New job - not sure how much to 401k and how much to Roth IRA

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LiterallyIronic
Posts: 827
Joined: Sat Dec 05, 2015 10:36 am

New job - not sure how much to 401k and how much to Roth IRA

Post by LiterallyIronic » Fri Nov 09, 2018 8:01 pm

I just landed a new job with higher pay ($75,000) than my current job ($63,500). We've been maxing out two Roth IRAs ($458/month each) and also putting $204 per paycheck into my 401k. That makes $1,324 invested every month.

My current semi-monthly paycheck (times two) breaks down as follows:

Gross: $5,291.66
Taxes: $784.62
Pre-tax 401k: $408
Pre-tax Health Insurance: $0

Net: $4,099.04

Roth IRAs: $916

Post Investments Income: $3,183.04

Mortgage: $825
Mortgage Principal Prepayment: $200

Expendable Income: $2,158.04

I'm 34 now and want to retire at 50.

Current invested assets:

401k: $14,000
Roth IRAs: $53,000
Total: $67,000

Remaining Mortgage Debt: $142,000 (one year into a 30-year fixed at 3.875%, initially started at $149,000).

Financial Goals (in order):
1. Retire at 50 with $600,000
2. House paid off at 50.
3. Buy a DeLorean (~$30,000)

With the current information out of they way, here's the new situation. I'll be grossing $75,000. My new company provides 401k matching of 75% up to 6% of salary. That is to say, if I put in 6%, they'll put in 4.5%. I don't know anything yet about the investment options available.

It should also be noted, that my health insurance will no longer be fully covered by my employer - instead I'd have to pay $231/month. So instead of getting a raise of $11,500 (from $63,500 to $75,000), it's really more like a raise of $8,728 (or $727 per month).

Obviously, I should put in 6% in order to get the full match. That would be $4,500 per year. Now, we've been investing $15,888 per year so far, which would mean that, in order to stay exactly the same, would require $11,388 to be invested elsewhere (either continuing to put it in the Roth IRAs or putting more than 6% into the 401k, or some combination of those). Now, as it happens, in 2019, the Roth IRA max is going to $6,000, so we could theoretically do exactly 6% in the 401k and continue to max out the Roths, for a total of $16,500 invested annually. That would have us go from investing $1,324/month to $1,375/month.

However, this thread isn't really supposed to be about how much I should invest, but where I should invest. At this point, should I still be prioritizing the Roth IRAs?

I want to retire at 50, which makes the IRAs more attractive than the 401k, in terms of being able to access it at a younger age. However, my income now will be $75,000, and I expect a retirement income of no more than $24,000, so paying taxes on my income in retirement instead of now makes the 401k more attractive.

Where should I be sticking my money? Thanks for any insights.

jacoavlu
Posts: 559
Joined: Sun Jan 06, 2013 12:06 pm

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by jacoavlu » Fri Nov 09, 2018 8:04 pm

Retire at 50 with $600k? That’s ambitious. I commend you if you can do it.

DanEmmy
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Joined: Tue Jun 28, 2016 9:16 pm

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by DanEmmy » Fri Nov 09, 2018 10:08 pm

I don't think your numbers are adding up to retiring at 50. Have you run through a calculator like the one at Fidelity?

But to answer your question, max out both 401k and Roth IRA. To quote what is often said around here, once that tax advantaged space leaves for the year, its gone forever. Use it up!

LiterallyIronic
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Joined: Sat Dec 05, 2015 10:36 am

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by LiterallyIronic » Fri Nov 09, 2018 11:06 pm

DanEmmy wrote:
Fri Nov 09, 2018 10:08 pm
I don't think your numbers are adding up to retiring at 50. Have you run through a calculator like the one at Fidelity?

But to answer your question, max out both 401k and Roth IRA. To quote what is often said around here, once that tax advantaged space leaves for the year, its gone forever. Use it up!

Yeah, it adds up to retiring at 50.

http://www.calcxml.com/calculators/savi ... tor?skn=38

Put in age 34, $67,000 current balance, $15,800 annual contributions, 7% annual growth, and age 50 to start receiving income. It says I'll reach $613,000.

