Retire Sooner. IRA Or 401k? What Makes the Most Sense
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- čas přidán 21. 05. 2024
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The decisions on how to invest, when to retire, and other financial planning topics are some of the most important financial decisions you will make in your life. I urge you to seek professional financial advice as you make this decision. Ideally, from a financial adviser, AND a CPA AND an attorney. Having the perspective of all three professions will help you make the right decision for you and your family.
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#042(B) Retire Sooner. IRA Or 401k? What Makes the Most Profit
I’ve been diligently working, saving and contributing towards financial freedom and early retirement, but the economy so far since the pandemic has eaten away most of my portfolio, what I want to know is this: Do I keep contributing to my portfolio in these unstable markets or do I look into alternative sectors.
Just try to diversify your portfolio to other market sectors, that way your investment is balanced and you don’t get to make so much losses.
Due to my demanding job, I lack the time to thoroughly assess my investments and analyze individual stocks. Consequently, for the past seven years, I have enlisted the services of a fiduciary who actively manages my portfolio to adapt to the current market conditions. This strategy has allowed me to navigate the financial landscape successfully, making informed decisions on when to buy and sell. Perhaps you should consider a similar approach.
I’ve been looking to switch to an advisor for a while now. Any help pointing me to who your advisor is?
My CFA ’Melissa Terri Swayne’ , a renowned figure in her line of work. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
I just looked her up on the internet and found her webpage with her credentials. I wrote her a outlining my financial objectives and planned a call with her
501k. My jeans has empty pockets.
Too many buttons to connect for me.
If you're doing a rollover from one employer to another, you'd be crazy to NOT rollover into a IRA in my opinion.
correcta. IRAs offer more choices and no management fees.
Agreed
Very true
My company does a 6% match on my 401K
for too short of time I was working for a company that had a 150% match for the first 6% of my salary. However, there was a five year vesting period. That being said, I did not work there to get past the vesting period.
I started a contract job about 18 months ago and started with the 401k but it was a crappy plan and I realized I plan on retiring before I'm vested. Switched to a Roth IRA.
Azul. U need to do a video on SOLO 401K and Solo Pensions. Those u can put way more than the $23500. If u are independent worker
there are employers who also allow employees to contribute up to the combined 415c limit, too.
In a normal 401k you can contribute well past the tax deferred limit with after-tax dollars. The total can not exceed $69k in 2024. And if your plan offers it (mine does) you can do an in-plan roth conversion of the after tax dollars.
@@nobeliefisok9174 there are only around 20% of employer plans that allow after-tax contributions to the 415c limit.
As long you save and invest. I have an IRA and my wife has a Roth IRA.
Tax me never is your HSA😊
I put GBTC into my HSA and it’s returned about 900% 😂
@azul maybe I missed it, but I noticed that most advisors don’t talk about the taxation of qualified dividends when they discuss buckets (IRA, 401K, etc). It is my impression that a married couple pays no income taxes on QDs if their income is less than $89,250.00. Is that not correct or is it more trouble than it’s worth to think about this as another bucket?
I like the tax me now bucket.
Not me, tax me later (401k/IRA) FTW, with excess going into the tax me now, never again (Roth).
Advisors seem to overlook or minimize the protection against creditors of the 401k account. Even with health, home, and auto insurance, anyone can become bankrupt - because health care costs are the greatest cause of personal bankruptcy in this country. I have relatives even with reasonable employer health insurance in this situation now, but I don't think their 401k funds are at tisk.
rollover IRAs from a qualified employer plan (e.g. 401k) have the same protection against creditors as 401k. So, you want to keep any rollover IRAs separate from non-rollover.
can't access a IRA without penalty at 55 unlike some 401k's if your fund company adheres to the rule of 55
clarify your terms. Roth IRA you can withdraw principal after 5yr rule without tax and without early withdawal penalty, although then you are defeating the purpose of having a Roth to begin with, which is why if you are retiring before 59.5 you need to have taxable account investments.
This is a good point, and why I have kept my 401k through my career. Once past 59.5 Ill definitely move everything. And I have been considering moving most of it at 55, and only leaving enough to spend between 55-59.
I like free money 💰 😊. I do both.
With no match, would you put money in a Roth IRA before adding money to a Roth 401k?
depends on the expense ratios of investments offered; depends if your income qualifies you to contribut to RIRA or not
@ *TED* Generally yes if no match favor Roth IRA over Roth 401(k).
