Author Topic: 401k + employer match and the rest to Index Funds in Betterment account?  (Read 2179 times)

jakenoack

  • 5 O'Clock Shadow
  • *
  • Posts: 14
Hey fellow Mustachians,
I am trying to get some input on how to best invest my money. Currently I have a 401k, Roth (invested in betterment), and another extra account in betterment. If I contribute 8% to my 401k my employer gives their max contribution of an additional 4%. Currently, I am putting 30% into my 401k (+4% employer match), maxed out roth for 2015, and all extra cash is going to my extra betterment account.

A few friends have suggested that it would be better to cut back on my 401k to 8% and get the max employer match of 4%. My buddies say that taking this extra cash that is no longer going to my 401k and putting it into my extra account at betterment would allow my mustache to grow even more.

I guess my question is does anybody know if putting this extra money (now being taxed) into an extra betterment account made up of index funds with a (90% stock, 10% bonds) is more worthwhile than cranking 30% into my 401k.

I am currently 26 years old and am pushing to retire at 35. If anyone needs anymore information please let me know.

terran

  • Handlebar Stache
  • *****
  • Posts: 2010
The biggest factor here is going to be the investment options in your 401k. If the expense ratios are decently low then the tax advantages of the 401k will almost definitely beat out investing in a taxable account. You might find it helpful to post you available investment options in your 401k and their expense ratios here.

MDM

  • Walrus Stache
  • *******
  • Posts: 9490
Unless your 401k options have outrageous fees, you should ignore your friends on this (and be skeptical of any other financial advice from them...).

There is one thing to check, if your 30% contribution causes you to hit the $18K IRS maximum prior to receiving your last paycheck of the year.  Google "true-up 401k" for more details, and then check your company's policy.

Joel

  • Pencil Stache
  • ****
  • Posts: 774
  • Location: California
The tax advantages typically far outweigh the savings from expense ratios. I would not listen to your buddies for anything financial ever again.

kpd905

  • Handlebar Stache
  • *****
  • Posts: 1723
Put $18,000 in the 401k, $5500 in the Roth IRA.  See if you can contribute to an HSA.  The rest can go in Betterment if you want.

Singularity

  • 5 O'Clock Shadow
  • *
  • Posts: 68
Put $18,000 in the 401k, $5500 in the Roth IRA.  See if you can contribute to an HSA.  The rest can go in Betterment if you want.

Agreed.  In general the 401k tax advantages trump expense ratios.

Scandium

  • Handlebar Stache
  • *****
  • Posts: 2198
  • Location: EastCoast
If you skip betterment and just put your money in vanguard you can save 30 bps or whatever they charge. That seems like a better way to improve things.
Ps: max your 401k