How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Johnsson
Posts: 149
Joined: Mon Jul 17, 2017 2:28 pm

How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by Johnsson » Tue Nov 13, 2018 10:34 am

My son and DIL are starting their first post-military jobs. They are in late 20s. Each has 6% matching available. Income, he ~100k, her ~25k. Only std deduction (only 1600/mo apt as far as fixed bills). No kids yet. House in the next 2 years and they have the down payment.

I have offered suggestions but was met with a bit of disbelief.

So, I'm asking for suggestions from experienced investors who are not the father... :wink:

(Thanks in advance!!)

magicrat
Posts: 513
Joined: Sat Nov 29, 2014 7:04 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by magicrat » Tue Nov 13, 2018 10:40 am

My advice would be to take their disbelief at face value, let them live their lives, and offer no more suggestions unless they ask.

PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by PFInterest » Tue Nov 13, 2018 10:40 am

in the 22% bracket, they can likely go either way, but most people are best served w/ t401k and rIRA.
will they make significantly more in the future?
goal can be 20% for retirement. thats 25K or 1 401k + 1 rIRA.

nix4me
Posts: 52
Joined: Sat Oct 13, 2018 9:32 am

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by nix4me » Tue Nov 13, 2018 10:47 am

My opinion would be each should contribute 6% to get the match. Then each should max a Roth IRA if they can. The any extra should go ontop of the 6%.

Grt2bOutdoors
Posts: 19490
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by Grt2bOutdoors » Tue Nov 13, 2018 10:48 am

15 percent of gross pay for each. Do it now and thank yourselves in 20 years. When I could not afford to contribute the maximum permitted by IRS, I contributed 15%. That plus any match will set them on a sustainable path to be able to retire. A pension offered by state government paying 60% of final pay costs roughly 30% today and every year until final retirement after 30 years of work. If your son contributes 15% and the employer contributes 6%, he is 2/3rds of the way there. The markets may carry him to the finish line if everything works out, if not, he’ll have to save more or expect and do with less.
I’ve been saving for 25 years so I speak from experience, seeing two major declines in the span of 18 years and a major recession that many never recovered from job wise or other things. Save, save now, early and often. Good Luck!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Thegame14
Posts: 449
Joined: Mon May 07, 2018 11:53 am

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by Thegame14 » Tue Nov 13, 2018 10:51 am

they MUST do the 6% match at an absolute minimum!! After that, it should be 6 month emergency in cash (money market), then 20% house down payment as well in money market, then any additional income after expenses should go into a pre-tax Roth to save on taxes. Hard to tell Roth vs Pre-tax, who know what future rates will be. I am sure most will say, do the 6% match, then max out Roth IRA's then any additional into Pre-tax until they max out, but it doesn't sound like they will be maxing out.

PolarBearMarket
Posts: 41
Joined: Thu Sep 13, 2018 11:52 am

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by PolarBearMarket » Tue Nov 13, 2018 10:52 am

Both should obviously hit the employer match at a minimum. That's just free money.

Personally I would contribute as much as possible to the tax advantaged accounts, including 401(k). At that salary, it's entirely within range for your son to max out 401(k) and IRA contributions - if he has a goal of retiring and is willing to work toward it. But he needs to have personal goals that align with this approach. It's not enough for other folks to say, "You should contribute more to your 401(k)." They need to believe in the goal.

delamer
Posts: 6393
Joined: Tue Feb 08, 2011 6:13 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by delamer » Tue Nov 13, 2018 11:39 am

magicrat wrote:
Tue Nov 13, 2018 10:40 am
My advice would be to take their disbelief at face value, let them live their lives, and offer no more suggestions unless they ask.
This is my reaction too.

While your concern is understandable, what makes you think they’ll listen to us?

User avatar
FiveK
Posts: 5828
Joined: Sun Mar 16, 2014 2:43 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by FiveK » Tue Nov 13, 2018 12:15 pm

Johnsson wrote:
Tue Nov 13, 2018 10:34 am
So, I'm asking for suggestions from experienced investors who are not the father... :wink:
Point them at Investment Order and offer to answer any questions.

It's possible they may come back and say "just tell us..." and that would be good, but if they learn on their own that's even better.

mmmodem
Posts: 1503
Joined: Thu May 20, 2010 1:22 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by mmmodem » Tue Nov 13, 2018 12:29 pm

When we were DINKs in our late 20's, DW and I maxed out our 401k and Roth IRA. This was met by disbelief from my coworkers.

10 years later, we now have a mortgage and one of us no longer has to work and can stay at home with the kids. Our retirement is fully funded if we don't add a penny to it. Anything more will just allow us to retire early. My coworkers continue to be in disbelief that we can max out 401k and Roth IRA with a mortgage and children on a single income.

KlangFool
Posts: 10655
Joined: Sat Oct 11, 2008 12:35 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by KlangFool » Tue Nov 13, 2018 12:40 pm

mmmodem wrote:
Tue Nov 13, 2018 12:29 pm
When we were DINKs in our late 20's, DW and I maxed out our 401k and Roth IRA. This was met by disbelief from my coworkers.

