Conventional Wisdom on 401k (Re: Question on bond fund)

Mar 29, 2005 3 Replies
B


Are you following the conventional wisdom about how much to put into a


> 401(k)? Namely, only up to that which your employer matches?

I don't think I'd call that the "conventional wisdom".


If anything, it'd be *at least* up to that which your employer matches.


The question after the employer match is complicated only a little if one qualifies to contribute to a Roth IRA. Even then, though, it's not obvious, nor "conventional wisdom" that it'd be better to put money in a Roth instead of maximizing the 401k first.

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E

wrote

If you're saying some people probably should put into the 401(k) as much as the employer matches (call that X dollars) plus Y dollars more, up to I believe the current, federal $14k limit, then I suppose you're right that this is rational for some people.

But I think increasingly the counsel is to only put the X dollars into the

401(k), and then, if one qualifies, put Y into the Roth IRA. The reasoning is that, with this country's huge deficits, I and others expect tax rates to be higher 20 years from now than today, so I'd rather pay the taxes on the Y dollars today than 20 years from today. In addition, the earnings of the contributions to the Roth IRA of course grow tax-free.

So if you don't want to call my proposal above "conventional wisdom," then fair enough. But I with I think many others think it deserves strong consideration.

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M

Actually, one of the biggest advantages to the Roth is that you can withdraw contributions after 5 years (IIRC), which means you are not absolutely committing that money to retirement (assuming you are already putting enough in the 401(k) to handle your normal-age retirement).

Michael

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E

Actually, one can withdraw contributions anytime from a Roth IRA.

"Michael Sullivan" wrote

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