401k knowledge

deandreamartin·Dec 26, 2022

Posted in:Money

What are your thoughts on 401ks or questions you have? My goal is to research 401ks and share what I learn on TikTok and my blog because personal finance isn't something that is talked about a lot and 401ks are one of the easiest ways to start investing.

I have been investing in a 401k since my first corporate job and have learned a lot about them such as the Roth 401k option. I previously chose the Roth 401k option with my company because I aspire to have more income in the future so I would rather pay the taxes now in my current tax bracket.

What are some things that you have learned or want to know?

Iynna·Dec 27, 2022

Thank you for asking! I have never invested in a 401k because none of the roles I've had have offered it! But I hear it's a very easy way to invest and make/grow your money! I guess a question I have would be, does it make sense to have a 401K if we are planning to move out of the US in the very foreseeable future e.g within next 18 months?Do you have a blog where you post all of this or just TikTok? I am not on TikTok (and would love to not have to create one at least anytime soon) but would be super interested in your content!

Ashleigh31·Dec 27, 2022

"does it make sense to have a 401K if we are planning to move out of the US in the very foreseeable future e.g within next 18 months?"That's a great question to consider. I think follow up questions to that would be are you planning to move after age 59 1/2 or before? If before, would you maintain residency (not live outside US for the full year), and still be able to use a 401k later on? If moving somewhere outside the US and taking up residency, maybe a 401k doesn't make sense in that case.

Virgen167·Dec 27, 2022

How do taxes work for 401ks (both traditional and roth) if you move outside the US when you retire? Is one better than the other?I also learned about and use the so-called mega backdoor roth, and I would love if more women were aware of it and how to do it! It’s pretty complicated and depends on your individual plan offered by the employer, has multiple possible implementations like convert to a roth 401k or distribute to a roth ira. It’s also possible to be required to remove some of the money if the employer fails certain equality tests in the spring. It would be great to detail out everything surrounding it for people to be aware!

Ashleigh31·Dec 27, 2022

I also opted for the Roth 401k option because I'd rather pay taxes on the initial contribution amount now than taxes on the growth once I retire as I imagine that would likely be significantly more once I've compounded a decent $$$ nest egg over time. Also with the traditional 401k, I don't want to stress about minimum distribution amounts later on. I want the option to take out lump sum without any extra headache, cause at retirement age, I imagine I'll have large purchases to make from the retirement fund like a house, medical care, etc. I am surprised how many people I hear of avoiding the Roth 401k for the traditional 401k option without researching much, or confusing Roth 401k with Roth IRA. I say do your own research and figure out which one works best for YOUR situation, cause there is no easy recipe fits all in my opinion.

deandreamartin·Dec 27, 2022

I agree planning for retirement or any financial planning is case by case. I like the traditional 401k option if you are a high earner and you don't think you need the same amount of income when you retire. Are you planning to buy a house during retirement? My plan is to have my house and car paid off so I can avoid those high expenses.Also, do you have an HSA? That was something I am considering using to invest for health care expenses in the future. I just need to save the min. $1,000 so I can invest the excess. I am not sure if I am going to have this option when I start having kids. Health insurance is another complicated beast.

MandyVarley·Dec 27, 2022

Recent advice I got from my financial advisor related to Roth 401k versus traditional was to consider your current tax bracket now versus likely retirement tax bracket when withdrawing funds. If your tax bracket is higher now, then a traditional 401k starts to make more sense because you're being taxed on your contribution at higher rate for a Roth investment than you would be to withdraw in the future from a Traditional 401k. So it does really depend what your current situation is and how accurately you predict your future situation. Or at least try to live closely to the future situation you design for :)

deandreamartin·Dec 27, 2022

Yeah, I totally agree with this statement. My plan is not to have a mortgage or car payment when I retire so my expenses won't be as high as they are now. Ideally, my expenses will be on par or less than what I make now so I will most likely be in the same tax bracket I am in now at retirement. Roth makes sense for me now because I am in a pretty low tax bracket, but as my income increases traditional may be better. I can't imagine at 69 1/2 I will require as much money as I spend or want now.What do you think of allocating some money to the Roth option and some to the traditional option because we don't know how taxes will increase or decrease in the future?

MandyVarley·Jan 19, 2023

Full transparency, I'm not a financial advisor, but I've heard of folks using that strategy for the reason you outlined. Hedge your bets :)

Ashleigh31·Dec 27, 2022

I predict I'll be in a higher tax bracket once I am at retirement age vs. now early in my career, because even if I am not actively working a job at retirement, I imagine I would have built up both liquid and non-liquid assets at that point, and passive income which contribute to my overall tax bracket as well.Also - early in life is really the more optimal time to contribute to retirement savings in order to make the most of compounding growth. The later you start contributing to 401k, the impact of compounding growth diminishes greatly.

deandreamartin·Dec 27, 2022

Totally agree with investing as early as possible. It's crazy to see how much less money you have if you start later.

Filomena21·Dec 27, 2022

How should I be saving for retirement if I'm an entrepreneur without an employer? I don't foresee setting up a 401(k) for my company unless we were to hire a lot more employees in the United States, which doesn't look like it's going to happen within the next 5 years.I can max out my Roth IRA, but if I want to pay myself more than $153k a year, I can't contribute to an IRA.I sort of know I've been doing this wrong, but I have no idea what I should be doing. I have old 401(k)s from old jobs. Just not sure what to do while I don't have a traditional employer.

deandreamartin·Dec 27, 2022

That is a good question. I want to see what is out there.

MandyVarley·Jan 19, 2023

This is an old post but if you're self-employed you can do a self employed 401k and contribute something like $65k that can be written off against income. You need an accountant to set it up but it was something we were considering for my husband since he freelances.

jenniferbodie·Dec 29, 2022

529 Plans v Roth IRAs. With all of the different ways to make six figures that don't require traditional 4 year college degrees, my family decided to invest in Roth IRA's for my 3 year old son's education. There are not enough kids in my family for us to use a 529 on someone else if he decided to not go to college. I like the flexibility of being able to use it on ourselves or for something else.Also it is much easier to pass down Roth accounts to your heirs without having to worry about the tax implications that come with traditional accounts. I don't want to burden my child with taxes when the money is supposed to be a gift.