[happy_fella]

Hi All,
I am new to this site and this is my first post / question.

I am finally debt free and able to start investing in the beginning of the new year. My question is whether to invest in my 401k at work first or max out a Roth Ira for myself and my wife and then use the remaining money to invest into the work 401k.
My work does not offer a match. But they do profit sharing instead which is usually 1.5% to 2% of your salary. We receive this money whether we are contributing to the 401k or not as long as we are enrolled in the 401k plan. Since we are debt free now we are going to be able to invest roughly 20k this upcoming year. My wife and I are 42(not sure you needed that info or not to answer the question). So either 11k used to fund/maxout our Roths and 9k into the 401k or max out the 401k(18k next year) and 2k into one Roth? Looking forward to some good advice

Thanks,
Happy_Fella

 

[melodys]

As usual with these things the answer is - it depends. The typical advice is to contribute to the 401k up to the match, but that does not apply in your case. Do you expect your taxes to be higher now or when you are retirement. If the answer is now, then you want to do pre-tax contributions. If the answer is in retirement then you want to do after-tax contributions. Your 401k may offer a Roth option, so you should determine if that is the case.

Next, take a look at your investment choices in the 401k. In particular, look at the fees and the quality of the funds. An IRA will often be a better choice due to more investment choices.

One other thing is if you have an HSA with a high deductible medical plan then I recommend maxing that out. An HSA is tax free going in, tax free growth, and tax free going out as long as it goes to medical expenses. One caveat is that 401k and IRA are protected in the case of bankruptcy, but HSAs are not.

Not directly retirement account related, but if you have an ESPP plan at work, then it is often beneficial to max that out then sell immediately. That can often amount to a 1% raise.

 

[SimpleSavingHabits]

Agree with the above. Age does play a factor in which direction to take considering you are 42, the roth 401K may have its advantages if you think you will be in a higher tax bracket at retirement. To add to the above, if you hold an old 401k from previous employment, consider rolling that into an IRA.

 

[ls3mach]

How much do you both make?

 

[mndtrp]

Not that I expect you to get an answer, but that isn't really an appropriate question for most people. It might be more beneficial to provide hypothetical examples as to why it would matter what they make.

 

[ls3mach]

Not that I expect you to get an answer, but that isn't really an appropriate question for most people. It might be more beneficial to provide hypothetical examples as to why it would matter what they make.

Depending on how they file and how much they make they may or may not be eligible for a ROTH. For a traditional IRA, they may make too much to see the reduced tax liability. I personally couldn't care less what they make, one could help more than the other though. Something more for them to consider. Regardless, I would get enrolled in that work plan to get the profit sharing benefits. I'd then likely do the personal ones, if they can, because generally they have more options.