Contributing to an Employee 401(k) at 67 - Illogical?

[littlefuse]

I'm past my SS FRA age. I turned 67 a few months ago. I've been working at a firm for the past 2 yrs 10 months. I'm in their 401(k) plan. It's a 5% match. I upped my contribution to 10% very recently. I could up it a whole lot more. I don't have a lot saved for retirement. Questions:

1.) Does it make sense for me to even be in this plan? I ask while realizing that' it's free money they're giving me. However, I am 67 and so I wonder if it would be better to put the money towards outside investments or towards an annuity - or something else.

2.) If it does make sense to stay in it, do you feel I should contribute much more to it - even though there is no match for anything over my 5% (like with the extra 5% I just added)? I might not be at the company for a lot longer - but I have no plans to leave either.

[sailaway]

I would say the only question is whether you should contribute to traditional or Roth, if the latter is even available.

[livesoft]

I am about your age and still contribute the maximum legally possible to my 401(k). I enjoy the tax savings. But my 401(k) plan has fantastic low-expense-ratio, passively-managed, broad market index fund options available for me to purchase with no commissions and no fees. What are the investment options in your 401(k) plan?

[littlefuse]

I am about your age and still contribute the maximum legally possible to my 401(k). I enjoy the tax savings. But my 401(k) plan has fantastic low-expense-ratio, passively-managed, broad market index fund options available for me to purchase with no commissions and no fees. What are the investment options in your 401(k) plan?

I believe the limit is $23,000 in 2024 and I (we) can add an additional $7,500 for catch-up. This brings it to $30,500. I don't believe I can afford to put that much into it, but I could add a great deal more to my percentage than my current 10%. It's a very good Vanguard plan, near as I can tell. I might up it ASAP.

[Exchme]

Beyond getting the company match, contributions reduce current taxable income. If you don't have a lot saved for retirement, your income taxes in retirement may be very low, so minimizing current taxes sounds like a good idea for you.

A secondary reason to contribute that helps some folks is to minimize your assets in taxable, which minimizes taxes on dividends each year. However, if you don't have much saved, that's not going to be important, so current tax savings would be the reason.

[littlefuse]

I would say the only question is whether you should contribute to traditional or Roth, if the latter is even available.

I've been contributing in the traditional way, but I think the Roth option is available. I'll need to check.

[littlefuse]

I am about your age and still contribute the maximum legally possible to my 401(k). I enjoy the tax savings. But my 401(k) plan has fantastic low-expense-ratio, passively-managed, broad market index fund options available for me to purchase with no commissions and no fees. What are the investment options in your 401(k) plan?

As to the investment options, I'll need to check on that. I do know that it's 100.00% in Vanguard Target Retirement 2020 Inv, with the Asset Class showing as 'Asset Allocation'.

[CyclingDuo]

I'm past my SS FRA age. I turned 67 a few months ago. I've been working at a firm for the past 2 yrs 10 months. I'm in their 401(k) plan. It's a 5% match. I upped my contribution to 10% very recently. I could up it a whole lot more. I don't have a lot saved for retirement. Questions:

1.) Does it make sense for me to even be in this plan? I ask while realizing that' it's free money they're giving me. However, I am 67 and so I wonder if it would be better to put the money towards outside investments or towards an annuity - or something else.

2.) If it does make sense to stay in it, do you feel I should contribute much more to it - even though there is no match for anything over my 5% (like with the extra 5% I just added)? I might not be at the company for a lot longer - but I have no plans to leave either.

As long as you are still working, you are still in accumulation mode. So, yes - contribute at least 10-20% of your income to the plan!

CyclingDuo

[littlefuse]

I'm past my SS FRA age. I turned 67 a few months ago. I've been working at a firm for the past 2 yrs 10 months. I'm in their 401(k) plan. It's a 5% match. I upped my contribution to 10% very recently. I could up it a whole lot more. I don't have a lot saved for retirement. Questions:

1.) Does it make sense for me to even be in this plan? I ask while realizing that' it's free money they're giving me. However, I am 67 and so I wonder if it would be better to put the money towards outside investments or towards an annuity - or something else.

