than any future rates will be).
From what I understand it is good to put money in a Roth IRA if you are eligible because you are using post-tax dollars to fund it. This means that when you retire you will not have to pay taxes when you withdraw the money. Since no one knows what tax rates will be in 30 or 40 years it is good to pay them now.
Post by sillygoosegirl on Jan 4, 2013 17:27:39 GMT -5
Some people have crappy investment options in their 401(k)s, or can save plenty for retirement with just saving up to the match and maxing out an IRA.
When I was fresh out of college, contributing to get the full match on my 401(k), plus a Roth IRA was about 16% of my income plus a 4% match. We were also funding a Roth IRA for DH, which was almost 20% of his income by itself. And we already out earned like 75% of American households... Now we earn more and max out our 401(k)s without any matching incentives being necessary, but that's not a reasonable goal (or in any way necessary) for most households.
I assume that tax rates will go up and we will pay more in taxes in retirement than we currently pay. I also think it is a good idea to have money in both pre-tax and post-tax accounts.
The strategy where you contribute to the match then switch over to to Roth IRAs usually applies only where the person can only afford to do one or the other (and is eligible for Roths). That doesn't sound like you.
Why aren't you eligible for IRAs?
I guess I am eligible for a non-deductible IRA I just haven't seen a point in doing a non-deductible one. I do have a ROTH 401K at work a percentage of my contributions go there and a percentage goes to a traditional 401K.
I have other post-tax investments in addition to the 401K that are ear-marked for retirement.