does my plan make sense?

[smileygrrl1]

Hi.  I've been lurking for about 6 months, but fairly new to the boards. 
Before I pose my question, a little about me.
21, single, just out of college, been working at my job for 6 months, make 37,000, live in DC-area.
I have no debt (credit card or otherwise) and no student loans. (Thanks to wonderful parents)
My question: Does it make sense to not contribute the max in my 401(k) now (currently contributing 12%) because I will be paying about $800/month in rent starting in Sept. and then, if I find at the end of the year that I have more money in the bank then I thought, just add to my Roth and up my 401(k) contributions for next year?  My co. offers no 401(k) match during the first 12 months of employment.

Thanks for your help!

 

[yakers]

I'm not an expert on this and some board posters are but as I understand it, if you do not get a match a 401k is less interesting. A Roth would be my top suggestion since you are putting in after tax$ under a low(er) tax rate than you will probably have later. For that same reason a 401k may get you a higher tax rate at time of withdrawal (although no one knows what tax rates will be in 40 years). Now I do make unmatched contributions into my 401k type account (TSP) but I try to max my Roth first and I am likely to be in a lower tax level at time of withdrawal. Also with a Roth you can withdraw your contributions (not earnings) if you have an emergency, so it is more accessable.

 

[justin]

For 2005, I would contribute up to the limits ($4000) of the Roth IRA first, then contribute to the 401k in 2005. In 2006, make sure you contribute enough to the 401k to get the full company match, then max out your Roth with whatever you have left over. Remember you can make your 2005 IRA contribution up until April 15, 2006. I looks like with your current savings rate, you should be able to get your company match, and also put a good bit into an IRA.

Good luck.

 

[JPatrick]

I agree with the two posters above.
At your age you should find a good (meaning ratings) aggressive growth fund for your Roth.  When it comes time for your 401K an index fund would likely be best if for no other reason than you will probably find the expenses lower.
Got a few extra bucks after all that?
I'd but an I Bond every month. Get an automatic plan and let er rip. You will be amazed in 20 years how much you save. 8)

 

[maddythebeagle]

I dont know about bonds at such a young age . I would be 100% dollar cost averaging into stocks (low cost index funds).

 

[JPatrick]

I dont know about bonds at such a young age . I would be 100% dollar cost averaging into stocks (low cost index funds).

I'm talking $25-50 per month.  Small change. The young age is what makes it smart.  Notice in the IRA I recommended rolling the dice.
100 % stocks is great, so long as you can forecast the future. I couldn't be happier with the EE and later I bond investments I made over the last 30 years.  They were there many times when stocks weren't. I can't possibly imagine that the next 30 years will be as tame as the last 30.