Author Topic: Should I Put Money in a 401k and Roth IRA or Just the 401k?  (Read 3089 times)

jackiechiles2

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Should I Put Money in a 401k and Roth IRA or Just the 401k?
« on: January 21, 2015, 07:23:01 AM »
So I've got a employer 401k plan that the employer matches up to 3% or so, I think. I put in about 8%.  I also throw in some extra money into a Roth IRA that I created before I had my employer sponsored plan.  Should I consolidate the Roth IRA into the 401k and just throw the extra money into the 401k or continue as I have been?

dandarc

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Re: Should I Put Money in a 401k and Roth IRA or Just the 401k?
« Reply #1 on: January 21, 2015, 07:31:34 AM »
It depends - ideally you'll get to a point where you can max them both.  Income / filing status?  Retirement Goals?

jackiechiles2

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Re: Should I Put Money in a 401k and Roth IRA or Just the 401k?
« Reply #2 on: January 21, 2015, 07:35:55 AM »
It depends - ideally you'll get to a point where you can max them both.  Income / filing status?  Retirement Goals?

Married filing jointly.  I'm at the very beginning of the MMM lifestyle change, so while our income is rather high ($135k) our contributions to retirement are rather low by comparison i.e. nowhere near maxing out 401k or Roth contribution limits.   I'm not really super interested in retiring early, so really I'm just looking to maximize my retirement funds for when I do eventually decide to retire.  I'm 31 my wife is 32. 

Aphalite

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Re: Should I Put Money in a 401k and Roth IRA or Just the 401k?
« Reply #3 on: January 21, 2015, 07:45:54 AM »
401K is usually better at your bracket - when you max that out, Roth is your next best bet - even though your tax bracket is high, you still get tax shelter on the earnings

dandarc

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Re: Should I Put Money in a 401k and Roth IRA or Just the 401k?
« Reply #4 on: January 21, 2015, 07:56:20 AM »
401K is usually better at your bracket - when you max that out, Roth is your next best bet - even though your tax bracket is high, you still get tax shelter on the earnings
+1 - traditional 401K given that you're likely in the 25% bracket, which is pretty high.

On the IRA front, traditional is likely not deductible option currently for OP, so you'd go Roth there (if you want to do both).  If you were to both max out your 401Ks, though, you could get a double-bonus by pushing your income down to where you can make deductible traditional IRA contributions as well.  Something to think about.

Of course, if you have a large amount of itemized deductions, or lots of kids, or something, that could change the equation too.

Homey The Clown

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Re: Should I Put Money in a 401k and Roth IRA or Just the 401k?
« Reply #5 on: January 21, 2015, 07:59:13 AM »
Isn't $135k joint in the 25% tax bracket? If so, it's probably a wash between Roth and 401k. One thing to think about is, if you have kids, getting your taxable low enough to fully take advantage of the child tax credit. Otherwise, I don't think it matters all that much. I hope you get on the MMM train. Our income is almost identical to yours and we're putting away $45000/yr (including matches), plus paying a mortgage, childcare (2 kids under 5), and a high car payment. The last isn't mustachian, but we got an amazing deal on a Chevy Volt, and are paying it off over a very short period of time.

dandarc

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Re: Should I Put Money in a 401k and Roth IRA or Just the 401k?
« Reply #6 on: January 21, 2015, 08:04:35 AM »
Isn't $135k joint in the 25% tax bracket? If so, it's probably a wash between Roth and 401k. One thing to think about is, if you have kids, getting your taxable low enough to fully take advantage of the child tax credit. Otherwise, I don't think it matters all that much. I hope you get on the MMM train. Our income is almost identical to yours and we're putting away $45000/yr (including matches), plus paying a mortgage, childcare (2 kids under 5), and a high car payment. The last isn't mustachian, but we got an amazing deal on a Chevy Volt, and are paying it off over a very short period of time.
No joke - the IRS really does seem to want everyone to get rich and have kids.  Manadatory link http://rootofgood.com/make-six-figure-income-pay-no-tax/

jackiechiles2

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Re: Should I Put Money in a 401k and Roth IRA or Just the 401k?
« Reply #7 on: January 21, 2015, 08:14:56 AM »
Isn't $135k joint in the 25% tax bracket? If so, it's probably a wash between Roth and 401k. One thing to think about is, if you have kids, getting your taxable low enough to fully take advantage of the child tax credit. Otherwise, I don't think it matters all that much. I hope you get on the MMM train. Our income is almost identical to yours and we're putting away $45000/yr (including matches), plus paying a mortgage, childcare (2 kids under 5), and a high car payment. The last isn't mustachian, but we got an amazing deal on a Chevy Volt, and are paying it off over a very short period of time.

We're definitely working on it.  We've got some pretty serious debt to pay off from school/medical/stupid decisions before we're able to sock away that kind of money.  It's been more of convincing my wife to really jump on full bore that's been the hold up.  The real wake up for her was our third child that's due in a few months.   Since October of 2014, we've cut our expenses by $1,300 a month and we're not really wanting for anything. 

dandarc

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Re: Should I Put Money in a 401k and Roth IRA or Just the 401k?
« Reply #8 on: January 21, 2015, 08:20:46 AM »
Isn't $135k joint in the 25% tax bracket? If so, it's probably a wash between Roth and 401k. One thing to think about is, if you have kids, getting your taxable low enough to fully take advantage of the child tax credit. Otherwise, I don't think it matters all that much. I hope you get on the MMM train. Our income is almost identical to yours and we're putting away $45000/yr (including matches), plus paying a mortgage, childcare (2 kids under 5), and a high car payment. The last isn't mustachian, but we got an amazing deal on a Chevy Volt, and are paying it off over a very short period of time.

We're definitely working on it.  We've got some pretty serious debt to pay off from school/medical/stupid decisions before we're able to sock away that kind of money.  It's been more of convincing my wife to really jump on full bore that's been the hold up.  The real wake up for her was our third child that's due in a few months.   Since October of 2014, we've cut our expenses by $1,300 a month and we're not really wanting for anything.
Congratulations!
 
The child tax credit is potentially very valuable for y'all - whatever you do, try and get your AGI below 110K so you can get the full 1K per kid tax credit.  Your situation sounds pretty similar to Root of Good's (see post linked above), so that could be instructive.