Author Topic: What vehicle  (Read 2693 times)

detailoriented

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What vehicle
« on: June 27, 2015, 06:18:17 AM »
Hello all,

2 year lurker here coming into the light. 

I have been exceeding the company  match on 401k for 12 years ratcheting it up each year.  This year I was planning on putting the increase into a Roth IRA instead.  As I thought about it I began to wonder if instead i should be opening a brokerage account so that the money and the interest would be available for other investments (real estate or business) if a good opportunity arose.

Obviously the correct answer is to max out the 401k and Roth AND open a brokerage account.  However I do not have that much to go around yet.  Any thoughts on a less ideal solution?  Is the flexibility of the brokerage account worth the loss in tax benefits?

Thank you,
DO

ender

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Re: What vehicle
« Reply #1 on: June 27, 2015, 07:13:26 AM »
Obviously the correct answer is to max out the 401k and Roth AND open a brokerage account.  However I do not have that much to go around yet.  Any thoughts on a less ideal solution?  Is the flexibility of the brokerage account worth the loss in tax benefits?


There's no obvious correct answer, because there are a lot of things which affect this.

A Roth can be good, for many early retiree folks it's actually preferrable to do a traditional IRA if eligible.

We are doing the max in 401k and max in tIRA this year, for example, because it is the best for our situation. It's not "obviously best" to do what you are describing.

We need a ton more details for this to be answerable, income/assets/desired retirement age/pension options/age/etc because it's always a combination of factors.

Cheddar Stacker

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Re: What vehicle
« Reply #2 on: June 27, 2015, 07:41:37 AM »
Welcome to your new un-lurking status. I agree with ender that it's hard to answer this question properly without more detail, but I'll answer based on what info you gave.

Max that shit out! 401k for the win.

Don't miss out on the tax deferral because you are hoping a business or RE investment comes along.

thedayisbrave

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Re: What vehicle
« Reply #3 on: June 27, 2015, 11:57:20 AM »
Would be helpful to know your tax bracket.

detailoriented

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Re: What vehicle
« Reply #4 on: June 27, 2015, 08:36:53 PM »
Thank you for responses.

My question was purposefully vague because I wanted some philosophical responses. I like generic understanding of the mechanics and variables that go into decisions.  Your queries for information help me see what I need to ask myself.

I am worried mostly about liquidity.  I don't want to pay off my mortgage because it will tie up the money in a non-liquid asset.  However,  I came to realize that my 401k isn't all that liquid either.  Thus the question about vehicle choices.  I was thinking of pushing into the roth because I can pull the contributions if a good investment came up.


As for details.

Age 34
married filing jointly+ 3 elementary school kids
tax bracket is top end of 15%

assets:
  • 250k in 401k
  • 15k in bonds (4%)
  • 15k savings
  • 70k equity in my house

Liabilities:
  • 220k mortgage (3.875%)
  • 5k student loans (1.65%)

I have some amount of pension but do to changes in its structure I ignore it in my calculations and will let it be a small perk later.  I treat social security the same way.

I enjoy my work and have no plans to retire.  My only goal is to not be wasteful as I work toward FIRE.

Thank you again,

DO

forummm

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Re: What vehicle
« Reply #5 on: June 28, 2015, 05:34:28 AM »
In the 15% bracket I think it's a reasonable decision to put money in taxable accounts instead of 401k, especially since you don't plan to retire early. Your retirement income may be as high as your current income.

Cheddar Stacker

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Re: What vehicle
« Reply #6 on: June 28, 2015, 07:28:48 AM »
In the 15% bracket I think it's a reasonable decision to put money in taxable accounts instead of 401k, especially since you don't plan to retire early. Your retirement income may be as high as your current income.

+1. Taxable. Since you are in the 15% bracket the income wouldn't be taxable anyway.

detailoriented

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Re: What vehicle
« Reply #7 on: June 28, 2015, 08:08:02 PM »
Should I go with a standard brokerage account or a rIRA?

I would think the rIRA is best because the contributions can be pulled out if an investment opportunity comes my way.  However if nothing materializes then the investments grow tax free.

Is there an argument for a standard brokerage account being better than a rIRA?

Thank you
DO