Can somebody give me advice on retirement plans?

Question

I am a 37 year old single female. I have a 401K plan with my employer that I invest 15% of my salary, I also have an IRA. Should I decrease the amount I put into my 401K to just equal what my employer matches and invest in a Roth IRA? Any advice would be appreciated.

Answer 1

Lets take a look and see what the results of both strategies might be. Contribuitions to a Roth IRA are with after tax income. But lets make a couple of assumptions. 25 years before withdrawal, 8% annual return, $2000 annual contribution to 401k or traditional IRA but $1500 to Roth IRA because it is after tax and 20% tax bracket at end of 25 years.

$109,658 at end of 25 years in Roth IRA.
$146,221 at end of 25 years in 401k or traditional IRA

Withdraw 15% annually from both.

$16,448 with drawn from Roth IRA with no taxes to pay
$21,933 with drawn from 401k with taxes at 20%--an arbitrary figure--nets $17,546. So you will actually be ahead of the game with the 401k.

Now, while they are in the 401k they earn interest and dividend tax free, which is an advantage. But when you extract the funds, you get hit. A single person gets taxed a lot.

I do not know what kind of 401k you have, but some do not give you a wide choice of investment options, a few funds from Vanguard or Fidelity for example. Your IRA if you set it up with the proper company gives you much more latitude. You can actually also have as many different IRA accounts as you like provided your annual deposits remain below the stated limit.

Answer 2

You have 30 years to go to retirement, if you plan on working all of that time.
I think you should contribute enough in your 401k to get the employer's matching.
If it were me, I would then make the maximum contributions, every year, that I could, to a Roth IRA. With an IRA and a 401, the taxes are deferred, which means you will probably pay taxes at some time in the future. With the Roth IRA, there are no taxes owed. The principal and interest are all yours.

Answer 3

An ideal situation would be to max out a 401k and a Roth IRA.

It is almost impossible to answer that question without knowing more about your tax situation and income level. Lowering the 401k will mean more taxes being paid today.

Both of those accounts have extremely good tax benefits, but they work almost oppsite of each other. The Roth will give you tax free earnings when you pull the money out for retirement.

Since you are younger, it most likely will make sense to start a Roth IRA, but I would run some numbers with your CPA or financial advisor.

Answer 4

For your 401k, invest to the maximum amount of THEIR match. Put any 'extra' into a Roth. Once you max out the Roth, you can add that into the 401k. The rationale for this is that the Roth is after tax and available at 59 1/2.

The 401k is withheld longer.

(that was said a little clumsy)... Max out the Roth then put the rest into the 401k (make sure you max the employers match.)

good luck

Answer 5

It depends on how much you make.

If you can afford to put the max in your 401K, that is great, you can still put $4000 per year into a Roth IRA.

If you have to chose between them, remember the Roth IRA will not get you a tax deduction this year, but there is no tax on it after you retire. so if you can make it grow to millions,... it is tax free millions (my dream, maybe impossible but I like to dream)...

Answer 6

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Answer 7

marry some rich guy and insist on no prenup