But, no, that doesn't answer my question. I don't have the money to max both a 401k and a Roth IRA. I have $16,000 to invest. How much do I put into my 401k and how much into Roth IRAs?

JustinR
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Joined: Tue Apr 27, 2010 11:43 pm

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by JustinR » Fri Nov 09, 2018 11:08 pm

LiterallyIronic wrote:
Fri Nov 09, 2018 8:01 pm
I want to retire at 50, which makes the IRAs more attractive than the 401k, in terms of being able to access it at a younger age. However, my income now will be $75,000, and I expect a retirement income of no more than $24,000, so paying taxes on my income in retirement instead of now makes the 401k more attractive.
Put it all in your 401k.

Pre-tax is your most valuable space right now.

If you retire early, there are ways to access your 401k money early. Look up "Roth conversion ladder".

Basically it's a way to convert your 401k funds into your Roth IRA and access it early. And if you actually have an extremely low income like $24k, you'll be able to convert it tax free.

That's the HOLY GRAIL. Fund your 401k tax free now, convert it tax free when you retire, and withdraw it tax free before retirement age.

Edit: Also if you or your spouse is able to, you should do traditional IRA instead of Roth IRA. Same idea as the 401k.

corp_sharecropper
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Joined: Thu Nov 07, 2013 2:36 pm

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by corp_sharecropper » Fri Nov 09, 2018 11:21 pm

Where do you live that $24K isn't just getting by on Ramen? Pro tip: don't have kids, they'll blow your plan up real quick.

LiterallyIronic
Posts: 827
Joined: Sat Dec 05, 2015 10:36 am

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by LiterallyIronic » Fri Nov 09, 2018 11:33 pm

JustinR wrote:
Fri Nov 09, 2018 11:08 pm
LiterallyIronic wrote:
Fri Nov 09, 2018 8:01 pm
I want to retire at 50, which makes the IRAs more attractive than the 401k, in terms of being able to access it at a younger age. However, my income now will be $75,000, and I expect a retirement income of no more than $24,000, so paying taxes on my income in retirement instead of now makes the 401k more attractive.
Put it all in your 401k.

Pre-tax is your most valuable space right now.

If you retire early, there are ways to access your 401k money early. Look up "Roth conversion ladder".

Basically it's a way to convert your 401k funds into your Roth IRA and access it early. And if you actually have an extremely low income like $24k, you'll be able to convert it tax free.

That's the HOLY GRAIL. Fund your 401k tax free now, convert it tax free when you retire, and withdraw it tax free before retirement age.

Edit: Also if you or your spouse is able to, you should do traditional IRA instead of Roth IRA. Same idea as the 401k.
That's a good point. Wouldn't it be better to do the 401k up the match, then two Traditional IRAs at Vanguard (for the lower expense ratios and better options)?
corp_sharecropper wrote:
Fri Nov 09, 2018 11:21 pm
Where do you live that $24K isn't just getting by on Ramen? Pro tip: don't have kids, they'll blow your plan up real quick.
I live in Utah. We have one kid, and it hasn't stopped us from contributing to retirement funds or paying off the house in an accelerated manner, so the plan is still in tact. I don't want to get into the nitty-gritty of our budget, as that would derail the point of the thread.

JustinR
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Joined: Tue Apr 27, 2010 11:43 pm

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by JustinR » Fri Nov 09, 2018 11:49 pm

LiterallyIronic wrote:
Fri Nov 09, 2018 11:33 pm
That's a good point. Wouldn't it be better to do the 401k up the match, then two Traditional IRAs at Vanguard (for the lower expense ratios and better options)?
There's income limits on a tIRA: https://www.irs.gov/retirement-plans/20 ... an-at-work

If your MAGI is <$63k single or <$103k married, then yea a tIRA and 401k would be equivalent.

If it's above that, only part of your tIRA contributions would be able to save on taxes. In that case, filling up your 401k first would be better.

