Author Topic: Max'd our 401ks, next step?  (Read 2313 times)

emiloots

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Max'd our 401ks, next step?
« on: February 07, 2017, 08:50:25 PM »
DH and I are late to the MMM bandwagon, we're both 37 and are pitifully behind in terms of retirement savings.  We're maxing out our 401ks this year (I have a 75% match up to 6% of my salary and he has a 50% match up to 6%), we contribute a nominal amount to our kids 529s (50 each / 150 total) each month.  I'm always one for 'analysis paralysis' so I'm struggling with where to put our money next.  Our income is too high for a traditional ROTH, we're north of 200k. 

My current options are:

-Contribute partially to a Roth 401k to diversify our income stream in retirement (In-service rollovers of Roth401k contributions are allowed) - the only reason I consider this is I have a pension which will increase our taxable income in retirement

-Contribute after tax to my 401k (my company currently does not allow separable in-service distributions, so no mega backdoor ROTH)

**Both of the above options pertain to my salary, my company has a lot of investment options.

-Set up a Vanguard account and start socking away post-tax money and build our portfolio there.

Any sage advice, I feel like I'm purposely delaying making a decision because I'm afraid of making the wrong one :(






seattlecyclone

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Re: Max'd our 401ks, next step?
« Reply #1 on: February 07, 2017, 09:38:32 PM »
By "maxing out your 401(k)", do you mean you're contributing enough to get the maximum match, or contributing up to the $18,000 limit? If the latter, you won't be able to make more Roth contributions to the 401(k) on top of your traditional contributions.

At your income level, even with a pension, I'd encourage you to contribute as much pre-tax as you can. If you end up having more taxable income during retirement than you do today (>$200k), that's a pretty good problem to have, but that seems unlikely unless you work and save way more than you need to.

Once you've both contributed up to the full $18k limit toward your 401(k)s, then you can consider Roth contributions to your IRAs, likely through the backdoor since your income is so high.

In general I think 529 contributions should be at a lower priority than retirement account contributions unless you get a state tax deduction for the 529. The tax code gives you some favorable options for withdrawing from the retirement accounts early, especially for educational purposes, and the FAFSA completely ignores your retirement accounts but not your 529. But at your income level it should be possible for you each to contribute $18k to a 401(k), $5.5k to an IRA, and still have some money left over for college savings. Time to flex those frugality muscles and get it done!

I'd put post-tax investing after all those other options. Tax shelters are nice. Use them.

emiloots

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Re: Max'd our 401ks, next step?
« Reply #2 on: February 08, 2017, 07:57:24 AM »
We are maxed as in 18k/per year each to our 401ks, should have clarified, I know that term means different things to different people on this forum.  Our youngest will be through college when we're both 53, we plan on working a few more years but hope to retire somewhere in the 55-60 range.  I'll look into a tIRA with Vanguard.

SeattleCPA

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Re: Max'd our 401ks, next step?
« Reply #3 on: February 08, 2017, 08:09:27 AM »
By "maxing out your 401(k)", do you mean you're contributing enough to get the maximum match, or contributing up to the $18,000 limit? If the latter, you won't be able to make more Roth contributions to the 401(k) on top of your traditional contributions.

At your income level, even with a pension, I'd encourage you to contribute as much pre-tax as you can. If you end up having more taxable income during retirement than you do today (>$200k), that's a pretty good problem to have, but that seems unlikely unless you work and save way more than you need to.

Once you've both contributed up to the full $18k limit toward your 401(k)s, then you can consider Roth contributions to your IRAs, likely through the backdoor since your income is so high.

In general I think 529 contributions should be at a lower priority than retirement account contributions unless you get a state tax deduction for the 529. The tax code gives you some favorable options for withdrawing from the retirement accounts early, especially for educational purposes, and the FAFSA completely ignores your retirement accounts but not your 529. But at your income level it should be possible for you each to contribute $18k to a 401(k), $5.5k to an IRA, and still have some money left over for college savings. Time to flex those frugality muscles and get it done!

I'd put post-tax investing after all those other options. Tax shelters are nice. Use them.

+1

VoteCthulu

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Re: Max'd our 401ks, next step?
« Reply #4 on: February 08, 2017, 11:09:41 AM »
If you have an HSA, max that out first.

Then max out the Roth IRA for both of you.

After that, you could contribute after tax to your 401k, but I would just create a taxable investment account to hold whatever assets are best in your specific tax situation (perhaps large caps with qualified dividends or international stocks with foreign tax credits). This gives you more flexibility if you happen to need some extra money for anything while minimizing the extra taxes.
« Last Edit: February 08, 2017, 04:56:12 PM by VoteCthulu »

tonysemail

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Re: Max'd our 401ks, next step?
« Reply #5 on: February 08, 2017, 12:00:51 PM »
I think writing an IPS and putting money in vanguard are the right thing for most people.

If you're particularly interested in reducing tax burden, then this stickied thread is a good place to start.
http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

learning about tax loss harvesting and tax gain harvesting is a good next step.

emiloots

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Re: Max'd our 401ks, next step?
« Reply #6 on: February 08, 2017, 04:32:39 PM »
Thanks for the responses everyone, we don't get the tIRA tax deduction because of our income (it's a good problem to have) so the only benefit of opening them is to do a ROTH conversion every year and have that money available if we happen to retire prior to 59.5.  I wish my DH would take interest in this (he's the engineer...so you would think he would!), but as of now it's just me.  Thank goodness for MMM, I'm mostly a lurker and don't post often.

tonysemail - thanks for the thread link

votecthulu - no HSA, although I wouldn't be surprised if my company goes in that direction over the next few years.  My DH has an HSA option - but my insurance offerings are far superior so our hands are tied there at the moment

Fire2025

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Re: Max'd our 401ks, next step?
« Reply #7 on: February 08, 2017, 05:39:58 PM »
I just wanted to recommend the Mad Fientist blog for some good info on investment strategies for high earners and optimizing in general.

http://www.madfientist.com/

MDM

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Re: Max'd our 401ks, next step?
« Reply #8 on: February 08, 2017, 09:13:15 PM »