2.) If it does make sense to stay in it, do you feel I should contribute much more to it - even though there is no match for anything over my 5% (like with the extra 5% I just added)? I might not be at the company for a lot longer - but I have no plans to leave either.

As long as you are still working, you are still in accumulation mode. So, yes - contribute at least 10-20% of your income to the plan!

CyclingDuo

Thanks so much. I will work on upping it.
It's interesting to me that a couple of months ago when I mentioned to the company 401(k) Plan advisor - who is a financial advisor with his own company - he didn't seem to like too much the idea of me adding to the 401(k). I didn't go into detail with him, but my guess is that the more I put in the 401(k), the less of my other money he'd have to play with and get fees and commissions on if I were to become his client - which he has said he will gladly be. BTW, I currently do not have a financial advisor. Unlike most people here, maybe I need one - but I'm trying not to do that.

[littlefuse]

Beyond getting the company match, contributions reduce current taxable income. If you don't have a lot saved for retirement, your income taxes in retirement may be very low, so minimizing current taxes sounds like a good idea for you.

A secondary reason to contribute that helps some folks is to minimize your assets in taxable, which minimizes taxes on dividends each year. However, if you don't have much saved, that's not going to be important, so current tax savings would be the reason.

This is very helpful. I'm sure I'll be upping my percentage of contribution very soon. Thank you.

[billfromct]

Just so you realize, according to the Vanguard website, the Vanguard Retirement 2020 Fund is about 39% stocks (domestic & international) and about 61% fixed income now. I believe that it moves to about 30% stocks/70% fixed income 7 years after the target year, then it stays at that allocation.

I think the Vanguard Target Retirement Funds move to about a 50% stock/50% fixed income allocation at the target year, then as mentioned above, to a 30% stock/70% fixed income 7 years after the target year.

You may live another 15-20 years, so you may want to see if that allocation is too conservative. You could move to the 2030 (about 62% stocks/38% fixed income) or the 2035 (about 70% stocks/30% fixed income) Target Retirement Fund to take advantage of future stock growth.

Asset allocation is a personal choice but with potential longer life expectancy (15-20 years or longer) a later date Target Retirement Fund may be appropriate.

bill

[livesoft]

As to the investment options, I'll need to check on that. I do know that it's 100.00% in Vanguard Target Retirement 2020 Inv, with the Asset Class showing as 'Asset Allocation'.

This suggests that you have excellent options in your 401(k) and you have made a good choice. That means, there is really NO reason not to contribute as much as you can to your 401(k). But you could also (or instead) contribute to a Roth IRA or traditional IRA as long as you have captured the maximum possible employer match for your 401(k).

[vtjon]

Before you contribute to the Roth, you might make sure you can or have met the 5 year rule. The 401k Roth and the Roth IRA have separate 5 year rules (i.e., must be open 5 years). If you've had a Roth IRA for over 5 years, you'll likely be able to roll your 401k Roth there.

[Rd123123]

At least get the company match-- it's literally free extra money.

And no, I don't think it's illogical at all to contribute to a 401K at 67. You're still working, still paying ordinary income taxes, might as well defer as much tax as possible.

[learning30]

I don’t see why this wouldn’t be a good idea.

Do check if there is a vesting period for their match. Would be a good thing to be aware of.

[celia]

Yes, Keep contributing and increase it, if you can. This is an easy way to automate your savings since you won't "see" the money until several years later. Just don't blow it all at once after you retire. Make it last as long as you can.

[Outer Marker]

It's interesting to me that a couple of months ago when I mentioned to the company 401(k) Plan advisor - who is a financial advisor with his own company - he didn't seem to like too much the idea of me adding to the 401(k). I didn't go into detail with him, but my guess is that the more I put in the 401(k), the less of my other money he'd have to play with and get fees and commissions on if I were to become his client - which he has said he will gladly be. (I do not have a financial advisory.)

Exactly!. Max out your 401K. Unless you're in an extremely low tax bracket, I would stick with Traditional rather than Roth. With low retirement savings, your tax rate will almost certainly be less in retirement.

