I need advice on 401K

[UpstateNYUPSer(Ret)]

Yeah, just throw 5% in Bright Horizon. Pick any one. Throw a dart and choose whichever it lands on. No mention whether that's 5% Roth or 5% 401k. It doesn't matter.

Given his age the Roth would be the better choice.

The BH would be the one closest to his projected retirement date; however, if he prefers to be more aggressive, he could chose the target date 5 years beyond his PRD. This is what I did and it keeps my investments in a more aggressive mode rather than turning conservative as it nears the target date.

While $40/week may not be a lot to you and I, it can be quite a bit for a PTer just starting out.

 

[newfie]

I just need stuff explained to me face to face. Especially regarding things I'm paranoid about like money.

no better resource available then this fine panel of BC financial experts.

 

[barnyard]

If a person works a retirement calculator, playing with numbers and working some projected scenarios; putting lots of money in at an early age pays bigger dividends than starting slowly and building over time.

That said, I was not able to do that, but both my daughters are doing it right now. My sister was also able to do it. She is 4 years younger than me and expects to work 2 more years and then be done working. Her financial planner says she could be done now, but her husband is still working and she is going to work till he retires.

 

[ihatewinter]

I started with 5 %. that was easy. then 10% . didn't miss it so went up every year till maxed . im so glad I did. my income from the 401k is going to be about 2400 a month.

also on the max of 18k a year for you , you will save about 3000 or more in taxes.

It's still taxed when you withdraw it in the future.

 

[Coalminer2005]

I contribute 6 percent now but will put in the max once my kids are grown. I don't plan on depending much on my 401k when I retire because I have a military pension to fall back on aside from my UPS pension.

 

[MendozaJ]

Given his age the Roth would be the better choice.

The BH would be the one closest to his projected retirement date; however, if he prefers to be more aggressive, he could chose the target date 5 years beyond his PRD. This is what I did and it keeps my investments in a more aggressive mode rather than turning conservative as it nears the target date.

While $40/week may not be a lot to you and I, it can be quite a bit for a PTer just starting out.

You don't seem to be aware that your investment strategy is significantly more aggressive than mine.

 

[upschuck]

just between the S&P500 and Bond index.

50/50 split is called the "balanced fund"

 

[Jones]

50/50 split is called the "balanced fund"

Check the ER on the balanced fund vs the ERs on the S&P500 and the Bond index.

 

[upschuck]

Check the ER on the balanced fund vs the ERs on the S&P500 and the Bond index.

The prospectus states 50/50 split between the two. ER's are a shot in the dark anyways, it they knew that with any certainty, everyone would go for highest returns.

 

[Jones]

The prospectus states 50/50 split between the two. ER's are a shot in the dark anyways, it they knew that with any certainty, everyone would go for highest returns.

You don't know what an ER is do you?

 

[upschuck]

You don't know what an ER is do you?

Expected Return?

 

[upschuck]

You don't know what an ER is do you?

Earnings Ratio. Brain fart

 

[upschuck]

Check the ER on the balanced fund vs the ERs on the S&P500 and the Bond index.

It should be in the middle of the two separate funds. Balanced Fund keeps it at a 50/50 split(I believe), while the other would not.

 

[Jones]

Expected Return?

Expense ratio. It's the fees you pay to the fund. ER on S&P500 is .01%, Bond index is .03%, Balanced fund is .05%. So you will pay a little over twice as much to keep the same amount of money in the balanced vs a combination of the other two. In addition the Balanced fund is maintained at 50/50 which might not be what you want especially if you're young.
But hey, if you want pay twice as much in fees to maintain a split that doesn't reflect your investment goals it might be just the thing for ya .

 

[upschuck]

Expense ratio. It's the fees you pay to the fund. ER on S&P500 is .01%, Bond index is .03%, Balanced fund is .05%. So you will pay a little over twice as much to keep the same amount of money in the balanced vs a combination of the other two. In addition the Balanced fund is maintained at 50/50 which might not be what you want especially if you're young.
But hey, if you want pay twice as much in fees to maintain a split that doesn't reflect your investment goals it might be just the thing for ya .

ER could have been a lot of things. It is higher probably because they are maintaining the 50/50 balance, which I think is unnecessary(and crazy), pulling money out of higher yield funds, and putting them in lower.

 

[UpstateNYUPSer(Ret)]

It's still taxed when you withdraw it in the future.

...at a much lower rate.....look for the Roth's to be taxed in the near future...

 

[Catatonic]

I started with 5 %. that was easy. then 10% . didn't miss it so went up every year till maxed . im so glad I did. my income from the 401k is going to be about 2400 a month.

also on the max of 18k a year for you , you will save about 3000 or more in taxes.

All taxable as Ordinary Income.

I maxed out my 401k deductions for around the last 20 years before retirement.
Hopefully I will not touch this until 70.

 

[olroadbeech]

It's still taxed when you withdraw it in the future.

but at at a lower rate.

if i could have done it all over again, i would have maxed out from he very beginning. instead of 700k i would have had well over a million at retirement.

 

[Jackburton]

...at a much lower rate.....look for the Roth's to be taxed in the near future...

There are a lot of other things that will change before Roth's get a double tax hit or tax hits on the growth. Being as it's already taxed any bill even being drafted would cause such an upheaval from people they would just pull money out of their accounts, since it has already been taxed, and create even more of a problem, there won't be anything left to tax. The upper income earners are already restricted to doing Roth IRA's (116k single, 183k joint), so the only option they have is if their company does a ROTH 401k (which has no income limit) to contribute to. Anyone currently in retirement could essentially pull their whole wad out, and unlike a traditional, wouldn't be faced with a huge tax bill (think taxes on 5 mil). Congress would have to basically overturn the whole ROTH system, which in a more likely scenario, would be limits or even a discontinuation of the ROTH program as a whole. If they decided to do something of that sorts people would all together stop doing it and just invest on their own as the benefit of tax free growth would be gone, the only thing the ROTH provides differently than a traditional.

Things that come to mind that would happen first, before any inclination of a ROTH attack would be as follows.

Capital gains taxes going from 15 to 25% for EVERYONE
Lowering the personal home owners free tax break on home sales profits from 250K/500k to 100k/200k (made the last set of numbers up)
Additional taxation on traditional retirement accounts that have withdrawal rates over 100k per year.
You SSI is income based when pulling from retirement accounts, whether ROTH or Traditional, more you pull from personal, the less SSI you get.

Just a few things that I think would have to happen before they would even think of purposing

 

[Ms.PacMan]

https://www.ici.org/pdf/ppr_12_tax_benefits.pdf

This is an interesting paper comparing Roth vs. traditional 401k vs. taxable retirement accts from the perspective of both the investor and the IRS.