10 years later, we now have a mortgage and one of us no longer has to work and can stay at home with the kids. Our retirement is fully funded if we don't add a penny to it. Anything more will just allow us to retire early. My coworkers continue to be in disbelief that we can max out 401k and Roth IRA with a mortgage and children on a single income.
mmmodem,

<< This was met by disbelief from my coworkers. >>

You should thank your co-workers for paying a lot more taxes. We could enjoy our tax savings because of them.

KlangFool

KlangFool
Posts: 10655
Joined: Sat Oct 11, 2008 12:35 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by KlangFool » Tue Nov 13, 2018 12:48 pm

Johnsson wrote:
Tue Nov 13, 2018 10:34 am
My son and DIL are starting their first post-military jobs. They are in late 20s. Each has 6% matching available. Income, he ~100k, her ~25k. Only std deduction (only 1600/mo apt as far as fixed bills). No kids yet. House in the next 2 years and they have the down payment.

I have offered suggestions but was met with a bit of disbelief.

So, I'm asking for suggestions from experienced investors who are not the father... :wink:

(Thanks in advance!!)
Johnsson,

Max up the Trad. 401Ks and put the tax savings into Roth IRAs.

They are at 22% marginal tax rate. They pay 22% Federal Income tax plus state income tax on every dollar that they do not put into the Trad 401K. So, every dollar that they spend instead of putting into Trad 401K, it costs at least 22% tax. Think about that before they spend that money. Is it worth paying 22% Federal Income tax plus state income tax plus sales tax?

KlangFool

User avatar
mhadden1
Posts: 412
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by mhadden1 » Tue Nov 13, 2018 1:46 pm

KlangFool wrote:
Tue Nov 13, 2018 12:48 pm

They are at 22% marginal tax rate. They pay 22% Federal Income tax plus state income tax on every dollar that they do not put into the Trad 401K. So, every dollar that they spend instead of putting into Trad 401K, it costs at least 22% tax.
I think it would be possible for pre-tax retirement contributions to pretty easily negate all the income in the 22% bracket. I would definitely try to contribute enough to get all matches, and stay in the 12% bracket.

In my case - I was way up in my forties before the idea of maximizing 401k contributions was more than just an odd pipe dream. If my dad had suggested it, it would have been met with the blank stare. Luckily for me, as I got older, made more money, and got better at saving, it became easier to marshal my resources to achieve goals like that.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

KlangFool
Posts: 10655
Joined: Sat Oct 11, 2008 12:35 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by KlangFool » Tue Nov 13, 2018 2:11 pm

mhadden1 wrote:
Tue Nov 13, 2018 1:46 pm
KlangFool wrote:
Tue Nov 13, 2018 12:48 pm

They are at 22% marginal tax rate. They pay 22% Federal Income tax plus state income tax on every dollar that they do not put into the Trad 401K. So, every dollar that they spend instead of putting into Trad 401K, it costs at least 22% tax.
I think it would be possible for pre-tax retirement contributions to pretty easily negate all the income in the 22% bracket. I would definitely try to contribute enough to get all matches, and stay in the 12% bracket.

In my case - I was way up in my forties before the idea of maximizing 401k contributions was more than just an odd pipe dream. If my dad had suggested it, it would have been met with the blank stare. Luckily for me, as I got older, made more money, and got better at saving, it became easier to marshal my resources to achieve goals like that.
mhadden1,

Coming from a country where the average gross saving rate is 30+%, I max up my Trad 401K contribution when I started working. I had been doing this for 20+ years.

<<In my case - I was way up in my forties before the idea of maximizing 401k contributions was more than just an odd pipe dream. If my dad had suggested it, it would have been met with the blank stare. >>

So, it might be abnormal for you but it is business as usual for some of us from a different culture.

KlangFool

User avatar
mhadden1
Posts: 412
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by mhadden1 » Tue Nov 13, 2018 2:40 pm

KlangFool wrote:
Tue Nov 13, 2018 2:11 pm
mhadden1 wrote:
Tue Nov 13, 2018 1:46 pm
KlangFool wrote:
Tue Nov 13, 2018 12:48 pm

They are at 22% marginal tax rate. They pay 22% Federal Income tax plus state income tax on every dollar that they do not put into the Trad 401K. So, every dollar that they spend instead of putting into Trad 401K, it costs at least 22% tax.
I think it would be possible for pre-tax retirement contributions to pretty easily negate all the income in the 22% bracket. I would definitely try to contribute enough to get all matches, and stay in the 12% bracket.

In my case - I was way up in my forties before the idea of maximizing 401k contributions was more than just an odd pipe dream. If my dad had suggested it, it would have been met with the blank stare. Luckily for me, as I got older, made more money, and got better at saving, it became easier to marshal my resources to achieve goals like that.
mhadden1,

Coming from a country where the average gross saving rate is 30+%, I max up my Trad 401K contribution when I started working. I had been doing this for 20+ years.