If you're currently flush on cash, you could squirrel way an additional $8,000/yr in a Roth IRA (regular or via the backdoor).

[grabiner]

If you withdraw at the same marginal tax are as you contribute (or you use a Roth 401(k), so that both marginal tax rates are zero), then contributing to the 401(k) gives you the benefit of tax-deferred growth until you withdraw, at no cost. Thus, as long as you don't need the money now, you should contribute in preference to taxable investing.

Even if there is a cost, because your 401(k) has more expensive options than your taxable account, it's still best to max out the 401(k) (once you have maxed out your Roth IRA). When you leave the employer, you can roll the 401(k) into a traditional IRA, keeping the tax deferral but getting rid of the high costs. And at your age, you aren't going to be with the employer for very long.

[littlefuse]

If you withdraw at the same marginal tax are as you contribute (or you use a Roth 401(k), so that both marginal tax rates are zero), then contributing to the 401(k) gives you the benefit of tax-deferred growth until you withdraw, at no cost. Thus, as long as you don't need the money now, you should contribute in preference to taxable investing.

Even if there is a cost, because your 401(k) has more expensive options than your taxable account, it's still best to max out the 401(k) (once you have maxed out your Roth IRA). When you leave the employer, you can roll the 401(k) into a traditional IRA, keeping the tax deferral but getting rid of the high costs. And at your age, you aren't going to be with the employer for very long.

There are great thoughts. Thanks. I don't know yet if my employer offers a "Roth" 401(k) option, but I'll ask them. I think they do. I did put in the max to a Roth IRA the last couple of few years. I'll do so again this year. I need to get a lot more into that employer 401(k) plan as soon as possible.

[Hacksawdave]

I'm past my SS FRA age. I turned 67 a few months ago. I've been working at a firm for the past 2 yrs 10 months. I'm in their 401(k) plan. It's a 5% match. I upped my contribution to 10% very recently. I could up it a whole lot more. I don't have a lot saved for retirement. Questions:

1.) Does it make sense for me to even be in this plan? I ask while realizing that' it's free money they're giving me. However, I am 67 and so I wonder if it would be better to put the money towards outside investments or towards an annuity - or something else.

2.) If it does make sense to stay in it, do you feel I should contribute much more to it - even though there is no match for anything over my 5% (like with the extra 5% I just added)? I might not be at the company for a lot longer - but I have no plans to leave either.

A couple questions:

• What are your tax brackets?
• Will you stay there long enough to be fully vested on the match?

If you are in a high bracket, then deferring income all the way through is the way to go. If you are leaving next year and there is a long vesting period for the match, then you might not get much of the company match in the end. Three years might get you to about half vested if they have a vesting period.

[wwhan]

Have you estimated your RMD amounts, with your SS income at RMD age?

What tax bracket now and at RMD age?

[grabiner]

If you withdraw at the same marginal tax are as you contribute (or you use a Roth 401(k), so that both marginal tax rates are zero), then contributing to the 401(k) gives you the benefit of tax-deferred growth until you withdraw, at no cost. Thus, as long as you don't need the money now, you should contribute in preference to taxable investing.

Even if there is a cost, because your 401(k) has more expensive options than your taxable account, it's still best to max out the 401(k) (once you have maxed out your Roth IRA). When you leave the employer, you can roll the 401(k) into a traditional IRA, keeping the tax deferral but getting rid of the high costs. And at your age, you aren't going to be with the employer for very long.

There are great thoughts. Thanks. I don't know yet if my employer offers a "Roth" 401(k) option, but I'll ask them. I think they do. I did put in the max to a Roth IRA the last couple of few years. I'll do so again this year. I need to get a lot more into that employer 401(k) plan as soon as possible.

Even if your employer does offer a Roth 401(k), it's better to use a traditional 401(k) if you are in a higher tax bracket now than after you retire.

[AnnetteLouisan]

I would look at the getting started page on the bogleheads wiki page. I agree with the others that it’s wise to do the match, and increase your contributions, but a few items make me wonder about your larger context.

You haven’t been at this job very long and you indicate you may not stay a lot longer. You don’t mention your work history but say you don’t have much saved.