I'm not an expert on these though so you'll have to do research yourself on it or someone else can chime in.
Last edited by JustinR on Sat Nov 10, 2018 12:47 am, edited 1 time in total.

suemarkp
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Joined: Sun Nov 12, 2017 8:18 pm

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by suemarkp » Sat Nov 10, 2018 12:43 am

Those are the limits for singles. Is the OP married (he said we've been...)?

You never know what the future will hold (what the tax rates will be, how tax laws change, how much money you'll actually need, life changing events such as illness or children, etc). To me, I'd do the following:

Put enough in your 401K to get all the company match.
If your taxable income after that 401K reduction keeps you in the 12% tax bracket, then put whatever you can in a Roth and/or "after tax" 401K so you can do mega back door Roth conversions.
If you're hitting the 22% bracket, then the Roth -vs- pretax 401K choice is harder. Depends on what your tax rate will be in retirement.

It is good to have a mix of pretax and Roth money.

I think retiring at 50 with only $600K is optimistic. How many years are you planning to live? Are you factoring for inflation? Healthcare? Disability? I'm planning on retiring at 59 with about $3M and I'm still afraid things could be tight (but I am in a high cost of living area). If I live to age 96 I'm in a world of hurt (wife and I have to die at 95...).
Mark | Kent, WA

sailaway
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Joined: Fri May 12, 2017 1:11 pm

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by sailaway » Sat Nov 10, 2018 8:29 am

suemarkp wrote:
Sat Nov 10, 2018 12:43 am


I think retiring at 50 with only $600K is optimistic. How many years are you planning to live? Are you factoring for inflation? Healthcare? Disability? I'm planning on retiring at 59 with about $3M and I'm still afraid things could be tight (but I am in a high cost of living area). If I live to age 96 I'm in a world of hurt (wife and I have to die at 95...).
That's a spending problem, not the OP's problem.

OP, look at the order of investments; max your traditional 401k to get the match, then Roth IRAs to max. The reason I am suggesting Roth IRAs is that you can live off of those contributions while you do conversions on your traditional accounts. Your low spend should keep you in a low to no tax bracket, so that you only need easy access to funds for the first 10 years.

retiredjg
Posts: 34168
Joined: Thu Jan 10, 2008 12:56 pm

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by retiredjg » Sat Nov 10, 2018 9:06 am

LiterallyIronic, you have not told us the most important piece of information - your tax bracket. You talk as if you are married and you talk as if you are a one income family, but those things cannot be assumed.

If your entire family income is going to be $75k, you will be in the 12% bracket. That's a good place to use more Roth IRA than traditional 401k or IRA. The exception is if using tIRA and t401k can reduce your income enough to qualify for the Saver's Credit or the Earned Income Credit. I don't know much about either, but there is information in the Wiki.

I suppose another exception would be if your income is only $24k a year in retirement (I assume you mean today's dollars). In that case, using the traditional approach might be better.

This decision always boils down to things that are not knowable when you are in the decision making process. At this point, you don't even know what your plan looks like. Could be lousy.

wolf359
Posts: 1422
Joined: Sun Mar 15, 2015 8:47 am

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by wolf359 » Sat Nov 10, 2018 10:29 am

Congratulations on the new job!

Your math problem is simple. Contribute enough to the 401k to qualify for the match, then max out your Roth IRA. Then contribute additional savings to the 401k until the max (which you currently won't reach at current level of savings.)

It looks like you're trying to follow the Mr. Money Mustache Plan. That is, to retire with $600,000 and a paid off house, thus supporting an inflation adjusted withdrawal rate of $24,000/year, supplemented with Social Security as a backstop (you're working until 50, so you will have accumulated more SSA credits than he did.)

