Hi - 54 yrs old, retiring in 5 years or so - advice about over 50 contributions pleas

[Yarnstormer]

Hello everyone. I'm really enjoying reading the posts here. Gives me hope!
My story. Earn $37k/yr, great health plan, 8% employer match and 401k that I can put up to $24,000/yr in.

I had a cash windfall and wonder how setting aside cash to live on so I can do max contribution would compare to investing the money totally now.

I know I could invest the entire amount ($165k) and use whatever the proceeds would be towards living expenses, contributing whatever the difference is to my 401k.

I have 145k in an inherited IRA and about 30k in the work ira, plus approx 60k in a roth.

Also a brokerage acct approx 130k that is at raymond james invested almost entirely in stocks. Actually its all individual stocks except the roth has a couple of mutual funds in it.

I have opened a vanguard account but have not invested the funds yet as the market has been high.

Ideas? Should I ask these questions in a different area?


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[travelover]

Generally one invests in a 401(k) to pay lower taxes now in anticipation of taking the funds out when you are in a lower bracket. But at 37K you are in a low bracket now, so I'd invest it straight away into a Roth then the rest in an after tax account. I would escape Raymond James and pocket their take, as well.

Edit: You get an employer match, so put in the minimum to get the full match on the 401(k).

 

[Yarnstormer]

I suppose I should have added that I have some rental income as well, which is unique in that there are no expenses to deduct.
Also, there will be taxable income from the money that is not in a deferred account.
Add to that the RMD that I must take from the inherited ira - my total taxable income not counting the brokerage is closer to $60,000 - tho I think with head of household and mortgage interest I am "currently" in the 15% bracket.
This is my first year with the brokerage so I do not know how it's going to affect taxes and income yet.
I just want to be sure I can control my taxable income flow when I retire so I can remain in the lower bracket. I don't anticipate hitting the iras hard until I am well into retirement.


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[Golden sunsets]

What will your income from SS, pension and rentals be in retirement and what do you anticipate your expenses will be?

 

[pb4uski]

Given your tax bracket, contribute enough to your 401k to maximize your employer match.... but no more. Then maximize your Roth and then taxable.

If you're in the 15% tax bracket now and expect to be in 15% tax bracket in retirement then tax-deferred doesn't help you.

 

[Yarnstormer]

So there's no benefit to money growing tax deferred if my bracket stays the same? Hard to do the math on that.
I think I'll save a little more than the 16% my contribution and my employers add up to but not shoot for the $24,000
I think I somehow feel it's safer "locked up" in an IRA + it's a good thing for my heirs to inherit IRA vs cash.

As far as social security income goes, I can't find a calculator that factors in early retirement while delaying benefits until 70, or even until 67

The rent pays my housing expenses. it pays my house payment, property taxes, insurance and utilities. However, it is a jointly owned property and I do not have complete control of it.
If the rent ever goes away it will be because we will sell the property and I will probably pay off house with the proceeds and have a little left over. So, I don't factor it into my retirement plan as permanent income if that makes sense. By the time I sell that property I will be old enough to qualify for reduced property taxes so that will help.


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[Taxman59]

If the 401K has a ROTH option, I would max out the $24k in that, it still should qualify for the com match. Then the remainder in an after tax account in index funds at Vanguard or Fidelity (I prefer Fido due to the available calculators).

 

[Yarnstormer]

Yes I will absolutely do Roth Max which is $6500

Thanks for the input!


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[Slow But Steady]

I think Taxman is suggesting that you see whether your 401K has a Roth option. If it does, then you can get more than $6500 into a Roth in one year. DW worked for a company that had that option. The company I work for does not.

 

[Yarnstormer]

No my company does not offer a Roth 401k option. Wow that would be great tho! I didn't know such a thing existed.
We do have little to no fees as it is a very large group so I am comfortable putting money in the company plan. I'm able to change allocations as needed.


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[latexman]

I recommend you ask HR to add a Roth 401k option. The squeaky wheel gets the grease! That's why my MegaCorp has one now. It started in 2015.

 

[Yarnstormer]

Are you saying it is possible to have a Roth that is not subject to traditional limits?
We do have a Roth option but limited to the over 50 $6500


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[Bigdawg]

Are you saying it is possible to have a Roth that is not subject to traditional limits?
We do have a Roth option but limited to the over 50 $6500

Yes!.. You are referring to a ROTH IRA ($5500 pre 50 and $6500 post 50)

401K's are 18K pre 50 and 24K post 50. Some companies offer a ROTH Option for the 401K. Limits are the same. For you it would be 24K but it would be post tax. So you could do $6500 ROTH IRA and $24000 ROTH 401K (if your company offered that option). It sounds like your company does not offer that option. good luck.

 

[Yarnstormer]

Called HR - they never heard of it but she's going to ask the next time the rep comes in to run new hires through the benefit package. Fingers crossed! Thanks so much for the info.


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