Roth v traditional 401k

[mrsdoe]

Oh ya - another question. I settled on vanguard and picked vanguard funds based in part on some recommendations here for our Roth IRA then realized we can't use vanguard at my work. All IRA accounts need to be reported and they have ones that do it automatically and vanguard isn't one of them. I forget all the options but I think schwab, etrade, Merrill lynch, and fidelity are the ones we can use. Can I buy vanguard funds in a fidelity Ira? And if so is it more expensive?

[lemoncupcake]

I do a 60/40 split, with the majority going into a Roth 401k. It's not a very scientific calculation, just a way to hedge my bets I guess.

My employer just started offering the Roth option last year, so the bulk of my 401k is traditional, and I have a Roth IRA account that we have been maxing out for about 5 years. So overall I think I'll end up with about half/half between Roth and traditional retirement savings.

[steamboat185]

We do 100% into a traditional 401k. I put 5500 into a backdoor Roth IRA. At this point that is a good mix for our family.

[Poppy]

Can your H contribute more? It probably makes more sense to reduce your taxable income now as much as possible by doing more in trad 401(k) rather than eking out higher contributions in your accounts by doing part Roth 401(k).

See these two posts:
thefinancebuff.com/case-against-roth-401k.html
thefinancebuff.com/roth-401k-for-people-who-contribute-max.html

You can probably buy the Vanguard index funds as ETFs with low fees through one of the other brokerages, and your costs will be especially low if you don't trade much. I think Fidelity also has some good low cost index funds which could be a good alternative.

[mrsdoe]

Poppy, I think you linked to those in other threads and I did read them. I was pretty set I should be doing Roth 401k until I read those and started to doubt it.

I told h to bring home the form from HR and he is upping his contribution to 15% from 7. So that will bring him up to $10500/year before his bonus is factored in. I would like and we can afford to have him contribute the full 18000/year but I think psychologically he would have trouble bringing home a paycheck with such a huge dent in it. Do you think it Would it be necessary in our shoes to do so in order to catch up? With his increased contribution plus the Roth IRAs that will bring us to 15% of our salary in retirement. We both didn't start though til our mid/late 20s and even then we were doing about 7% each on a combined salary of about 110k.

I've literally used every calculator out there and they range from "pray for an early death" to you'll be just fine.

[mrsdoe]

Oh and re taxable income - what assumptions do you use for how much taxes can increase before the Roth 401k becomes the better deal? While 28% is a high tax rate and if I don't need my full income I would be bumped down, I don't see it lower than 25% bracket in today's terms. I'm a novice at all this but I'm just worried about going to 80s/90s rates and my understanding is that someone with my income (adjusted for inflation) would be paying in the 35%+ in taxes. I would still fill up the lower buckets in the link from my match and the portion that we contribute pretax no?

[Poppy]

You know, I just try to accept the uncertainty. It's hard because there are so many factors: market returns, inflation, tax rates, life span, future disabilities... So much that you can't predict perfectly. We basically just save as much as we can and then will retire when we feel confident we have enough. For calculators, I try to use reasonable historic numbers and just assume today's tax brackets, and then shoot for some margin for error.

A lot of the Roth vs trad comes down to what kind of income you are going to draw in retirement. Are you going to have a paid off house? Will you have dependent expenses still (eg college or helping out with other expenses like a wedding or grandkids, dependent that's disabled and needs long term help, etc)? Do you aim to live the same standard of living, or higher (like @shoegal wants a big travel budget), or lower and do more stuff DIY so you can retire earlier?

This stuff is hard!

[kadams767]

Mar 10, 2017 12:42:09 GMT -5 @juno said:

After much struggling on the issue, my thinking is that no one I can think of should be using a Roth 401k unless all traditional options have been maxed out. There's no sense in leaving that tax benefit unused, particularly at high incomes. Tell DH to get over it and contribute the max if you can afford it Tell him to look at his 401k statement and your tax savings if he needs an ego boost. (I'm the lower earner in my relationship, so I get it, but I also had to get over it.)