Some thoughts:

1) MMM executed his plan in 2007, with $600,000 in 2007 dollars. That is more than ten years ago. You are planning to do this in 2034 dollars. You're forgetting about INFLATION. I can't tell you what the inflation rate will be over the next 15 years, but I can point you to an inflation calculator: https://www.usinflationcalculator.com/ That will tell you that $24,000 in 2007 is the equivalent of $29,000 today. That is considering the incredibly low inflation rate of the last 10 years caused by the Great Recession that started in 2008 (most of the time period.) In fact, inflation and interest rates are only now starting to go up. Chances are that inflation will be higher in the next 15 years than in the last 10. You need to inflation adjust your target. You're picking a number that was good for someone else once, and you're going to start with that same number 26 years after they did it.

For grins, $24,000 today was the equivalent of $13,000 26 years ago. In 2034 you're going to consider your target ridiculously low. I'd suggest shooting for a self-adjusting income target, like US median income, or a multiple or fraction of US median income. This works because it automatically inflation adjusts, and you compare yourself to everybody else, anyway. As you get close, you refine your target because your expenses a few years out are more predictable than those 15 years out.

2) Your interests, goals, and financial requirements at 50 will not be the same as they were at 34. For one example, you already mentioned health care. Your new employer covers less of your health care bill than your previous employer. If you retire, you have NOBODY covering your health care bill (and you'll be 50, just starting the downhill health slope!). You have to add health care as an expense. At 65, you'll be able to use Medicare, depending what it looks like then. For 15 years, you'll have to budget enough to cover it yourself.

3) Consider that Social Security should be used as a backstop in your plan, not a primary source of income. You'll be stopping work early, so it won't be as big as it otherwise would. In addition, it is currently projected to take a 21% haircut in 2030, which is still years before you can claim it.

4) Your mortgage interest rate is decent, and will only look better as rates climb. Make sure you have an emergency fund since the majority of your assets will be in retirement accounts. If you have a job loss at any time in the next 15 years, you're in trouble. I would take the money you're prepaying and use it to create an emergency fund. After it is fully funded, use it to make a "sinking fund" for the house. That is, you invest the money in a taxable account for the purpose of paying off the mortgage. The reason you'd do it that way is that if you lose your job you have liquid funds that you can use to continue paying your bills. If you simply pre-pay the principal, you could still lose the house if you don't pay the mortgage (they don't care how much you've prepaid, only that you continue to pay.)

5) Having liquid assets is critical if you're living on only one income. You have a family with one child. You don't mention any other income or savings. Having lived through 2008, I can tell you that people who had to tap their retirement accounts early drained them pretty quickly. You have to pay both taxes and penalties, and may have to withdraw extra money just to pay those taxes and penalties (and those additional withdrawals ALSO get taxed and penalized!) Avoid if you can. Plan for liquidity.

6) It's early, but you also need to plan for your withdrawal strategy, since you want the option to retire early. One reason to contribute to Roth IRA's is that you can withdraw the contributions without penalty, and before age 59 1/2. (If you do this, keep your records to track your contributions!) For the traditional 401-k, you have to check to see if your employer lets you withdraw at age 55 (varies from plan to plan.) If not, then you roll it over to a traditional IRA, and create a Roth Conversion Ladder. You have to allow in your planning enough income to pay the taxes, or have enough taxable savings to pay the taxes. This may not be an expense you are currently considering.

fulltilt
Posts: 181
Joined: Thu Dec 01, 2011 2:23 pm

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by fulltilt » Sat Nov 10, 2018 10:52 am

LiterallyIronic wrote:
Fri Nov 09, 2018 8:01 pm
...

However, this thread isn't really supposed to be about how much I should invest, but where I should invest. At this point, should I still be prioritizing the Roth IRAs?

I want to retire at 50, which makes the IRAs more attractive than the 401k, in terms of being able to access it at a younger age. However, my income now will be $75,000, and I expect a retirement income of no more than $24,000, so paying taxes on my income in retirement instead of now makes the 401k more attractive.

Where should I be sticking my money? Thanks for any insights.
What would happen if you contributed into the 401k until you get your household income into the 12% tax bracket, then go Roth. There are provisions for accessing your 401k money at the age of 55, but you have to retire at 55 and there is some other BS that goes with it. That might be looking into especially considering how "optimistic" your plan is....