So I’d say, do you have an emergency fund? Do you have reliable housing? Because those come before investing in a 401k, even with the match. Do you have a pension or social security expectation (you mentioned you are past SS FRA but didn’t state how much you cover to receive or whether you’re past the second bend point)? Do you have debt and if so how much and at what rates? If you do not stay at this job long, how many months or years could you survive on what you have? (Klang is on vacation).

[grabiner]

So I’d say, do you have an emergency fund? Do you have reliable housing? Because those come before investing in a 401k, even with the match.

This is an important consideration. However, you are 67, and thus can withdraw from your 401(k) penalty-free and don't need a separate emergency fund; you can hold cash in your 401(k) or IRA for your emergency savings, and use it if necessary.

[littlefuse]

I would look at the getting started page on the bogleheads wiki page. I agree with the others that it’s wise to do the match, and increase your contributions, but a few items make me wonder about your larger context.

You haven’t been at this job very long and you indicate you may not stay a lot longer. You don’t mention your work history but say you don’t have much saved.

So I’d say, do you have an emergency fund? Do you have reliable housing? Because those come before investing in a 401k, even with the match. Do you have a pension or social security expectation (you mentioned you are past SS FRA but didn’t state how much you cover to receive or whether you’re past the second bend point)? Do you have debt and if so how much and at what rates? If you do not stay at this job long, how many months or years could you survive on what you have? (Klang is on vacation).

Thank you for the reply. At least for starters I'll look closely at the 'getting started page'. I guess I would say, yes - I do have an emergency fund. I don't believe we're supposed to mention dollar amounts on this site, but I have some money for emergencies. I have a 1 BR condo that I own and live in, which has a remaining mortgage of 89K. I'd like to move and rent this unit out (or sell it), but I'm not in a great position do either at the moment. I feel it is possible, though. I just turned 67 in July.

[whodidntante]

Thank you for the reply. At least for starters I'll look closely at the 'getting started page'. I guess I would say, yes - I do have an emergency fund. I don't believe we're supposed to mention dollar amounts on this site, but I have some money for emergencies. I have a 1 BR condo that I own and live in, which has a remaining mortgage of 89K. I'd like to move and rent this unit out (or sell it), but I'm not in a great position do either at the moment. I feel it is possible, though. I just turned 67 in July.

You can mention dollar amounts if you are comfortable doing so.

[sc9182]

pretty soon in 5 some years, you may be able/eligible for “still working” exemption - thus may not be required to take RMDs (some here calls RMDs as tax-torpedo ., i beg to differ)

You may still be eligible for QCDs at age 70 .. do check!

Don’t try to do backdoor-Roth - may not be worth the pains to squeeze so little into Roths; instead consider if you can do Mega-Backdoor Roth (ie., after tax contributions into 401k., followed by immediate conversion to Roth)

[intendi]

BTW, I currently do not have a financial advisor. Unlike most people here, maybe I need one - but I'm trying not to do that.

Consider giving the forum a shot at giving you some advice on your overall plan if/when you ever need it:

https://www.bogleheads.org/wiki/Asking_ ... _questions

[littlefuse]

BTW, I currently do not have a financial advisor. Unlike most people here, maybe I need one - but I'm trying not to do that.

Consider giving the forum a shot at giving you some advice on your overall plan if/when you ever need it:

https://www.bogleheads.org/wiki/Asking_ ... _questions

Thanks for the link. I read that page carefully. I will give this forum a shot. I need the advice now, so I'll start to put together post(s) that maybe others will have some good ideas on.

[aristotelian]

I'm past my SS FRA age. I turned 67 a few months ago. I've been working at a firm for the past 2 yrs 10 months. I'm in their 401(k) plan. It's a 5% match. I upped my contribution to 10% very recently. I could up it a whole lot more. I don't have a lot saved for retirement. Questions:

1.) Does it make sense for me to even be in this plan? I ask while realizing that' it's free money they're giving me. However, I am 67 and so I wonder if it would be better to put the money towards outside investments or towards an annuity - or something else.

