Should I do the 401K catchup this year?

[REDreaming]

<delurking>
I'm contributing $15K this year to my 401K and I need to decide whether or not to sign-up for the extra $5K as a 401K catchup (for being over 50) this year. I'm struggling with this and I'd like to hear your thoughts.

I do not get a company match on any of my 401K contribution.

As a bit of background, I'm 55, single, net worth about $1.25 mil. including $530K in a 401K and $230K in various IRAs.

I could retire now, but am considering working until 58 to get an increase of about 30% in my pension.

At this point, I'm wondering if it makes any sense to keep adding to my 401K ?

I have no problem saving money, so if it's a better decision to save after-tax dollars (instead of pretax dollars in a 401K), I can easily do that.

Thanks,

REDreaming

<back to lurking>




 

 

[Helen]

I have decided (for the moment) that I will not do the catch up contributions in my 401k, but I will do them in my Roth. The reason is that I want to have a variety of assets in both after tax and before tax accounts.

I think it's a good way to protect against higher income taxes in the future - take some money from after tax accounts and some from the 401k and leave the Roth for last.

-helen

 

[NYCGuy]

Red,

I am in approximately the same position as you. I am continuing to max out my 401k, including the catch-up amount. My reasoning is:

1. reduce current taxes
2. increase the tax-deferred percentage of my assets with a view toward a Roth conversion whenever I am eligible. Even without a conversion and even in the face of possibly higher tax rates in the future, tax-deferral allows avoid recurring tax bites (on sales & income) in favor of one.
3. there is the possibility of avoiding state taxes altogether on a distribution by timing it to coincide with a relocation. For me that's about an 11% bite.

 

[Martha]

I waited to do the 401k catch up until the very last moment of last year. I am currently working part time and likely will retire soon. We decided to dothe catch up for a couple of reasons. The primary reason is that we are still at the highest tax bracket. The secondary reason is that my 401k is only about 15% of our assets.

The moral is that everyone has their own unique situtation.

 

[MasterBlaster]

Some people think that by taking the 401K deduction now they will defer taxes at their current (high) rate. When they take the money out in retirement hopefully they are in a much lower tax bracket.

Other people think that with low federal capital gains rates that the after tax route is the best way. This is probably best if you will still be in a high tax bracket when you retire. You have to believe that the current lower capital gains rates will still be available when you are retired and you want to sell.

Run some numbers and see what works for you.

 

[cute fuzzy bunny]

I'm nearly sure that the moment I go to tap into our IRA/401k/403b's, the govt will drop the existing tax program and go with a national sales tax.

I could be willing to sell at a very reasonable price the date at which I expect this to happen.

 

[REDreaming]

Hey, thanks everyone for your insights.

I'm still unsure about what to do, but as was implied, there's no clear-cut answer. Much depends on what happens in the future...and only CFB seems to know when that will be.

RED

 

[HFWR]

But you have to rub his bunny fur...

I've been contemplating the taxable, Roth, 401k conundrum. (Espanol verde?)

About 97% of my nest egg is in a 401k. Need more options/versatility...

 

[Spanky]

I have been doing the catch up for the 401K.