So, i would say 401k until you get the match AND you're in the 12% bracket, then Roth, but that is just me.

Good luck!

LiterallyIronic
Posts: 827
Joined: Sat Dec 05, 2015 10:36 am

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by LiterallyIronic » Sat Nov 10, 2018 12:23 pm

retiredjg wrote:
Sat Nov 10, 2018 9:06 am
LiterallyIronic, you have not told us the most important piece of information - your tax bracket. You talk as if you are married and you talk as if you are a one income family, but those things cannot be assumed.

If your entire family income is going to be $75k, you will be in the 12% bracket. That's a good place to use more Roth IRA than traditional 401k or IRA. The exception is if using tIRA and t401k can reduce your income enough to qualify for the Saver's Credit or the Earned Income Credit. I don't know much about either, but there is information in the Wiki.

I suppose another exception would be if your income is only $24k a year in retirement (I assume you mean today's dollars). In that case, using the traditional approach might be better.

This decision always boils down to things that are not knowable when you are in the decision making process. At this point, you don't even know what your plan looks like. Could be lousy.
Correct, married with one kid. Wife stays at home with the toddler, so my income is the only income.

That's the trouble. I can't know the future, so it makes hard to determine Traditional or Roth.
fulltilt wrote:
Sat Nov 10, 2018 10:52 am
LiterallyIronic wrote:
Fri Nov 09, 2018 8:01 pm
...

However, this thread isn't really supposed to be about how much I should invest, but where I should invest. At this point, should I still be prioritizing the Roth IRAs?

I want to retire at 50, which makes the IRAs more attractive than the 401k, in terms of being able to access it at a younger age. However, my income now will be $75,000, and I expect a retirement income of no more than $24,000, so paying taxes on my income in retirement instead of now makes the 401k more attractive.

Where should I be sticking my money? Thanks for any insights.
What would happen if you contributed into the 401k until you get your household income into the 12% tax bracket, then go Roth. There are provisions for accessing your 401k money at the age of 55, but you have to retire at 55 and there is some other BS that goes with it. That might be looking into especially considering how "optimistic" your plan is....

So, i would say 401k until you get the match AND you're in the 12% bracket, then Roth, but that is just me.

Good luck!
I'm already in the 12% bracket. MFJ with income under $77,400.
wolf359 wrote:
Sat Nov 10, 2018 10:29 am
Congratulations on the new job!
Thanks!
wolf359 wrote:
Sat Nov 10, 2018 10:29 am
Your math problem is simple. Contribute enough to the 401k to qualify for the match, then max out your Roth IRA. Then contribute additional savings to the 401k until the max (which you currently won't reach at current level of savings.)
That's what I've been doing so far.
wolf359 wrote:
Sat Nov 10, 2018 10:29 am
It looks like you're trying to follow the Mr. Money Mustache Plan. That is, to retire with $600,000 and a paid off house, thus supporting an inflation adjusted withdrawal rate of $24,000/year, supplemented with Social Security as a backstop (you're working until 50, so you will have accumulated more SSA credits than he did.)
If I'm following someone else's plan, that's just a coincidence.
wolf359 wrote:
Sat Nov 10, 2018 10:29 am
1) MMM executed his plan in 2007, with $600,000 in 2007 dollars. That is more than ten years ago. You are planning to do this in 2034 dollars. You're forgetting about INFLATION. I can't tell you what the inflation rate will be over the next 15 years, but I can point you to an inflation calculator: https://www.usinflationcalculator.com/ That will tell you that $24,000 in 2007 is the equivalent of $29,000 today. That is considering the incredibly low inflation rate of the last 10 years caused by the Great Recession that started in 2008 (most of the time period.) In fact, inflation and interest rates are only now starting to go up. Chances are that inflation will be higher in the next 15 years than in the last 10. You need to inflation adjust your target. You're picking a number that was good for someone else once, and you're going to start with that same number 26 years after they did it.

