The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Workaholics on January 30, 2021, 11:00:07 PM
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This is my first post so I apologize if it has been discussed before.
I currently invest 10% of my check into my vanguard 401k. Lets say hypothetically I bumped it up to 40-50%. Should I invest it all through my 401k or should I invest in my 401k just enough to get the match(5%) and invest the rest in vanguard ( or other options ?) seperate from my 401k. I read "simple path to wealth" and while I enjoyed the book, I didnt see this topic discussed. Thanks in advance.
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For the record, my 401k in in a 2050 retirement plan which allocates 90% stocks and 10% bonds, if this matters. Thanks.
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Both a Traditional 401(k) and Traditional IRA give you the same tax-deduction benefit. Definitely contribute up to the match, because that's free money you won't find investing an an IRA.
What is the expense ratio for the "2050 retirement" fund? It may also be called the annual fee. You can then compare that to Vanguard's 0.15% expense ratio to decide if you save money investing in your IRA instead of your 401(k):
https://investor.vanguard.com/mutual-funds/profile/VFIFX
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Thanks so much for the reply.
It says my total expense operating cost is .09% or .90 per $1000.
So would it be recommended to invest it all in my 401k ( or up to the $19,500 allowed)?
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Check this thread out:
https://forum.mrmoneymustache.com/investor-alley/investment-order/ (https://forum.mrmoneymustache.com/investor-alley/investment-order/)
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So if I am reading it right, contribute the max amount to the 401k ( 19,500 or roughly 36-37% of my gross yearly pay) and then look into the other options afterwards....is this correct?
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Unless you have an exceptionally good 401k the investment order would say to do 401k to match, then max IRA, then back to the 401k to the max.
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So if I am reading it right, contribute the max amount to the 401k ( 19,500 or roughly 36-37% of my gross yearly pay) and then look into the other options afterwards....is this correct?
The link I posted does not say that.
Usually it goes:
Emergency fund
High interest debt
401k up to match
HSA max if eligible
IRA max
401k max
Low interest debt
529 if desired
Taxable brokerage
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Usually it goes:
Emergency fund
High interest debt
401k up to match
HSA max if eligible
IRA max
401k max
Low interest debt
529 if desired
Taxable brokerage
And in your situation, it might very well make sense to use a Roth IRA instead of a traditional IRA.
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Perhaps you may want to diversify your investment portfolio. You know what they say about putting all the eggs in one basket.
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So if I am reading it right, contribute the max amount to the 401k ( 19,500 or roughly 36-37% of my gross yearly pay) and then look into the other options afterwards....is this correct?
The link I posted does not say that.
Usually it goes:
Emergency fund
High interest debt
401k up to match
HSA max if eligible
IRA max
401k max
Low interest debt
529 if desired
Taxable brokerage
Wait! What? Where do Roths fit into that list? That's one I'd definitely not want to miss out on.
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Roth is in the 'IRA' or '401k' category
Both an 'IRA' and a '401k' can be Roth (post-tax) or Traditional (pre-tax)
Roth vs. Traditional (IRA or 401k) does not change the investment order, but is instead a function of your income & tax brackets now vs. what is expected in the future.
The limitations and the 'why' of Roth vs. Traditional are covered fairly well in the investment order thread.
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So if I am reading it right, contribute the max amount to the 401k ( 19,500 or roughly 36-37% of my gross yearly pay) and then look into the other options afterwards....is this correct?
The link I posted does not say that.
Usually it goes:
Emergency fund
High interest debt
401k up to match
HSA max if eligible
IRA max
401k max
Low interest debt
529 if desired
Taxable brokerage
Wait! What? Where do Roths fit into that list? That's one I'd definitely not want to miss out on.
I know you are familiar with the link steeze provided, but here it is again. Roth parts bolded.
WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to your 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.
3. Max Health Savings Account (HSA) if eligible.
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if
- 401k fees are lower than available in an IRA, or
- you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or
- you earn too much for an IRA deduction and prefer traditional to Roth, then
swap #4 and #5)
6. Fund a mega backdoor Roth if applicable.
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield.