As far as saving too much, I don't think you're anywhere near that territory. It's really hard to save too much. And if you manage to do that, all of your Roth IRA contributions (not earnings) are available without penalty before retirement. I may be wrong about this, but I believe that if you change jobs and roll your Roth 401k into an ira, that might be available for early withdrawal as well. And you can use ira distributions to pay for college as well. I think you should be looking to stash as much as you possibly can in the tax-advantaged accounts available to you.

I have to agree with this post.  I am the higher earner in my relationship, but DH needs to max his 401(k) too, we need the tax benefit.  I know it's hard to "see" such a small paycheck for him, but too bad.  :-)  For reference, DH makes about $60k, but only takes home about $2400/month after 401(k) and taxes. 

[Deleted]

mrsdoe, I have a few thoughts for consideration.

First, like PP's mentioned - even if your H earns less, he NEEDS to max his 401k. You have a healthy HHI (YAY!) and it's criminal to not max the 401k for the tax benefits alone. We were in a similar situation, and what we did is look carefully at our paychecks to ensure that we both got the same amount of "spending" money even though I had the higher take-home, and calculated in the max of the 401k for him in that process. He's now been maxing for several years, and he transitioned toward the max over a few months, if I recall correctly.

Personally, I have elected to NOT take advantage of the Roth 401k option at my firm, and have chosen instead to lower my income slightly by maxing out a traditional 401k. Others have made the opposite choice - regardless, my personal opinion is that as long as you are maxing out the retirement vehicles available to you, you are on the right track.

You could model over the details FOREVER and create a lot of stress, but I think this is a classic, "put some good thought into it, make the decision, don't look back." Just keep saving / investing and get that hubby to do so, too. The power of compounding is AMAZING, so take advantage of it!

[mrsdoe]

Mar 10, 2017 12:42:09 GMT -5 @juno said:

After much struggling on the issue, my thinking is that no one I can think of should be using a Roth 401k unless all traditional options have been maxed out. There's no sense in leaving that tax benefit unused, particularly at high incomes. Tell DH to get over it and contribute the max if you can afford it Tell him to look at his 401k statement and your tax savings if he needs an ego boost. (I'm the lower earner in my relationship, so I get it, but I also had to get over it.)

As far as saving too much, I don't think you're anywhere near that territory. It's really hard to save too much. And if you manage to do that, all of your Roth IRA contributions (not earnings) are available without penalty before retirement. I may be wrong about this, but I believe that if you change jobs and roll your Roth 401k into an ira, that might be available for early withdrawal as well. And you can use ira distributions to pay for college as well. I think you should be looking to stash as much as you possibly can in the tax-advantaged accounts available to you.

Too much wasn't the right choice of words - more like too much in 401k where we should save elsewhere. We can afford to save more in retirement vehicles if we have to go above and beyond in order to catch up enough. I just want to be where I should be now - or get there. I always heard 1x salary at 30 and we still aren't there

[mrsdoe]

Mar 10, 2017 13:09:00 GMT -5 kadams767 said:

Mar 10, 2017 12:42:09 GMT -5 @juno said:

After much struggling on the issue, my thinking is that no one I can think of should be using a Roth 401k unless all traditional options have been maxed out. There's no sense in leaving that tax benefit unused, particularly at high incomes. Tell DH to get over it and contribute the max if you can afford it Tell him to look at his 401k statement and your tax savings if he needs an ego boost. (I'm the lower earner in my relationship, so I get it, but I also had to get over it.)

As far as saving too much, I don't think you're anywhere near that territory. It's really hard to save too much. And if you manage to do that, all of your Roth IRA contributions (not earnings) are available without penalty before retirement. I may be wrong about this, but I believe that if you change jobs and roll your Roth 401k into an ira, that might be available for early withdrawal as well. And you can use ira distributions to pay for college as well. I think you should be looking to stash as much as you possibly can in the tax-advantaged accounts available to you.

I have to agree with this post.  I am the higher earner in my relationship, but DH needs to max his 401(k) too, we need the tax benefit.  I know it's hard to "see" such a small paycheck for him, but too bad.  :-)  For reference, DH makes about $60k, but only takes home about $2400/month after 401(k) and taxes. 

