For those that have a fully funded 401k, do you have a IRA as well? DH is wanting to set up an IRA for me as well..
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When we talked about it, I didn't see the point of both. But maybe I'm missing something.
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We do not and, per our financial adviser, will not have one.
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I guess it depends on what you think your income levels will be at retirement when you plan to cash out. With your 401k you'll pay taxes when you withdraw whereas for your IRA, you'll pay taxes now. So if you don't have a high tax rate now and can afford to put money away and you think you'll be in a higher tax bracket in the future, maybe it makes sense. Or if you've maxed out your 401k contribution this year but want to contribute more, then that's when you would open an IRA. But that's a great problem to have - I wish that were my case!
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@lisa1783: just to clarify whether you pay taxes now or later will depend on whether it's traditional (pre-tax) or Roth (after tax) IRA. Also Many 401k plans allow for Roth deferrals, but you'd have to check your plan to see if it does. (Sorry it's the retirement admin in me coming out)
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I have a traditional 401k and a Roth IRA. I think there is value in having both since it's a way to shelter more of your money from taxes, either now or in the future.
I think the priority order for contributions should be something like this, provided you don't have debt to pay off.
1. 401k up to company match
2. Max out a Roth IRA
3. Max out 401kIf you have high interest debt, it gets a bit more complex. I would think you might want to pay off consumer debt either before step 2 or 3 but I'm not sure.
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@littlek: what do you mean by fully funded 401k?
I had an IRA prior to us getting married and would regularly max out what I could put in it. Now that we are married we both contribute more than what our company match. I still contribute to my IRA, but just not the max.
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@Mrs. Lemon-Lime: we max out our 401k contributions each year
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We have both (traditional 401k and roth IRAs) and we max out both.
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We max out my husband's 401K and both our Roth IRAs. I'm in a branch of local government so I'm enrolled in a pension program instead of the traditional 401K.
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@sunny: Ditto to what Sunny said.
Sunny = One smart cookie... or sun in this case. -
@sunny: is exactly correct.
However @littlek: forgive me for being presumptuous but from what I can tell you and your husband do pretty well financially. It's possible your income level is high enough that you are ineligible to contribute to a Roth.
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@MamaMoose: what do you do when you can't contribute to an IRA/Roth IRA? just max out your 401k? That has been my plan for the last couple of years . . .
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@MsLipGloss: leaving for a dinner meeting. I'll text you tonight with some guidance.
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@MamaMoose: @MsLipGloss: If your income is too high to contribute to a Roth directly, you can still contribute via a "back door" method to a Roth though it isn't simple.
Since anyone can contribute to a traditional IRA (though higher incomes cannot deduct taxes) and income limits for IRA conversions were removed, basically anyone can contribute to a traditional and then immediately covert to a Roth.
However, there are tax implications. I found an article that explains it: http://www.forbes.com/sites/josephsteinberg/2012/12/12/warning-about-roth-ira-conversions-often-misunderstood-irs-rule-can-cost-you-money-and-aggravation/
I suppose once you have maxed out your IRA and 401k you just start saving in a non tax advantaged account.
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@MamaMoose: yes we don't qualify for Roth.
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@MamaMoose: can you share with me too?
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@littlek: @MsLipGloss: .... @sunny: described exactly what I would suggest as a work around. But you DEFINITELY want to do this with the assistance of a financial advisor and a CPA
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@MamaMoose: okay.. I'm a CPA but I specialize in
Corporations.. I'll see if I can find someone in my that can help.. -
Ok, I only have a 401k but I wish I had more in there. I was only putting about 4% of my income in there for the past 6 years that I've had a job. I know I can't contribute my own money to my 401k so I... 1) already increased my contributions and set an auto increase 2) plan to open up an IRA.
But... That's all I know.
As for traditional or Roth... I need to do some research.
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@MamaMoose: @sunny: Thank you lovelies so much for sharing. And yeah, I would not attempt any financial gymnastics without help!
Sunny = One smart cookie... or sun in this case. Reply
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