Investment Status Check - 34 Years Old

[NgineER]

Quote:

Originally Posted by jlenhart80 Hi Pb4uski. I did some looking into this and call my 401K broker my company uses. They told me I can in-fact do this, but I cannot do it while I am in-service (an employee). While I am an employee I can contribute up to 75% of my after tax dollars into a Roth 401K and can invest in the same funds that are available to my tax deferred 401K. When/if I leave the company I can at that time roll the after tax money into a Roth IRA. And of course, I can roll the tax deferred money into a traditional IRA, if I want. Seem correct?

That sounds right. You should be able to roll over your contributions to your AT 401k into a Roth 401k.
Most companies do not allow rollovers to IRA's while in service as they want to keep your money with them.

[pb4uski]

Quote:

Originally Posted by jlenhart80 Hi Pb4uski. I did some looking into this and call my 401K broker my company uses. They told me I can in-fact do this, but I cannot do it while I am in-service (an employee). While I am an employee I can contribute up to 75% of my after tax dollars into a Roth 401K and can invest in the same funds that are available to my tax deferred 401K. When/if I leave the company I can at that time roll the after tax money into a Roth IRA. And of course, I can roll the tax deferred money into a traditional IRA, if I want. Seem correct?

Yes.

[TomH]

I skimmed most of the comments but can tell you that you need to invest in Vanguard's S&P 500.


Why?
-Less than 4% of funds have beaten the S&P 500
-The one's that do, you need big money to invest with them
-Most funds do not beat the index even using Morningstar's 5 star grade, it's easy to fudge the numbers since past results are not a guarantee of future success
-The market is too volatile and you don't want to pay someone to manage your money. Anything higher is like giving your mutual fund company free money

[jlenhart80]

Quote:

Originally Posted by pb4uski Yes.

Well, I did some more checking on the Roth 401K and there seems to be another limitation. I can contribute a MAXIMUM of $18,000 between the 401K and Roth 401k.

With that fact, it seems more effective to contribute the full $18,000 into my 401K and not my Roth 401K. I went to a couple different comparison calculators on the web and they all basically gave me a similar result (better to contribute to 401K), assuming that the taxes saved by investing in traditional contributions is invested elsewhere (e.g. individual account).

Here is an example of one of the calculators I went to:
Traditional 401k or Roth IRA Calculator

If you disagree for some reason, I welcome your comments.

[NgineER]

The idea I proposed is that you'd contribute $18,000 to your tax deferred 401k, and any extra you have left over you can invest in your AFTER TAX 401k, not the Roth 401k. The after tax portion can later be rolled over into a Roth 401k while you are working, or into a Roth IRA when you leave your company.

Hope this helps.

[pb4uski]

If your expected tax rate when you withdraw the 401k funds (presumably in retirement) is lower than your current marginal tax rate (the tax on the last $1 of income), then the 401k is typically viewed as preferable because of the tax savings.

For example, most of my deferrals were at the 28% rate or higher when I was working and I expect my withdrawals will generally be at 15% or less so I'm saving a bundle.

[NgineER]

Here is more information...

http://www.bogleheads.org/wiki/After-tax_401%28k%29

[UnrealizedPotential]

Quote:

Originally Posted by haha We have a young guy with a lot of money. I think it takes a lot of nerve to tell him he is doing it wrong. Of course, it's easier to have a lot of nerve when it comes to someone else's money. Jlenhart, I have no advice, but I do offer my congratulations in your excellent job so far. Ha

That is precisely the reason I usually do not post in threads like this. I read them , but that is about it. I will probraly have $250k in investable assets sometime this year which compared to the OP is not a level which justifies giving him advice. But I tip my hat off to the OP. He is doing well and has a nice asset base going forward.

[jlenhart80]

Quote:

Originally Posted by pb4uski If your expected tax rate when you withdraw the 401k funds (presumably in retirement) is lower than your current marginal tax rate (the tax on the last $1 of income), then the 401k is typically viewed as preferable because of the tax savings. For example, most of my deferrals were at the 28% rate or higher when I was working and I expect my withdrawals will generally be at 15% or less so I'm saving a bundle.

I am in the 28% bracket and I do expect my withdraws to be in the 15% bracket as well. So it seems I am doing the right thing in this case.

Thanks!

[jlenhart80]

Quote:

Originally Posted by molof The idea I proposed is that you'd contribute $18,000 to your tax deferred 401k, and any extra you have left over you can invest in your AFTER TAX 401k, not the Roth 401k. The after tax portion can later be rolled over into a Roth 401k while you are working, or into a Roth IRA when you leave your company. Hope this helps.

Thanks for this...and thanks for the bogleheads link in your other post. I just called my companies investment provider and asked them about an AFTER TAX 401k contribution. They seem to think an AFTER TAX 401k contribution is not allowed as part of my company's plan. I am going to speak to the plan administrator at my company on Monday.

Thanks again. I do understand more clearly the difference between the 401k, after tax contribution for a 401K, and Roth 401K.