Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
401k or Taxable, which would you contribute to?
Old 05-19-2015, 09:47 PM   #1
Dryer sheet wannabe
StikyBoots's Avatar
 
Join Date: Aug 2013
Location: Olathe
Posts: 24
401k or Taxable, which would you contribute to?

Here's the scenereos.

Currently:
401k - 10% + 4% company match
HSA - Maxed
Roth IRA - Maxed
$1500/mo to student loans.

This puts me into the 25% tax bracket by $1-2k but in a couple months the $1500/mo student loan payment will drop off as the only remaining ones are at 2.8%.

I'm single, no kids, 30 and looking to FIRE in 15 years. I know these statuses can and most likely will change but it's what I have now and can revise later.

So would you take the $1500/mo and place it in a taxable account, contribute to the 401k, or make Roth 401k contributions? Being that it is monies taxed at the 15% bracket I'm leaning towards the taxable account contributions for my 45-59 retirement phase. But I'd really like other thoughts and ideas to consider.

Sent from my SAMSUNG-SM-G900A using Early Retirement Forum mobile app
__________________

__________________
StikyBoots is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-19-2015, 10:28 PM   #2
Full time employment: Posting here.
 
Join Date: Apr 2014
Location: Houston
Posts: 639
If your income level allows, first thought would be to put it into ROTH. If funds are
you can withdraw the contributions anytime without penalty. The earnings must sit for 5 yrs before you can pull them without penalty. If not needed, the funds would grow tax free in the ROTH.
__________________

__________________
Whisper66 is offline   Reply With Quote
Old 05-19-2015, 11:36 PM   #3
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
Roth. In fact if you can Roth more of your 401k you might consider that as well.
__________________
growing_older is offline   Reply With Quote
Old 05-20-2015, 04:06 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,413
i would do 401k up to match , then roth , then taxable
__________________
mathjak107 is online now   Reply With Quote
Old 05-20-2015, 04:36 AM   #5
Recycles dryer sheets
 
Join Date: Aug 2014
Posts: 54
Hard to answer since we don't know where you currently are with investments and such. Also, free money is hard to turn down. The answer depends on what your balances are and where you need to bump it up. How much do you expect you'll need in a taxable account and have you calculated that into your 15yr timeline? I'd focus your efforts on the retirement accounts first (Roth 401k for sure if you're in the 15% bracket), get that to where you need it, and then do the taxable account after that. Building up your retirement account will go much faster with the matching, so don't turn that down if you still need to build them up. If you already have enough in retirement accounts, then you can start in on taxable. You'll probably want to use some calculators and know your budget to determine how much you'll need. Might want to increase it for being married with kids..... just to plan ahead. Granted, marriage might not happen for you, but statistics are against you on that.
__________________
surferLife is offline   Reply With Quote
Old 05-20-2015, 05:22 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,432
I would increase my 401k to bring me back down to the 15% tax bracket and then do taxable account (in equities). As long as you can stay in the 15% tax bracket your dividends and LTCG on your taxable account equities will be tax free... tax-free growth like a Roth but without the constraints of a Roth and will provide funding from ER to 59 1/2.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 05-20-2015, 06:41 AM   #7
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,708
How is your 401k rated? It may be at Brightscope.

The expenses in your plan will help set course.

As mentioned, increase 401k contribution to get back to 15% bracket. Invest the 1500 in two or three accounts and change the amounts as needed.
__________________
target2019 is offline   Reply With Quote
Old 05-20-2015, 10:29 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,930
Quote:
Originally Posted by Whisper66 View Post
If your income level allows, first thought would be to put it into ROTH. If funds are
you can withdraw the contributions anytime without penalty. The earnings must sit for 5 yrs before you can pull them without penalty. If not needed, the funds would grow tax free in the ROTH.
The earnings will be taxed and penalized if you are < 59.5y.o. when you withdraw them.

Re: Roth IRA Rules - Table Approach
Posted by: KAWill (IP Logged)
Date: October 14, 2010 11:57PM


Roth IRA Distribution Table

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-Yes (Taxable Portion)
Conversions: Tax-No ;Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-Yes

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-Yes
__________________
kaneohe is offline   Reply With Quote
Old 05-20-2015, 12:40 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,930
Quote:
Originally Posted by pb4uski View Post
I would increase my 401k to bring me back down to the 15% tax bracket and then do taxable account (in equities). As long as you can stay in the 15% tax bracket your dividends and LTCG on your taxable account equities will be tax free... tax-free growth like a Roth but without the constraints of a Roth and will provide funding from ER to 59 1/2.
I like the idea of a traditional 401K to drop the bracket back into the 15% range. Be aware what that means tho.....your taxable income (including DIV/LTCG) needs to remain within the bracket otherwise you will incur 15% or even 30% marginal rates depending on which type of income increases out of control.

