401ks in the early years

macdaddy · 02-08-2006, 11:36 PM

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** · 02-09-2006, 07:54 AM

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 The money will have years to grow and then can be withdrawn tax free when you retire.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 · 02-09-2006, 08:07 AM

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 · 02-09-2006, 10:06 AM

Any match on the 401K?

job

02-08-2006, 11:36 PM	#1
macdaddy Recycles dryer sheets Join Date: Feb 2006 Posts: 403	401ks in the early years 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!!!

02-09-2006, 07:54 AM	#2
Martha Administrator Join Date: Feb 2004 Location: minnesota Posts: 9,857	Re: 401ks in the early years 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. __________________ . Do not rely on the information provided--my posts are not to be taken as legal advice. Needless to say you must consult with your legal representative. I am not responsible for errors. If I offended you with cya I apologize. If I did not, I tried.

02-09-2006, 08:07 AM	#3
wildcat Thinks s/he gets paid by the post Join Date: Feb 2005 Posts: 1,896	Re: 401ks in the early years 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 __________________ "These walls are kind of funny. First you hate 'em, then you get used to 'em. Enough time passes, gets so you depend on them"

02-09-2006, 10:06 AM	#4
obryanjf Recycles dryer sheets Join Date: May 2005 Posts: 135	Re: 401ks in the early years Any match on the 401K? job

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