<<In my case - I was way up in my forties before the idea of maximizing 401k contributions was more than just an odd pipe dream. If my dad had suggested it, it would have been met with the blank stare. >>

So, it might be abnormal for you but it is business as usual for some of us from a different culture.

KlangFool
Sure, I was just reporting my personal circumstances from a few years back. Definitely happy now that I was eventually able to max out some years.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

Monster99
Posts: 113
Joined: Tue Aug 29, 2017 10:28 am

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by Monster99 » Tue Nov 13, 2018 3:30 pm

nix4me wrote:
Tue Nov 13, 2018 10:47 am
My opinion would be each should contribute 6% to get the match. Then each should max a Roth IRA if they can. The any extra should go ontop of the 6%.
I agree with the above - t401K to the match, then Roth to the limit then back to the 401k. I limited total retirement contributions to 20%.

Njm8845
Posts: 79
Joined: Fri Aug 05, 2016 1:28 am

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by Njm8845 » Tue Nov 13, 2018 4:43 pm

KlangFool wrote:
Tue Nov 13, 2018 2:11 pm
Coming from a country where the average gross saving rate is 30+%, I max up my Trad 401K contribution when I started working. I had been doing this for 20+ years.

KlangFool
Just curious, what country is that? Japan?

Dottie57
Posts: 4785
Joined: Thu May 19, 2016 5:43 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by Dottie57 » Tue Nov 13, 2018 5:00 pm

I would ask them how much yearly income they want in retirement and an estimate of length of retirement. Subtract their pension(s) from that. If retiring at 55, then divide yearly amount by 3.5% and you have the amount needed. If a 30 year retirement, divide by 4%.


Give them the math. It is hard to refute.

delamer
Posts: 6393
Joined: Tue Feb 08, 2011 6:13 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by delamer » Tue Nov 13, 2018 5:38 pm

Dottie57 wrote:
Tue Nov 13, 2018 5:00 pm
I would ask them how much yearly income they want in retirement and an estimate of length of retirement. Subtract their pension(s) from that. If retiring at 55, then divide yearly amount by 3.5% and you have the amount needed. If a 30 year retirement, divide by 4%.


Give them the math. It is hard to refute.
This is good advice for a couple in their mid-40’s.

I don’t think asking a couple in their late 20’s how much income they are going to want/need in 30+ years is going to work.

tesuzuki2002
Posts: 538
Joined: Fri Dec 11, 2015 12:40 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by tesuzuki2002 » Tue Nov 13, 2018 6:56 pm

Johnsson wrote:
Tue Nov 13, 2018 10:34 am
My son and DIL are starting their first post-military jobs. They are in late 20s. Each has 6% matching available. Income, he ~100k, her ~25k. Only std deduction (only 1600/mo apt as far as fixed bills). No kids yet. House in the next 2 years and they have the down payment.

I have offered suggestions but was met with a bit of disbelief.

So, I'm asking for suggestions from experienced investors who are not the father... :wink:

(Thanks in advance!!)
They probably won't listen... are you wealthy? If so, you can let them know how you did it... they still may not care.

If wealthy... do these kids know? Are they expecting to received a large sum of money some day?

Those could influence their behavior.

User avatar
celia
Posts: 8596
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by celia » Tue Nov 13, 2018 7:07 pm

Johnsson wrote:
Tue Nov 13, 2018 10:34 am
My son and DIL are starting their first post-military jobs. They are in late 20s. Each has 6% matching available. Income, he ~100k, her ~25k. Only std deduction (only 1600/mo apt as far as fixed bills). No kids yet. House in the next 2 years and they have the down payment.
I'm in disbelief that they have saved up for a house down payment so young! Since people usually buy a house before they retire, that seems appropriate.

As far as retirement, who knows if they ever want to retire? Maybe they don't need any 401K or IRAs because they will work until their final days. However, if they decide to take it easy, travel, visit grandchildren, spend more time on their hobbies some day, THEN the retirement itch will motivate them to start saving in retirement accounts. When that happens, they should both save up enough to at least get their employer match (free money!) and contribute to a Roth. Their future selves will thank their 20-something selves.

Dottie57
Posts: 4785
Joined: Thu May 19, 2016 5:43 pm

Re: How much should Son and DIL put into Roth & Pre-tax 401k accounts...?

Post by Dottie57 » Tue Nov 13, 2018 7:21 pm

delamer wrote:
Tue Nov 13, 2018 5:38 pm
Dottie57 wrote:
Tue Nov 13, 2018 5:00 pm
I would ask them how much yearly income they want in retirement and an estimate of length of retirement. Subtract their pension(s) from that. If retiring at 55, then divide yearly amount by 3.5% and you have the amount needed. If a 30 year retirement, divide by 4%.


Give them the math. It is hard to refute.
This is good advice for a couple in their mid-40’s.

I don’t think asking a couple in their late 20’s how much income they are going to want/need in 30+ years is going to work.
I guess I would say to use their net take home pay as desired income. Use a 30 year retirement and then do the calculation. Put the bug in their ear with a real calculation. It is eye opening.

Post Reply