Sounds like you are maxed out on Roth IRAS so I would consider the Roth 401K as long as you convince yourself that when you ER, some funds , at least, will be available to you . I don't know the Roth 401K rules that well but I believe if you rollover the Roth 401K funds into a Roth IRA, the contributions from the Roth 401K should be available.......but you should convince yourself this is true first. Taxable is good if you can stay within the 15% bracket, but perhaps the Roth 401K might give you more leeway if you can work around the constraints..
__________________
kaneohe is offline   Reply With Quote
Old 05-20-2015, 12:44 PM   #10
Dryer sheet wannabe
StikyBoots's Avatar
 
Join Date: Aug 2013
Location: Olathe
Posts: 24
Quote:
Originally Posted by target2019 View Post
How is your 401k rated? It may be at Brightscope.

The expenses in your plan will help set course.

As mentioned, increase 401k contribution to get back to 15% bracket. Invest the 1500 in two or three accounts and change the amounts as needed.
Unfortunately my 401k is not rated at Brightscope. Currently I would consider my investment opertunities within the 401k rather lackluster. Target date and managed funds with gross expense ratios of 0.76% to 1.26%. But I have been bothering our CFO about adding an index fund and it sounds like we will be getting access to the Fidelity Spartan 500 Index Fund, which I am excited about! A week from today we are are having a meeting about it and free BBQ. Usually I'm more excited about the free BBQ than the meeting material, but not this time! I do think the addition of the Spartan 500 will make the value of the offerings more attractive to me.

I'm going to have to read up on the Roth 401k, I did not realize the contributions could be withdrawn early without fee after 5 years. This has great potential for the 45-59.5 years which is what I would be working on with taxable accounts. Between that and increasing my Traditional 401k to put me solidly into the 15% bracket, I got something good from you guys to think about.
__________________
StikyBoots is offline   Reply With Quote
Old 05-20-2015, 05:05 PM   #11
Thinks s/he gets paid by the post
RetireAge50's Avatar
 
Join Date: Aug 2013
Posts: 1,121
It is good to have some tax deferred amounts in retirement as a lot of it will have zero tax (due to personal exemptions and standard deductions). Then if you spread the remaining amounts over all your retirement years it will likely be taxed at 15% or less.
There should not be too much concern about the 10% penalty for early withdrawal. You can use a number of methods to get around this like using a 72t or a Roth conversion ladder.
I would put the maximum into the tax deferred 401k (especially if in 25% marginal tax bracket), then put the maximum into Roth/Roth401k, and lastly to taxable accounts.
__________________
RetireAge50 is offline   Reply With Quote
Old 05-20-2015, 06:28 PM   #12
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
I'm a fan of diversifying retirement investments -- fully taxable, tax-deferred (like 401K and TIRAs) and Roth investment vehicles. Having all of them gives you the maximum flexibility in terms of "engineering" the appropriate amount of taxable retirement income.

That said, if I could pull it off, based on what you have said I'd put just enough into 401K investments to try to get down to the 15% bracket and use a Roth with the rest.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 05-20-2015, 06:42 PM   #13
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,930
Quote:
Originally Posted by StikyBoots View Post
I'm going to have to read up on the Roth 401k, I did not realize the contributions could be withdrawn early without fee after 5 years. ............
Not sure that anyone said that or if it is true........I got the impression that if you withdraw before age 59.5, the withdrawal is prorated between earnings and contribution basis so there may be taxes/penalty on the earning part?

I did get the impression from this example of a rollover that there might be some possibilities:

"Are there any examples to help explain the rollover rules?
Yes, the following examples illustrate the rollover rules.
Bob receives a $14,000 eligible rollover distribution that is not a qualified distribution from Bob’s designated Roth account, consisting of $11,000 of basis and $3,000 of income. Within 60 days of receipt, Bob rolls over $7,000 of the distribution into a Roth IRA. The $7,000 is deemed to consist of $3,000 of income and $4,000 of basis. Because the only portion of the distribution that could be includible in gross income (the income) is rolled over, none of the distribution is includible in Bob’s gross income."

Retirement Plans FAQs on Designated Roth Accounts

For confirmation of any matters related to your situation, I would suggest posting your question in the retirement forum of fairmark.com and watch for a reply by Alan S.

I have the impression if you do a rollover that there is a 5 yr rule determined by the age of your Roth IRA (not your Roth 401K) so it would be useful to be sure your Roth IRA has that age when you want to withdraw. I have the impression that you are already using Roth IRAs
(maxed, you said) so this probably is not a problem for you.

some interesting reading: https://www.google.com/?gws_rd=ssl#q...:+fairmark.com
__________________
kaneohe is offline   Reply With Quote
Old 05-20-2015, 08:36 PM   #14
Thinks s/he gets paid by the post
nash031's Avatar
 
Join Date: Jun 2013
Location: Coronado
Posts: 1,486
Once we cross into the 28% bracket here next year (probably), I'll likely shift my TSP (403b) to Roth contributions so I have more to draw on in those 15 or so gap years as others have mentioned. Until then, the combined $35K in deductions are keeping us down a tax bracket...
__________________
"So we beat to our own drummer in the sun;
We ask for nobody's permission to run.
I just wanna live in a world like that;
Now I'm gonna live in a world like that!" - World Like That, O.A.R.
nash031 is offline   Reply With Quote
Old 05-21-2015, 12:22 AM   #15
Recycles dryer sheets
thefinancebuff's Avatar
 