For grins, $24,000 today was the equivalent of $13,000 26 years ago. In 2034 you're going to consider your target ridiculously low. I'd suggest shooting for a self-adjusting income target, like US median income, or a multiple or fraction of US median income. This works because it automatically inflation adjusts, and you compare yourself to everybody else, anyway. As you get close, you refine your target because your expenses a few years out are more predictable than those 15 years out.
I'm not forgetting inflation, I'm ignoring it. If things get more expensive, I just get less of it.
wolf359 wrote:
Sat Nov 10, 2018 10:29 am
2) you already mentioned health care. Your new employer covers less of your health care bill than your previous employer. If you retire, you have NOBODY covering your health care bill (and you'll be 50, just starting the downhill health slope!). You have to add health care as an expense. At 65, you'll be able to use Medicare, depending what it looks like then. For 15 years, you'll have to budget enough to cover it yourself.
I only mention healthcare because my toddler needs coverage. That makes sense. But I can't get my employer to cover a dependent without covering me. In retirement, I'm not going to be covering a kid. My wife is also not on my plan. She's on her own grandfathered pre-ACA plan that is $103/month including maternity coverage. If it's cheaper, we'll just add me and our kid to her plan than go through my employer's plan. Last time I asked, it would be $170/month to cover my wife and my toddler through that third-party plan, which isn't tied to any employment. I'll ask how much it would cost to have all three of us on it. Could be cheaper than through my work.

In retirement, though, I expect to be poor enough to be on Medicaid until I'm old enough to be on Medicare.
wolf359 wrote:
Sat Nov 10, 2018 10:29 am
3) Consider that Social Security should be used as a backstop in your plan, not a primary source of income. You'll be stopping work early, so it won't be as big as it otherwise would. In addition, it is currently projected to take a 21% haircut in 2030, which is still years before you can claim it.
I expect to receive a grand total of zero dollars in Social Security through the course of my life.
wolf359 wrote:
Sat Nov 10, 2018 10:29 am
4) Your mortgage interest rate is decent, and will only look better as rates climb. Make sure you have an emergency fund since the majority of your assets will be in retirement accounts. If you have a job loss at any time in the next 15 years, you're in trouble. I would take the money you're prepaying and use it to create an emergency fund. After it is fully funded, use it to make a "sinking fund" for the house. That is, you invest the money in a taxable account for the purpose of paying off the mortgage. The reason you'd do it that way is that if you lose your job you have liquid funds that you can use to continue paying your bills. If you simply pre-pay the principal, you could still lose the house if you don't pay the mortgage (they don't care how much you've prepaid, only that you continue to pay.)
5) Having liquid assets is critical if you're living on only one income. You have a family with one child. You don't mention any other income or savings. Having lived through 2008, I can tell you that people who had to tap their retirement accounts early drained them pretty quickly. You have to pay both taxes and penalties, and may have to withdraw extra money just to pay those taxes and penalties (and those additional withdrawals ALSO get taxed and penalized!) Avoid if you can. Plan for liquidity.
We keep $10,000 in the bank as an emergency fund.
wolf359 wrote:
Sat Nov 10, 2018 10:29 am
6) It's early, but you also need to plan for your withdrawal strategy, since you want the option to retire early. One reason to contribute to Roth IRA's is that you can withdraw the contributions without penalty, and before age 59 1/2. (If you do this, keep your records to track your contributions!) For the traditional 401-k, you have to check to see if your employer lets you withdraw at age 55 (varies from plan to plan.) If not, then you roll it over to a traditional IRA, and create a Roth Conversion Ladder. You have to allow in your planning enough income to pay the taxes, or have enough taxable savings to pay the taxes. This may not be an expense you are currently considering.
Couldn't I, in retirement, roll only the standard deduction amount from Traditional to Roth every year, and therefore pay no taxes on it?
suemarkp wrote:
Sat Nov 10, 2018 12:43 am
I think retiring at 50 with only $600K is optimistic. How many years are you planning to live? Are you factoring for inflation? Healthcare? Disability? I'm planning on retiring at 59 with about $3M and I'm still afraid things could be tight (but I am in a high cost of living area). If I live to age 96 I'm in a world of hurt (wife and I have to die at 95...).
Don't worry about that. Expenses aren't the point of the thread. For the record, I have disability insurance. Plan is for Medicaid for healthcare until old enough for Medicare. I don't worry about inflation. And I'll live, what to about 80 or so? So thirty years of retirement? And expenses should be something like $125/month for property tax and homeowners insurance, $225/month for groceries, $250/month for utilities (including phones and Internet), $48/month car insurance for two drivers and two cars. That's $648/month. That gives me a huge cushion for gasoline, entertainment, personal care, and car/house maintenance (and inflation!) before I come close to the $2,000/month I'm planning for. Retirement plan involves sleeping, watching TV, playing video games, and surfing the Internet. I don't even know what I'd do with three million dollars - buy a new house every three years? Don't worry about my expenses.