2.) If it does make sense to stay in it, do you feel I should contribute much more to it - even though there is no match for anything over my 5% (like with the extra 5% I just added)? I might not be at the company for a lot longer - but I have no plans to leave either.

What is your tax bracket while you continue to work? Do you have a Roth option? It almost certainly makes sense to contribute. The only question is Roth or Traditional.

[an_asker]

[...]I don't have a lot saved for retirement.[...]

[...]BTW, I currently do not have a financial advisor. Unlike most people here, maybe I need one - but I'm trying not to do that.

You say you don't have a lot saved for retirement, then you say maybe you need a financial advisor. May I ask why?

[dogagility]

BTW, I currently do not have a financial advisor. Unlike most people here, maybe I need one - but I'm trying not to do that.

Consider giving the forum a shot at giving you some advice on your overall plan if/when you ever need it:

https://www.bogleheads.org/wiki/Asking_ ... _questions

Thanks for the link. I read that page carefully. I will give this forum a shot. I need the advice now, so I'll start to put together post(s) that maybe others will have some good ideas on.

Get the match in your 401k. Advice after that? Start a new thread using the Asking Portfolio Questions format to get more detailed suggestions.

[littlefuse]

BTW, I currently do not have a financial advisor. Unlike most people here, maybe I need one - but I'm trying not to do that.

Consider giving the forum a shot at giving you some advice on your overall plan if/when you ever need it:

https://www.bogleheads.org/wiki/Asking_ ... _questions

Thanks for the link. I read that page carefully. I will give this forum a shot. I need the advice now, so I'll start to put together post(s) that maybe others will have some good ideas on.

Get the match in your 401k. Advice after that? Start a new thread using the Asking Portfolio Questions format to get more detailed suggestions.

I am currently getting the match, but after reading more about Roth 401(k)s - mine is a traditional 401(k) at this company - even at 67 yrs old it seems that I should be contributing instead to Roth 401(k) only. "Roth 401(k)s are funded with after-tax money that you can withdraw tax-free once you reach retirement age." Is my thinking way off?

[Outer Marker]

I am currently getting the match, but after reading more about Roth 401(k)s - mine is a traditional 401(k) at this company - even at 67 yrs old it seems that I should be contributing instead to Roth 401(k) only. "Roth 401(k)s are funded with after-tax money that you can withdraw tax-free once you reach retirement age." Is my thinking way off?

What is your current marginal tax bracket? That's the deciding factor. Unless it is very low, you're likely better off contributing to a traditional 401K than a Roth. Your tax bracket will likely be lower in retirement than when you're working.

[littlefuse]

I am currently getting the match, but after reading more about Roth 401(k)s - mine is a traditional 401(k) at this company - even at 67 yrs old it seems that I should be contributing instead to Roth 401(k) only. "Roth 401(k)s are funded with after-tax money that you can withdraw tax-free once you reach retirement age." Is my thinking way off?

What is your current marginal tax bracket? That's the deciding factor. Unless it is very low, you're likely better off contributing to a traditional 401K than a Roth. Your tax bracket will likely be lower in retirement than when you're working.

Thanks. I just looked went to an online marginal tax rate calculator. I believe I'm at a tax rate of 22%.

[littlefuse]

pretty soon in 5 some years, you may be able/eligible for “still working” exemption - thus may not be required to take RMDs (some here calls RMDs as tax-torpedo ., i beg to differ)

You may still be eligible for QCDs at age 70 .. do check!

Don’t try to do backdoor-Roth - may not be worth the pains to squeeze so little into Roths; instead consider if you can do Mega-Backdoor Roth (ie., after tax contributions into 401k., followed by immediate conversion to Roth)

Thank you for this. I just looked up QCD. I'll check into if I'm eligible.

As for Backdoor and Mega-backdoor Roths, I don't think my income makes those even a consideration. My tax rate is 22%. I've read that they're for high-earners. I'm not there at the moment.

[littlefuse]

[...]I don't have a lot saved for retirement.[...]

[...]BTW, I currently do not have a financial advisor. Unlike most people here, maybe I need one - but I'm trying not to do that.