Join Date: Dec 2008
Posts: 262
Quote:
Originally Posted by StikyBoots View Post
So would you take the $1500/mo and place it in a taxable account, contribute to the 401k, or make Roth 401k contributions? Being that it is monies taxed at the 15% bracket I'm leaning towards the taxable account contributions for my 45-59 retirement phase. But I'd really like other thoughts and ideas to consider.
No taxable until 401k is maxed out. Do additional as Roth 401k if you'd like.
__________________
thefinancebuff is offline   Reply With Quote
Old 05-21-2015, 02:34 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,182
I don't see any reason to make additional 401K contributions once you get down to 15%, except to make room for taxable cap gains and dividends at 0%. Otherwise, you will likely be withdrawing the 401K at 15% or possibly higher. You could just as easy invest in a taxable account and hold onto investments long enough for 15% LTCGs, and 15% dividend--or lower if you stay under the 15% bracket. I can't think of a situation where LTCGs and qualified divs have worse tax treatment than regular (including deferred) income. The tax is either the same or less.

I'm not familiar enough with Roth 401K to know the withdrawal rules to get you to 59.5. 5 years after opening your Roth IRA account you can tap that.
__________________
RunningBum is offline   Reply With Quote
Old 05-21-2015, 09:36 PM   #17
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by RunningBum View Post
I'm not familiar enough with Roth 401K to know the withdrawal rules to get you to 59.5. 5 years after opening your Roth IRA account you can tap that.
Roth 401k is minimum 5 years after account opening and age 59.5 for penalty-free withdrawals. They're also subject to RMDs.

If you rollover Roth 401k to Roth IRA, Roth IRA rules apply. Same as Roth IRA, basis/contributions can be withdrawn penalty-free and tax-free prior to age 59.5. Earnings are subject to a 5-year account minimum (based on age of your oldest Roth IRA) and age 59.5. Unlike Roth conversions, there's no 5-year holding period for Roth 401k to Roth IRA rollovers. The basis/contributions are automatically treated the same as if they were contributed to Roth IRA in the first place. No RMDs, either. Mind, you might want to keep rollover money separate from your regular Roth IRA to keep ERISA protection.
__________________
hnzw_rui is offline   Reply With Quote
Old 05-21-2015, 11:16 PM   #18
Dryer sheet wannabe
StikyBoots's Avatar
 
Join Date: Aug 2013
Location: Olathe
Posts: 24
Based on the thought provoking discussion I am going to up my 401k contributions to be about 1-2k under the 25% bracket cutoff. That'll save me especially if I get a Christmas bonus!

I'm going to sit on the taxable vs Roth 401k till 3rd quarter of the year (can only change 401k contributions quarterly) and see what the new index fund in our 401k is and what it's fees are.

Or maybe I'll go buy a new (used) motorcycle as celebration for paying off the student loans!!!

Sent from my SAMSUNG-SM-G900A using Early Retirement Forum mobile app
__________________
StikyBoots is offline   Reply With Quote
Old 05-25-2015, 05:03 PM   #19
Recycles dryer sheets
 
Join Date: Aug 2014
Posts: 54
+1 motorcycle


Sent from my iPad using Early Retirement Forum
__________________
surferLife is offline   Reply With Quote
Old 05-26-2015, 09:40 AM   #20
Full time employment: Posting here.
GTFan's Avatar
 
Join Date: Apr 2013
Location: Atlanta
Posts: 636
Quote:
Originally Posted by ziggy29 View Post
I'm a fan of diversifying retirement investments -- fully taxable, tax-deferred (like 401K and TIRAs) and Roth investment vehicles. Having all of them gives you the maximum flexibility in terms of "engineering" the appropriate amount of taxable retirement income.
Exactly right - I have approx. 50/50 mix of taxable and deferred and having just retired at 51 now have the flexibility to use my taxable for the next 8 years without having to do 72(t) withdrawals or other games for early distros from the deferred accounts.

OP, max out the 401k to get down into the 15% bracket (if you can), do yearly Roth, then setup automatic investments from savings to whatever taxable funds you want. I started putting $500 a month into Vanguard S&P 500 index twenty years ago (or so), then upped it to $1k a month. Do as much as you feel comfortable with.
__________________

__________________
GTFan is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Contribute to 401K versus beefing up emergency fund Live Free FIRE and Money 11 04-08-2015 03:49 PM
Contribute 401k vs taxable accounts. And roth vs traditional mx711yam FIRE and Money 21 03-01-2013 04:54 PM
Contribute to 401k while taking FEIE? youngcoconut FIRE and Money 6 12-21-2010 12:42 PM
Can I contribute this much to my Roth ira and Roth 401k? summer2007 FIRE and Money 5 10-25-2007 04:54 PM
How much can I contribute to my IRA and 401k? summer2007 FIRE and Money 5 09-08-2007 10:47 AM

 

 
All times are GMT -6. The time now is 06:24 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.