Author Topic: new job, new 401k plan  (Read 3163 times)

beavertailbill

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new job, new 401k plan
« on: July 10, 2015, 08:09:56 AM »
What is the strategy for a 401(k) plan when starting a new job?
The company does not match for the first year. Is it best to contribute to the plan anyway to lower tax burden, or would it be best to max out a roth or trad IRA, then use the rest in a taxable account, until eligible for the match?

any help would be great appreciated!

thanks

dandarc

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Re: new job, new 401k plan
« Reply #1 on: July 10, 2015, 08:16:33 AM »
Depends on the plan and the options available in it.  Also depends on your income - how much tax can you save with the 401K?

Can we have details on the funds available with expense ratios and any other fees?

StressLess

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Re: new job, new 401k plan
« Reply #2 on: July 10, 2015, 08:16:42 AM »
depends on your plan, tax bracket, age...

Generally tax deferred investing via company 401k is the best for everyone.  Unless the fund choices/fees are HORRIBLE, that is probably your best plan.

do you want to max out the 401k with 18k?  you could also do an IRA in addition to that or backdoor roth IRA if your income is very high.

Taxable is great once you have topped off all of your tax deferred buckets.

doubled85

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Re: new job, new 401k plan
« Reply #3 on: July 10, 2015, 09:18:22 PM »
General (I repeat, general) rule with taxes is to pay later or preferably, never. Though there are some instances where paying tax today makes sense. That said, dropping cash into a 401(k) also lowers your (M)AGI which can unlock other benefits as well.

TomTX

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Re: new job, new 401k plan
« Reply #4 on: July 11, 2015, 08:54:46 AM »
Typically expenses are lower with a Vanguard IRA (either Traditional or Roth) - particularly once you get $10k into one fund and get Admiral shares with the reduced costs. This is because you generally have administrative fees to run the 401k, and the company chooses a shitty expensive provider who rapes employees with load and expenses. In exchange, the company pays $0 for the administration of the 401k.

If you have a 401k that has better costs than Vanguard:

1) Max out 401k
2) Max out IRA

If You are in a more typical situation, where Vanguard is cheaper:

1) Max out IRA
2) Max out 401k

NathanP

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Re: new job, new 401k plan
« Reply #5 on: July 13, 2015, 08:26:09 AM »
General (I repeat, general) rule with taxes is to pay later or preferably, never. Though there are some instances where paying tax today makes sense. That said, dropping cash into a 401(k) also lowers your (M)AGI which can unlock other benefits as well.

The lowering of your AGI can be EXTREMELY important and should not be overlooked. If my wife and I didn't max our pretax 401k accounts then we would lose the child tax credit in addition to paying a lot more tax in the 25% bracket. In a good year (bad year?) we can lower our income enough to partially contribute to a pretax IRA.

Look at all of the options that you have available to you in your 401k. If you work for a large employer then you may have some low fee index options. In my case, I have access to 3 Vanguard Institutional class funds with fees lower than what I can get directly from Vanguard. The fancy actively managed and international funds are expensive (1% or more), so I hold those in my own IRA at Vanguard.

bpobst

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Re: new job, new 401k plan
« Reply #6 on: July 13, 2015, 09:54:48 AM »
Similar question for those who may be able to help. My wife recently started a new job ($9k raise and she's enjoying it more!) but they do not match at all. I have no idea what the funds are because she cannot even start her own contributions for six months so I guess we get that info when it's closer. We already max our Roth IRAs and my 401k.

I guess it sort of depends on the funds her employer provides, but is there a vanguard 401k we could do for her outside of her employer? Clearly, 401k is pretax which is why it's through the employer and anything we did outside of that is post tax.

MoonShadow

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Re: new job, new 401k plan
« Reply #7 on: July 13, 2015, 04:55:26 PM »
Similar question for those who may be able to help. My wife recently started a new job ($9k raise and she's enjoying it more!) but they do not match at all. I have no idea what the funds are because she cannot even start her own contributions for six months so I guess we get that info when it's closer. We already max our Roth IRAs and my 401k.

I guess it sort of depends on the funds her employer provides, but is there a vanguard 401k we could do for her outside of her employer? Clearly, 401k is pretax which is why it's through the employer and anything we did outside of that is post tax.

Well, a Roth 401k option does exist, but it's not typically a good idea, because it tangles up your pre- and post-tax funds in a way that can have unpredictable, and unseparatable effects on your 401k withdrawals when the time comes.  Since you already max out 2 Roth IRA's & your 401k, odds are good that she would be better off putting her extra income into a taxable brokerage account, or killing the mortgage with it.