I'm convinced - it's just convincing him! He's on board for the 15% and I will talk to him about increasing over time. I've increased mine up a point every couple months til I hit the max so maybe that will be easier for him til he gets to 20 (which factors in bonus)

i switched back to trad on mine. And it will be nice to take home a few more dollars every pay period.

[badgergrl]

Mar 10, 2017 13:09:00 GMT -5 kadams767 said:

Mar 10, 2017 12:42:09 GMT -5 @juno said:

After much struggling on the issue, my thinking is that no one I can think of should be using a Roth 401k unless all traditional options have been maxed out. There's no sense in leaving that tax benefit unused, particularly at high incomes. Tell DH to get over it and contribute the max if you can afford it Tell him to look at his 401k statement and your tax savings if he needs an ego boost. (I'm the lower earner in my relationship, so I get it, but I also had to get over it.)

As far as saving too much, I don't think you're anywhere near that territory. It's really hard to save too much. And if you manage to do that, all of your Roth IRA contributions (not earnings) are available without penalty before retirement. I may be wrong about this, but I believe that if you change jobs and roll your Roth 401k into an ira, that might be available for early withdrawal as well. And you can use ira distributions to pay for college as well. I think you should be looking to stash as much as you possibly can in the tax-advantaged accounts available to you.

I have to agree with this post.  I am the higher earner in my relationship, but DH needs to max his 401(k) too, we need the tax benefit.  I know it's hard to "see" such a small paycheck for him, but too bad.  :-)  For reference, DH makes about $60k, but only takes home about $2400/month after 401(k) and taxes. 

I work .5 and still max my 401k because my dh makes a fair amount. I also carry our insurance and do the fsa out of my check. Most biweekly check is less than $100 (last year I think I made $3300 total for the year) but it makes sense when we look at our finances as a whole rather than mine and his.

[mrsdoe]

Mar 10, 2017 14:21:54 GMT -5 @juno said:

Mar 10, 2017 14:09:36 GMT -5 mrsdoe said:

i switched back to trad on mine. And it will be nice to take home a few more dollars every pay period.

Eh, i think this should go hand-in-hand with your dh maxing. If he won't i think you doing a Roth could be a second-best option. Better than spending it now. At a minimum ideal would be to put the tax savings in a taxable account designated for retirement rather than increasing lifestyle. Assuming we're talking about retirement versus an extra bottle of wine at dinner. Not retirement versus separating two-ply toilet paper into single ply. I don't think Roth is that serious.

I had planned to do a Roth for each of us anyways. I have the 2016 set aside and then I planned to start funding both of ours for 2017. Seriously half the reason I'm so behind on doing 2016 Roth is because I have to go through the whole compliance rigamarole at work. I'm plenty ignorant about personal finance that nothing I hear on the job can be used to my advantage 😂

I had also wanted to start a brokerage account because we have a lot of cash not making any money and I would like to do some automatic saving.. But I'm a bit paralyzed by fear. We don't really have any goals besides just to slowly grow our savings and have a nice life. Neither of us are motivated to retire early so 65-67 sounds right. We'd like to move up in house but we have enough equity to fund 20% and then some. I have some student loans and ridiculously low interest I refinanced. And that's really it. I feel like we have enough money that we don't have to worry but not enough excess that we can really grow it or lead a much better lifestyle.

[mrsdoe]

Thanks for all the feedback. H is on board w upping to 20%. With bonus the rest of the year that gets him to around 15.5 including what he's already contributed. I'm fine w doing that instead of trying to get to 18k this year - 20% would work out to 18k if we started in Jan. He's up for a raise in June so that may help close the gap a bit. Really intimidating posting since you all have it together but I appreciate the advice

[Deleted]

mrsdoe trust, we all don't really have our act together - we are pretty good as a community at giving advice though!

I got whacked with a huge tax bill recently because I made a stupid withholding mistake - which is so MM 101, d'oh!! we're all on the path together!

ETA: and good update!

[Poppy]

Just want to say I don't have 100% together either. But getting the big stuff right (like increasing your 401(k) contributions) is the most important part and you're doing it!