Author Topic: Should both spouses max out their 401k/403b?  (Read 15011 times)

smv

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Should both spouses max out their 401k/403b?
« on: July 26, 2014, 08:37:02 PM »
Hi, I'm new to the ways of MMM. I've been reading his blog for about a week and have started to make many changes to the way we do things in our home. Both me and my wife have retirement plans offered through our jobs. Should we both max out our retirement plans? (she has a 403b and I have a 401k)... It seems to me that we should max out the one with the highest employer match and invest the rest of the money elsewhere, like Vanguard index funds. Otherwise we wouldn't be able to retire before we are 59 1/2 yrs old, defeating the MM goal, right? Does this make sense? Any advice is welcome...
thx!!!

p.s. I'm 31, my wife is 32 yrs old...

gomike

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Re: Should both spouses max out their 401k/403b?
« Reply #1 on: July 26, 2014, 09:06:38 PM »
You should both put $5500 per year in a Roth IRA first, at least put in what your employer will match to the 401k and 403b

StarryC

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Re: Should both spouses max out their 401k/403b?
« Reply #2 on: July 26, 2014, 09:07:40 PM »
There are many ways to get the money out of the 401Ks before 59 and 1/2.  I don't understand them and worry about them for a while, but "roth Pipeline" and "SEPP" are words thrown around here a lot. 

Definitely max out the employer matches on both spouses.  Don't leave free money on the table.  If you are a high tax bracket, maxing both would also be worthwhile.   (Instant 25% return is hard to beat!)  If you are in a low tax bracket, and you have bad options in your 401K, it MAY be reasonable to redirect to Vanguard after getting both matches.  But, if you are in a low tax bracket, it would probably be hard for you to max them both out. 

MDM

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Re: Should both spouses max out their 401k/403b?
« Reply #3 on: July 26, 2014, 09:13:00 PM »
Need more information before suggesting anything.  E.g. see http://www.cffpinfo.com/pdfs/2014_Annual_Limits.pdf for IRA phaseout limits, tax brackets, etc. - which of those apply to you?




smv

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Re: Should both spouses max out their 401k/403b?
« Reply #4 on: July 26, 2014, 09:57:34 PM »
We have a combined salary of $250,000 (33% tax bracket) yearly gross...so i guess Roth/Deduction IRA's are out of the question.

4alpacas

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Re: Should both spouses max out their 401k/403b?
« Reply #5 on: July 26, 2014, 10:01:07 PM »
We have a combined salary of $250,000 (33% tax bracket) yearly gross...so i guess Roth/Deduction IRA's are out of the question.

Nope, http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

In your tax bracket, both people should max out your 401k/403b to minimize your tax liability.  http://www.madfientist.com/retire-even-earlier/

milesdividendmd

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Re: Should both spouses max out their 401k/403b?
« Reply #6 on: July 26, 2014, 10:34:48 PM »

We have a combined salary of $250,000 (33% tax bracket) yearly gross...so i guess Roth/Deduction IRA's are out of the question.

Nope, http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

In your tax bracket, both people should max out your 401k/403b to minimize your tax liability.  http://www.madfientist.com/retire-even-earlier/

+1.

Total no brainer. Reduce your tax rate now. You can reduce your future taxes later.



Fatmouse

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Re: Should both spouses max out their 401k/403b?
« Reply #7 on: July 27, 2014, 07:46:14 AM »
Agreed, both spouses should max out.

I just changed my contribution rate in order to max my 401k for 2014.  I was shocked to realize how much $$$ I could get into the 401k account without really feeling much pain in my take home pay.  Very motivating!

nuprinmmm

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Re: Should both spouses max out their 401k/403b?
« Reply #8 on: July 27, 2014, 09:42:31 AM »
We have a combined salary of $250,000 (33% tax bracket) yearly gross...so i guess Roth/Deduction IRA's are out of the question.

At 250k you should plan on maxing BOTH 401k/403b's. Both back door Roths. And if the 403b is lucky enough to have a 457 deferred compensation you should max that as well.

Workinghard

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Re: Should both spouses max out their 401k/403b?
« Reply #9 on: July 27, 2014, 05:20:11 PM »
We have a combined salary of $250,000 (33% tax bracket) yearly gross...so i guess Roth/Deduction IRA's are out of the question.

At 250k you should plan on maxing BOTH 401k/403b's. Both back door Roths. And if the 403b is lucky enough to have a 457 deferred compensation you should max that as well.

^ this. At 129k we max (2) 401ks + 5k for catch up contrib. on one, (2) Roths, in addition to 2k/month after tax into index funds.  The more you can put away, the sooner you'll get to FI.

smv

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Re: Should both spouses max out their 401k/403b?
« Reply #10 on: July 27, 2014, 08:28:24 PM »
^ this. At 129k we max (2) 401ks + 5k for catch up contrib. on one, (2) Roths, in addition to 2k/month after tax into index funds.  The more you can put away, the sooner you'll get to FI.

Wow, Workinghard, that is very encouraging!

Thank you all for all the advice...

I have one question though, if I put all of my money into retirement accounts won't I have to pay a 10% early withdrawal penalty if I retire early? Even if there is a backdoor way to get the money out (don't know them, I would be interested). But even those backdoor ways depend on the tax laws, so there is no guaranty that they will be there 15 yrs from now...
Thoughts?

RavensBrew

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Re: Should both spouses max out their 401k/403b?
« Reply #11 on: July 27, 2014, 08:34:57 PM »
This is an interesting question and me and my partner are in a similar situation. So the idea is that the "backdoor" ways of getting money out of a 401k and IRA avoid early withdrawal penalties? Because if not might it be better to invest in a taxable account with no penalties?

Icecreamarsenal

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Re: Should both spouses max out their 401k/403b?
« Reply #12 on: July 27, 2014, 08:40:47 PM »

^ this. At 129k we max (2) 401ks + 5k for catch up contrib. on one, (2) Roths, in addition to 2k/month after tax into index funds.  The more you can put away, the sooner you'll get to FI.

Wow, Workinghard, that is very encouraging!

Thank you all for all the advice...

I have one question though, if I put all of my money into retirement accounts won't I have to pay a 10% early withdrawal penalty if I retire early? Even if there is a backdoor way to get the money out (don't know them, I would be interested). But even those backdoor ways depend on the tax laws, so there is no guaranty that they will be there 15 yrs from now...
Thoughts?

Try clicking on the bogle heads link in this thread re: back door Roths for more info.

milesdividendmd

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Re: Should both spouses max out their 401k/403b?
« Reply #13 on: July 27, 2014, 09:08:23 PM »
^ this. At 129k we max (2) 401ks + 5k for catch up contrib. on one, (2) Roths, in addition to 2k/month after tax into index funds.  The more you can put away, the sooner you'll get to FI.

Wow, Workinghard, that is very encouraging!

Thank you all for all the advice...

I have one question though, if I put all of my money into retirement accounts won't I have to pay a 10% early withdrawal penalty if I retire early? Even if there is a backdoor way to get the money out (don't know them, I would be interested). But even those backdoor ways depend on the tax laws, so there is no guaranty that they will be there 15 yrs from now...
Thoughts?

Here is the best article on that subject....

http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

Although it is true that tax laws can always change, short of a crystal ball, planning based on current law is about the best you can do.  Besides putting all of your money into taxable accounts leaves a lot of money on the table.

(Another classic from MF)

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

Enjoy!