401ks in the early years

[macdaddy]

Hello, this is my first post but I have read this board for quite awhile, thanks to all who post on here for taking the time to share your great advice. I had a question concerning 401ks that I thought you guys might be able to help me out with.

My wife and I are both 23 and just graduated from college. She is starting a new job soon and will make ~38k a year. I am going to be working for a startup for a year and will not draw a salary, only options. Next fall I will enter med school and 4 years after that will enter residency (~70k/year with moonlighting) and 4 years after that will enter practice (~300k/year for estimates although I know the future is unpredictable).

My question is, does it make any sense for her to max out her 401k this year and while I am in med school? Once I finish then we will be in a higher tax bracket, and I am sure by then the tax brackets will have gone down and the tax rates will have gone up. Wouldn't it be better to just get the money out in our name now, since on an annual household salary of 40k (med school) 110k (residency) we would pay relatively little in taxes? She thinks it might be better just to defer taxes via the 401k.

Our fixed income in retirement is also likely to put us in the highest bracket.

Do you guys have any input? Thanks!!!

[Martha]

Good question. Never under estimate the power of compounding. What is saved now has many years of opportunity to grow.

Another issue to think about is whether you should contribute to Roth IRAs now, when your income doesn't exceed the income limits for Roths. The money will have years to grow and then can be withdrawn tax free when you retire. In your situation, I might favor contributing to Roths now before contributing to the 401k, even though you have to use post tax dollars.

[wildcat]

Why not hedge and do both - 401k and a Roth?* We don't know where taxes are going from here.* Seems like the Roth will be a limited time offer in your situation so I would take advantage of it.*

Just in the spirit of 'American Idol' and its tool of a host -

Wildcat out

[obryanjf]

Any match on the 401K?

job