8. Invest in a taxable account and/or fund a 529 with any extra.
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So if I am reading it right, contribute the max amount to the 401k ( 19,500 or roughly 36-37% of my gross yearly pay) and then look into the other options afterwards....is this correct?
The link I posted does not say that.
Usually it goes:
Emergency fund
High interest debt
401k up to match
HSA max if eligible
IRA max
401k max
Low interest debt
529 if desired
Taxable brokerage
Wait! What? Where do Roths fit into that list? That's one I'd definitely not want to miss out on.
I know you are familiar with the link steeze provided, but here it is again. Roth parts bolded.
WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to your 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.
3. Max Health Savings Account (HSA) if eligible.
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if
- 401k fees are lower than available in an IRA, or
- you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or
- you earn too much for an IRA deduction and prefer traditional to Roth, then
swap #4 and #5)
6. Fund a mega backdoor Roth if applicable.
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield.
8. Invest in a taxable account and/or fund a 529 with any extra.
Since you apparently "know" me, you're probably aware that eight years post-FIRE, I've no need for this specific list. I hang around here in hopes of being able to help others, particularly single women, reach their FIRE goals. You might say I was asking for a friend, as the list someone else posted here was rather truncated, which your helpful attachment clearly illustrates. Thank you for providing this helpful informtion.
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Thanks for Everyones reply...
So if I am reading it right now (hopefully)
1.Invest in 401k in order to get the full match from the company (for me its 5 %)
2. Fully fund an traditional or roth ira ($6000)
3.invest the rest into the 401k, trying to max it out (19500).
4.????
This would give me 25,500 invested, plus the company match, which would put me roughly at 50% saving rates. Does this sound right?
Thanks again for all those who replied.
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Thanks for Everyones reply...
So if I am reading it right now (hopefully)
1.Invest in 401k in order to get the full match from the company (for me its 5 %)
2. Fully fund an traditional or roth ira ($6000)
3.invest the rest into the 401k, trying to max it out (19500).
4.????
This would give me 25,500 invested, plus the company match, which would put me roughly at 50% saving rates. Does this sound right?
Thanks again for all those who replied.
Sounds right to me, congrats on the 50% savings rate.
Assuming already have an emergency fund, have no debt, don’t have an HSA available to you, and aren’t planning on kids anytime soon (or ever), then #4 will be to do a mega back door Roth or open a taxable brokerage account.
To do a mega back door Roth your 401k provider will need to offer you the ability to contribute to an after-tax account and then sweep the contributions to a Roth preferably daily. The after-tax account is not the same as the traditional or Roth 401k, and is instead a third type of account within the 401k.
You can read about that here:
https://www.madfientist.com/after-tax-contributions/ (https://www.madfientist.com/after-tax-contributions/)
Many (or most) 401k plans do not allow or offer this, but some do. If your plan allows it then max that before starting in on the taxable brokerage account.
Also - don’t forget to continue to invest in yourself by completing any industry certifications and licensure that is relevant to your career.
Congrats again!
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Thanks for Everyones reply...
So if I am reading it right now (hopefully)
1.Invest in 401k in order to get the full match from the company (for me its 5 %)
2. Fully fund an traditional or roth ira ($6000)
3.invest the rest into the 401k, trying to max it out (19500).
4.????
This would give me 25,500 invested, plus the company match, which would put me roughly at 50% saving rates. Does this sound right?
Thanks again for all those who replied.
I would do exactly that. And then you are on your way.....
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Usually it goes:
Emergency fund
High interest debt
401k up to match
HSA max if eligible
IRA max
401k max
Low interest debt
529 if desired
Taxable brokerage
And in your situation, it might very well make sense to use a Roth IRA instead of a traditional IRA.
Yes, but you want a little nuance and understanding for your own situation. For example, you might not want to contribute to a traditional IRA if you might want to do a backdoor Roth in the future. You might not want to do a Roth if you want to retire overseas in the future without looking very carefully at the tax treaty that the US may or may not have in place. Similarly, if your work offers a really good 401k, you might just max it out. At my prior employer I had access to a Fidelity 401k with Brokeragelink and it was top notch. At my current employer the 401k sucks.