Tryndamere wrote:Hi guys,
I have some retirement questions.
Currently my company offers a 401k and a Roth 401k with a 50% match up to my first 6%. I am 28 years old, and have not started any retirement planning yet. I am currently in the 25% Federal Income (5% state) tax bracket.
Tryndamere wrote:I am having a hard time picking which one is better and I have a few questions.
1) Can I withdraw principal for free from my Roth 401k, like I can with a Roth IRA, if need be? I am getting mixed info on this and if I am interpreting correctly, it looks like you will be subject to the 10% early withdrawal only on the percentage that came from employer contributions (since they are tax free).
So for example, I contribute $600 into my Roth 401k and my employer contributes $400. I have a total of $1000. If I were to withdraw that principal for an emergency that was not a qualifying emergency, I would be able to take my $600 out free of charge but would be charged tax and the 10% penalty on the $400 that my employer contributed. Does this sound about right?
Tryndamere wrote:2) I can convert either one into a Roth IRA when I leave my employer, right? Do I lose any money for doing this? Is one “cheaper” than the other to convert?
Tryndamere wrote:3) Is this a situation where I should just choose the Roth 401k if my tax bracket is low, but the traditional 401k if my tax bracket is high?
Tryndamere wrote:4) My company has a 5 year vesting period for the contributions. But what about the earnings that accumulates over the 5 years on those contributions? If my employers $400 that they contribute makes $40 in gains in a year and then I quit, do they only take their $400 back or do they take all $440 back?
Tryndamere wrote:5) Should I create a Roth IRA immediately, even if I only deposit $.01? Logic being that there is a 5 year period that a Roth IRA must be open to qualify for qualified distributions, so when I rollover my Roth 401k, it immediately has fulfilled that requirement. This would be a benefit if I wanted to use it for a qualified distribution like a down payment for a home, right?
Tryndamere wrote:Can you guys hack my fund options as well? I am having a hard time choosing what is optimal. I don’t mind being risky at all, I am 28 (and a poker player, hehe). Anybody have experience with any of these funds? Like any company in particular?
SSgA Cash Series U.S. Government Fund - Class L
Prudential Short-Term Corporate Bond Fund - Class R Ticker: JDTRX
JPMorgan Government Bond Fund - Class R2 Ticker: JGBZX
JPMorgan Core Bond Fund - Class R2 Ticker: JCBZX
T. Rowe Price Retirement Income Fund - Class R Ticker: RRTIX
T. Rowe Price Retirement 2010 Fund - Class R Ticker: RRTAX
T. Rowe Price Retirement 2015 Fund - Class R Ticker: RRTMX
T. Rowe Price Retirement 2020 Fund - Class R Ticker: RRTBX
T. Rowe Price Retirement 2025 Fund - Class R Ticker: RRTNX
T. Rowe Price Retirement 2030 Fund - Class R Ticker: RRTCX
T. Rowe Price Retirement 2035 Fund - Class R Ticker: RRTPX
T. Rowe Price Retirement 2040 Fund - Class R Ticker: RRTDX
T. Rowe Price Retirement 2045 Fund - Class R Ticker: RRTRX
T. Rowe Price Retirement 2050 Fund - Class R Ticker: RRTFX
T. Rowe Price Retirement 2055 Fund - Class R Ticker: RRTVX
Janus Balanced Fund - Class R Ticker: JDBRX
BlackRock Equity Dividend Fund - Class R Ticker: MRDVX
Alger Capital Appreciation Institutional Fund - Class R Ticker: ACARX
Janus Forty Fund - Class R Ticker: JDCRX
Neuberger Berman Socially Responsive Fund - Class R3 Ticker: NRARX
Nuveen Mid Cap Index Fund - Class R3 Ticker: FMCYX
Goldman Sachs Small Cap Value Fund - Class R Ticker: GSQRX
Fidelity Advisor Small Cap Fund - Class T Ticker: FSCTX
Janus Overseas Fund - Class R Ticker: JDIRX
Thornburg International Value Fund - Class R3 Ticker: TGVRX
Oppenheimer Developing Markets Fund - Class N Ticker: ODVNX
Prudential Jennison Natural Resources Fund - Class R Ticker: JNRRX
Columbia Seligman Communications and Information Fund - Class R Ticker: SCIRX
I appreciate all the help and please let me know I should be supplying more information.
First, I can save you a lot of angst over this. In your tax bracket, I think it's much more advantageous for you to do traditional 401(k) over Roth 401(k). I think the consensus on this board would say the same (with some detractors).
hoppy08520 wrote:When you say "principal", I think the more precise term is "contributions". Yes, you can withdraw your contributions from a Roth 401(k) early without penalty because you've already paid taxes on them, but not the earnings.
Since I make designated Roth contributions from after-tax income, can I make tax-free withdrawals from my designated Roth account at any time?
No, the same restrictions on withdrawals that apply to pre-tax elective contributions also apply to designated Roth contributions. If your plan permits distributions from accounts because of hardship, you may choose to receive a hardship distribution from your designated Roth account. The hardship distribution will consist of a pro-rata share of earnings and basis and the earnings portion will be included in gross income unless you have had the designated Roth account for 5 years and are either disabled or over age 59 ½.
hoppy08520 wrote:Could edit your original post, and post the expense ratio for each of these funds? This will help. Otherwise it's like ordering from a menu but without the prices. Be sure to enter the expense ratios for the funds as they are in your company's specific plan; often the fund expense ratios in 401k/403b/457 plans are different from the "retail" expense ratios you will find for a fund when doing an internet search.
Watty wrote:First, I can save you a lot of angst over this. In your tax bracket, I think it's much more advantageous for you to do traditional 401(k) over Roth 401(k). I think the consensus on this board would say the same (with some detractors).
+1 on Consensus
It is very likely you will be in a lower tax bracket sometime if you might get married, have kids, have a mortgage, have a few years with lower income, etc or after you retire. You can either make Roth contributions or do Roth conversions then.
You also have to keep in mind that the consequences of making a choice that turns out incorrect are very different. For example you might be able to choose to put $150 in a deductible 401K now and pay the taxes later or pay about $50 in taxes today and put $100 into a Roth. If you choose the deductible 401K and end up wealthy when you retire than you would get stuck paying extra taxes and you might have to take a shorter cruise or more likely just leaving the 401K money to your estate. On the other hand if you choose the lesser amount in the Roth and end up short of money in retirement then you could be in a lot of trouble that you could have avoided.
The Roth might be worth considering a bit more favorably if you are going to be maxing out all your tax advantaged retirement accounts since a dollar in Roth is worth more than a dollar in a 401K but they both count the same towards your annual limits
pingo wrote:Determine your tolerance for risk (age-in-bonds might be a good place to start), and pick one of those T.Rowe Price Retirement funds based its amount of bonds vs. stocks. Given your employer plan, they are a fine choice and they'll do the job. There is no advantage for you to pick any other funds.
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