You say you don't have a lot saved for retirement, then you say maybe you need a financial advisor. May I ask why?

That's a good question. I feel like a have just enough money where an advisor would be helpful to me, and yet when I've spoken to a few (independent) financial advisors over the phone they more or less are saying (not actually saying it) that I don't have enough for them to get excited about.

I'm with Merrill Edge, and as you can imagine their advisors are quite eager to work with me. No surprise there. I don't think most of them are fiduciaries. And so I might be a good candidate for Merrill Guiding Investing (MGI) hybrid "robo" service, since I'm a Platinum Rewards Honors customer with my combined Bank of America accounts and so I get discounts on MGI. However, I've never seen one person on the forum say anything good about Merrill Edge Investing - whether with an actual person for the higher fee, or using the hybrid robo at the lower fee.

With all that said, after reading postings on this forum I feel like I could possibly get myself pointing in the correct direction myself - with the help of the good people here.

[GuyInFL]

pretty soon in 5 some years, you may be able/eligible for “still working” exemption - thus may not be required to take RMDs (some here calls RMDs as tax-torpedo ., i beg to differ)

You may still be eligible for QCDs at age 70 .. do check!

Don’t try to do backdoor-Roth - may not be worth the pains to squeeze so little into Roths; instead consider if you can do Mega-Backdoor Roth (ie., after tax contributions into 401k., followed by immediate conversion to Roth)

Thank you for this. I just looked up QCD. I'll check into if I'm eligible.

As for Backdoor and Mega-backdoor Roths, I don't think my income makes those even a consideration. My tax rate is 22%. I've read that they're for high-earners. I'm not there at the moment.

With a 22% margin rate, I'd go with a traditional unless I thought I'd be in a higher bracket in my retirement years.

[littlefuse]

pretty soon in 5 some years, you may be able/eligible for “still working” exemption - thus may not be required to take RMDs (some here calls RMDs as tax-torpedo ., i beg to differ)

You may still be eligible for QCDs at age 70 .. do check!

Don’t try to do backdoor-Roth - may not be worth the pains to squeeze so little into Roths; instead consider if you can do Mega-Backdoor Roth (ie., after tax contributions into 401k., followed by immediate conversion to Roth)

Thank you for this. I just looked up QCD. I'll check into if I'm eligible.

As for Backdoor and Mega-backdoor Roths, I don't think my income makes those even a consideration. My tax rate is 22%. I've read that they're for high-earners. I'm not there at the moment.

With a 22% margin rate, I'd go with a traditional unless I thought I'd be in a higher bracket in my retirement years.

Thank you

[Tinkerer-in-Chief]

Something to investigate for your own planning purposes:

Does your employer's 401(k) match have a vesting period? Or is the 5% match immediately fully vested? (I'm unclear on how vesting periods work when one is close to retirement age, so this may be a moot point).

[an_asker]

[...]I don't have a lot saved for retirement.[...]

[...]BTW, I currently do not have a financial advisor. Unlike most people here, maybe I need one - but I'm trying not to do that.

You say you don't have a lot saved for retirement, then you say maybe you need a financial advisor. May I ask why?

That's a good question. I feel like a have just enough money where an advisor would be helpful to me, and yet when I've spoken to a few (independent) financial advisors over the phone they more or less are saying (not actually saying it) that I don't have enough for them to get excited about.

I'm with Merrill Edge, and as you can imagine their advisors are quite eager to work with me. No surprise there. I don't think most of them are fiduciaries. And so I might be a good candidate for Merrill Guiding Investing (MGI) hybrid "robo" service, since I'm a Platinum Rewards Honors customer with my combined Bank of America accounts and so I get discounts on MGI. However, I've never seen one person on the forum say anything good about Merrill Edge Investing - whether with an actual person for the higher fee, or using the hybrid robo at the lower fee.

With all that said, after reading postings on this forum I feel like I could possibly get myself pointing in the correct direction myself - with the help of the good people here.

I agree. It is not rocket science. And unless you get a Midas as your financial advisor, even a lazy decision to dump everything in an S&P500 index fund would be better than whatever the advisor(s) suggest.