Roth IRA you choose where it is, who manages it, etc. That 100% control guarantees you the maximum best choice for you.
Roth 401k is whatever your company offers at whatever their terms are. Generally this is worse.
Roth IRA is capped at how much you can put into it.
Having some tax-deferred is very useful, so do not discount regular 401k.
Think about when you take money out to pay property taxes, you pay income tax on every dollar!!😡😡😡
And when you put it in you did not pay your maximum tax bracket on all of the dollars. 😃😃😃
Math for the win!
When I retire, should I transfer my 401k into my IRA or my Roth IRA? Or leave it.
it's not an or. You can roll your traditional 401k into a traditional ira. You can roll your Roth 401k into a Roth IRA. Trying to move traditional 401k into a Roth IRA would mean you are taking a taxable distribution which could also be subject to early withdrawal penalties in addition to the taxes. Whether your rollover your 401k into an IRA or leave it depends on a couple of considerations: are your expenses ratios and available investment options in your 401k better or worse than an IRA; are you planning on doing backdoor roth IRA conversion; do you want the flexibility to choose which asset to liquidate when it is time to withdraw; do you wan the flexibility of choosing to withdraw from Roth vs Traditional account? 401k have some protections against creditors that IRAs do not (well, rollover IRA do retine same protections unless you comingle with non-rollover IRA), although you probably ought to have umbrella insurance anyway.
I do not know your particulars, but for myself in retirement, I will be rolling over all of my 401k into an IRA. And I will be doing roth conversions on tax-efficient amounts over what I need. This is up to the max for 25% bracket in every year, and in some years up to the 28% bracket, but may be slightly less than that depending on specific IRMAA tax cliffs. Ill only be withdrawing around $60k for my use, so lots of room to do conversions before RMDs start. I pretty much always want some taxable IRA money to gain the tax efficiencies of low % brackets and the standard deduction.
@@hanwagu9967 Been carrying umbrella insurance for almost 10 years now. I wont stop in retirement.
@@nobeliefisok9174 IRMAA between 25% and 28% isn't much, so the tax consequences of conversion over just paying IRMAA may not work out. If people actually do the math, I think they'd find the whole IRMAA thing is over blown.
@@hanwagu9967 I think you are missing the tax-cliff aspect of IRMAA. Earning $1 more can cost you $2000 in additional IRMAA tax at the cliff edges. That is what I was referring to. So depending on exact numbers, sometimes backing off on a few thousand dollars of conversion can save quite a bit of money in IRMAA payments. And of course only applies at 63years old and older. Before that, convert away!
Your presentation is liable to be misleading.
The Gas Station anaology fails to distinguish between sales taxes, gasoline taxes and the fact the income taken from the IRA to pay for the gas (to the extent it is identifiable as such) is taxable.
One drawback of my 401k was that I took a distribution and I had to take a pro rata withdrawal. I was not able to choose from selling bonds or stocks. If the stock market is down you are forced to sell in a down market if you need a distribution.
Alternative to avoid pro rata withdrawal is roll portion of traditional 401(k) to traditional IRA and take withdrawal from t-IRA.
I gotta ask how many people can actually put the maximum in a 401k lol and they keep raising it but the roth ira don't go up much from year to year
At least 1 person, I do. I used a simple method to get there. I started at my company putting in 6% because they matched 6%. Then with every raise I got for years, I increased my contribution by half of the raise. So If I got a 4% raise, I increased my contribution by 2%. If I got a 3% raise, I increased my contribution by 1.5%. By my mid 30's I was maxing the 401k contribution. I just increased each year after that to keep me at max. That means for much of my career I was contributing 25% or more to 401k. So be it, I got a small raise each year in take home pay, and increased my contributions to 401k every year. Others got more take home pay, but they did not build up their retirement savings like I did.
This method has one primary psychological advantage over other methods. Because you are still increasing your take home pay each year, you keep up with inflation. So you never feel like you are falling behind. And in good years, you are getting ahead. You never get used to spending all of your raise, so you don't complain about not being able to afford it. The people who do spend all of their pay raises every year (lifestyle creep) will proclaim loudly that they CANT save more. And yet you will following this method.
Second part of your post... I max 401k with senior catchup, max Roth IRA with senior catchup, max HSA contributions, and do some additional 401k in-plan roth conversions. I do not earn enough money to max that too. And I increase each year to keep everything maxed out. The turn-50 catchup year was rough, but I knew it was coming ahead of time and had planned for it.