retiredjg
Posts: 34168
Joined: Thu Jan 10, 2008 12:56 pm

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by retiredjg » Sat Nov 10, 2018 2:14 pm

LiterallyIronic wrote:
Sat Nov 10, 2018 12:23 pm
That's the trouble. I can't know the future, so it makes hard to determine Traditional or Roth.
That is a good argument for doing both. That may be the best answer you get.

I'm not forgetting inflation, I'm ignoring it. If things get more expensive, I just get less of it.
Perhaps you don't understand. That might not work out. Here's an example. When I started driving, gas was about $.15 a gallon. It is now $2.70 and I've paid as much as $4.50 in some high cost states. Do you see how you can't just "get less of it" and still expect to drive a car?

Couldn't I, in retirement, roll only the standard deduction amount from Traditional to Roth every year, and therefore pay no taxes on it?
Only if someone else is paying all your other expenses. How would you expect to pay for food, clothing, and other necessary things?

You keep telling us that is not the point of the thread, but it would be irresponsible for people not to mention that there is a good likelihood that your plan is not going to work.

As for the point of your thread, save some in each. Be sure to get the entire match in the 401k. After that, it is anybody's guess.

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FiveK
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Re: New job - not sure how much to 401k and how much to Roth IRA

Post by FiveK » Sat Nov 10, 2018 7:55 pm

If you plan to live on $24K/yr, your marginal tax rate in retirement will be 0%.

Given that, 100% traditional is the correct choice now: pay no tax now, and no tax later. At worst, pay the 10% for early tIRA withdrawals if needed.

Why pay tax to make Roth contributions?

See Investment Order for more.

smitcat
Posts: 1981
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Re: New job - not sure how much to 401k and how much to Roth IRA

Post by smitcat » Sun Nov 11, 2018 7:17 am

FiveK wrote:
Sat Nov 10, 2018 7:55 pm
If you plan to live on $24K/yr, your marginal tax rate in retirement will be 0%.

Given that, 100% traditional is the correct choice now: pay no tax now, and no tax later. At worst, pay the 10% for early tIRA withdrawals if needed.

Why pay tax to make Roth contributions?

See Investment Order for more.
Yes - I agree. That is why the planned income in the future plays an important role in your planning now while electing things like 401K vs Roth.
Taking some time to think through the future plans is whorthwile.

Bacchus01
Posts: 1924
Joined: Mon Dec 24, 2012 9:35 pm

Re: New job - not sure how much to 401k and how much to Roth IRA

Post by Bacchus01 » Sun Nov 11, 2018 8:27 am

Good luck in the new job!

It sounds like you have your answer and I concur with thi: 401k to the match, then all ROTH IRA to max, then back to 401k pre-tax.

Set it and forget it at that.

The biggest advice I can tell you regarding your plan is to focus less on your investment returns and more on the returns on yourself. At your income and investment level, growing yourself professionally will have the single biggest return short of lottery or inheritance. Keep pounding away at that job, learn more, do more, take tough assignments, take training and education, and grow your career. The money will come and retirement will be easier.

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