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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: FuckRx on October 09, 2013, 12:07:58 PM

Title: my financial adviser tells me not to max out my 401k...
Post by: FuckRx on October 09, 2013, 12:07:58 PM

i have a keogh retirement plan in which i can put away about 34k a year...it's similar to a sep IRA...i have no kids, not married and soon won't have a condo (selling it) and really don't have a lot to write off...i'm a partner at a large medical group so have a higher income and my financial adviser tells me that i shouldn't max out my 401k because i don't get any matching... and even for me the thought of not having access to my money for another 30 years is unsettling....
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: Numbers Man on October 09, 2013, 12:22:30 PM
If not getting a matching contribution is the reason that the financial adviser said not to contribute to the Keough, then you need a new financial adviser.
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: Kira on October 09, 2013, 12:33:56 PM
How exactly does your financial advisor recommend you avoid taxes on that money, then? That's the stupidest thing I've ever heard of. Did he tell you to do something else with it?

And this just came up in another thread: the SEPP, or substantially equal periodic payments. This is how you get your money out earlier than 30 years from now. (hat tip to self: http://www.moneycrashers.com/substantially-equal-periodic-payments-sepp-72t-rule/)
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: FuckRx on October 09, 2013, 12:34:51 PM
to clarify, the keogh is automatic, i do my full contribution every year...
on top of the keogh i have a 401k and it's the 401k that he tells me not to contribute to...
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: footenote on October 09, 2013, 12:36:10 PM
If not getting a matching contribution is the reason that the financial adviser said not to contribute to the Keough, then you need a new financial adviser.
+1
No adviser worth his or her salt would tell you to walk on paying lower taxes.

(And don't worry too much about access pre-59.5. As Kira mentioned, there are ways to get at it through SEPP.)
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: matchewed on October 09, 2013, 12:54:43 PM
What are your retirement goals? Traditional? FIRE?
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: amicableskeptic on October 09, 2013, 01:04:34 PM
Mad Fientist also shows how 401k makes sense.  If you are not hurting for cash right now you really should put extra into the 401k.  Your financial advisor does not sound good.  You should probably drop him and either go it alone or find one who will have a fiduciary duty to you in writing (based on his advice I'm assuming he does not have a fiduciary duty to you).

http://www.madfientist.com/triple-income-value/

tldr; if you invest 1 dollar of income it will be 1.45 in 10 years after taxes, which can extrapolate to $5.18 over 30 years.  If you invest that same dollar in a pre-tax retirement account instead it will be $6.70 in 30 years.  An extra $1.52 per dollar seems worth it to me.
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: chardog on October 09, 2013, 03:14:45 PM
How exactly does your financial advisor recommend you avoid taxes on that money, then?

Any chance this financial advisor is pitching a financial product on that will "outperform" the choices you have in your 401(K) and "make up for the tax savings"?  One he can make commission on per chance?
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: chasesfish on October 09, 2013, 06:11:04 PM
Does your "advisor" make a commission on what he's proposing over putting it in a 401k plan?  I would run from the advisor and use boards like this to do it yourself.  What do I know though, except my two richest clients are both DIY investors that keep it simple.
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: Cyanne on October 09, 2013, 06:27:21 PM
There are other tax advantaged investments outside of a 401k account. Maybe his financial advisor has suggested municipal bonds.
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: FuckRx on October 10, 2013, 08:59:40 AM

yes municipal bonds is one of the things he mentioned, basically he wants me to invest my after tax money so that it's more readily available. I'll find out more details.
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: FuckRx on October 10, 2013, 09:54:22 AM
What are your retirement goals? Traditional? FIRE?

I'm 35 now, hoping to put enough money away by age 40 to be able to earn about 2,000/mo of passive income from it. Still have to figure out the math on it but I figure something like 700k?
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: SwordGuy on October 10, 2013, 10:15:35 AM

yes municipal bonds is one of the things he mentioned, basically he wants me to invest my after tax money so that it's more readily available. I'll find out more details.

There will be a parade of cities going broke as the baby boomers suck those pension funds dry.
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: footenote on October 10, 2013, 10:28:39 AM

yes municipal bonds is one of the things he mentioned, basically he wants me to invest my after tax money so that it's more readily available. I'll find out more details.

There will be a parade of cities going broke as the baby boomers suck those pension funds dry.
(Somewhat off-topic, but one of my decisions on where to live in retirement is based on each state's pension-fund solvency. For example, I would love to move to the Chicago area to be closer to family. But Illinois' pension shortfalls scare the crap outta me.)
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: oldtoyota on October 10, 2013, 10:36:03 AM

yes municipal bonds is one of the things he mentioned, basically he wants me to invest my after tax money so that it's more readily available. I'll find out more details.

There will be a parade of cities going broke as the baby boomers suck those pension funds dry.

I would like to learn more about this topic. Have you read anything about it that you would recommend to me?
Title: Re: my financial adviser tells me not to max out my 401k...
Post by: MandyM on October 10, 2013, 11:30:40 AM
In addition to SEPP, there are other ways to tap a 401K before you are 59.5yo. MMM talks about SEPP and the "Roth IRA Escape Hatch Loophole" here: http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

Additionally, its worth considering what you are paying in income taxes now vs. in retirement. If you are in the 25% bracket now and expect to be in the 15% bracket in retirement, then taking money out early and paying the 10% penalty isn't much different. If you are in a higher bracket now, then you are actually better off paying the 10% penalty in the future. (at least for the money that is actually taxed above 25%). Obviously there is some risk here - brackets change and the 10% penalty could even change.