Now in my early 60's, I retired last year and have never been able to maximize either my 401(k) or my 457 to its annual limits. However, over my working years, I steadily increased my paycheck contribution in my 20's, it was just high enough to get the match from my employer (5) percent, in my 30's, it was (10) percent, in my 40's it was (15) percent, and in my 50's it was (20) percent (smile...smile).
There are far more people who "can" actually max 401k contribution, than those who actually do. Most people set their budget based on their take home pay. You know what happens when you pay yourself first by maxing out 401k contributions from paycheck? You find a way to fit your budget to your take home pay. People tend to have a harder time paying themselves $1916.67/mo or $884.62/pp or $442.31/week or $88.46/work day from their take home pay to max out their 401k for 2024 than they would if it is automatically taken out of their pay. Once I decided to actually save/invest, I maxed out every year, and when my wife started working she maxed out every year. When we were eligible to contribute after-tax up to the 415c limit (2024 is $69k) we both did that, too. There's a difference between can and choosing not to.
@@hanwagu9967 Being solo, no wife, no sharing costs, I do not earn enough to fully max after tax 401k to 69k along with maxing Roth IRA and HSA. But getting to pre-tax 30.5k + 4.2k with 8k after tax is fine. The extra approximately 31k (match from emp goes into 69k) in after tax is about 48k in pretax for me. And the pre-tax on roth is another 4.3k. All total to max them all pre-tax dollars is 95k. Lets say you earn a nice fat $150k a year, that means pre-tax you only have 55k left, and lose about 10k of that to taxes, leaving you with about 3.75k a month to spend. That's doable, but that's also $150k salary and a tight budget to pay for 100% of housing, transportation, food, utilities, etc. Doable, but tight. For me, I don't earn $150k.
I did not listen to your whole video. DId you mention the 401K management fee? typcially about .5% the size of the portfolio that IS not charged in an IRA. ALso IRAs have virtually thousands of choices for investment 401K do not. There are two reasons you should consider a 401K. First company matches. Second limits on IRA contributions. Every other explanation is complicating a simple issue.
Company matching is important I'm glad you brought this up! People need to know this and wonder why host didn't mention this?
He did mention matching!
Yes, Azul talked about both the company matching in a 401(k) and, the greater investment options many times provided in a IRA (smile...smile).
Maybe you SHOULD listen to it? Your questions may have been answered.
@@transitengineer AND the differerence in the fees. I didnt hear him mention that. . Do you know that if you had just $200 K in your 401K it is costing you $1K a year, but the IRA does not have that fee? More money in the 401K a larger fee. This seems to be something that many dont mention. Go look at your recent 401K statement and look at what the monthly management fee is. Then multiply by 12 to get what you are paying annually. Unless there is a company match I see no reason why you would want to pay that fee. This is why I tell people who leave a company to move their 401K to an IRA .
Young people should always contribute into a Roth FIRST when they are in the lowest tax bracket, then 401k.
Uh you are confused. There are ROTH IRAs, AND there are ROTH 401Ks. The biggest issue betweem 401K and IRA is the 401K manager charges fees. Most of the IRA firms do not.
If there’s a company match, contribute to 401k up to the point of the match first.
@@triciabrown1462 Correct. Company matches are free money. Always contribute in to a 401K up to the company match if you can.
@@buyerclub2yep company match=100% return!
Don’t comment financial advice when you don’t know anything.
My company’s tricky. They’ll match up to 6% of your gross, but their match is only 50%. 😊
That is normal.
that just means it's 3%
50% free money is still better than 0% free money. 😄
Question. In addition, to your 401(k) plan does your company also, provide a pension plan for employees?
Both are losers. I keep my money SAFEi in the bank.
Money in the bank isn’t growing enough to support future retirement.
Safe in the bank...😅😅😅
Hard to tell if you are a troll or naïve. But stashing money in guaranteed accounts is a great way to run out of money in retirement. The low rate of return will still beat inflation over the long run, but you will not generate enough returns from compounding to support the withdrawal rates you will need.
Now in my early 60's and retired since 2022, I have been keeping a large percentage of my retirement funds in bank and credit union Certificates or Deposit (CD's) paying interest rates between 4.5 and 5.5 APY. Sure in a few years, I will reverse this after the stock market has a major correction and bank CD's rates fall back down to 1.0 percent APY (smile...smile).
IRA....!! ASAP...!!