401k or Roth?

[JEDI]

I have a friend who just started working.

He can only afford to put $2000 into a retirement acct.

There is no match on his 401k.

Is it better to put pretax $ into the 401k and be taxed when he retires?

Or put after tax into his Roth, and get the $ tax free when he retires?

 

[everman]

Roth IRA right now. He's probably in a very low tax bracket if he just started working.

 

[senseamp]

The rule of thumb is.
1. Put into 401K whatever amount is matched.
2. Max out Roth
3. Add unmatched funds to 401K.

So in your friend's case, Max out Roth.

 

[FoBoT]

if there is no 401(k) match from the company, then put it into a Roth

 

[senseamp]

BTW, for Roth, taking out the principal is always tax free. So if you put in $10K over some years, and it grew to $15K, then you can always take out the $10K tax free, and only pay taxes on the $5K gain when you take it out.

 

[JEDI]

Originally posted by: senseamp
BTW, for Roth, taking out the principal is always tax free. So if you put in $10K over some years, and it grew to $15K, then you can always take out the $10K tax free, and only pay taxes on the $5K gain when you take it out.

thought $ gained from the roth is tax free at retirement?

 

[jagec]

Originally posted by: JEDI

Originally posted by: senseamp
BTW, for Roth, taking out the principal is always tax free. So if you put in $10K over some years, and it grew to $15K, then you can always take out the $10K tax free, and only pay taxes on the $5K gain when you take it out.

thought $ gained from the roth is tax free at retirement?

I think he's talking about withdrawing money before retirement age...he's saying you can withdraw the principal with no penalty, since you've already paid taxes on it.

I don't know, I just stick money in mine from time to time and leave it alone

 

[HardcoreRobot]

roth

 

[RossMAN]

I wish my company matched more, they only match up to 6%. 10% would be nicer

 

[Reckoner]

Roth

 

[Reel]

Originally posted by: RossMAN
I wish my company matched more, they only match up to 6%. 10% would be nicer

I wish my company matched. I get 25% matching up to 6% of my salary.

 

[Reckoner]

Is maxing out Roth and (hopefully) Social Security enough for the average joe to live on at retirement age with no dependents and little to no debt?

 

[Orsorum]

Maxing your Roth out? I don't think so. You're going to need more than a Roth IRA to live on, but if you start young, it shouldn't be that big of a sacrifice to contribute to four areas each month:

- 401(k) (if you have employer matching)
- Roth IRA
- Regular brokerage account
- Savings

If your friend were to spend $2,000/month towards his retirement, he could donate a decent amount to all four each month.

 

[ManSnake]

The best way to invest is to bet what you have on black. If you are not willing to take a risk, then you don't deserve to be rich.

 

[jagec]

Originally posted by: PaulNEPats
Is maxing out Roth and (hopefully) Social Security enough for the average joe to live on at retirement age with no dependents and little to no debt?

Social Security?

Shirley you can't be serious:laugh:

Depends on your lifestyle IMHO. I can live very cheaply. If you're planning on buying a $1,000,000 RV when you retire and touring the country, well...

 

[bennylong]

Originally posted by: PaulNEPats
Is maxing out Roth and (hopefully) Social Security enough for the average joe to live on at retirement age with no dependents and little to no debt?

If you started at age 25, $4,000 a year deposit for the next 40 years, with a 10% return and 3% inflation, that leaves you with about $800,000.00

I guess that depends on your lifestyle. $800,000.00 won't be enough for me. I plan on being a sugar daddy

 

[turunturun]

Originally posted by: jagec

Originally posted by: PaulNEPats
Is maxing out Roth and (hopefully) Social Security enough for the average joe to live on at retirement age with no dependents and little to no debt?

Social Security?

Shirley you can't be serious:laugh:

Depends on your lifestyle IMHO. I can live very cheaply. If you're planning on buying a $1,000,000 RV when you retire and touring the country, well...

Social Security alone will be enough for you to retire rich, uh, if you are a politician with access to the social security fund. RAID AT WILL!!!!!!!

 

[DaShen]

Roth is better. You can always pull out the initial investment with no penalty.

It is a better program, 401 k is better once you make more money because it is pretax and you can invest much more, but Roth has a more flexible set up for short term which is good for starting investors.

 

[ZeroEffect]

i thought i heard the Roth IRA will be phased out over the next few years?

Will the Roth be with us for the next 10, 20, 30 years?

 

[manly]

Cool, I didn't know you could withdraw Roth IRA contributions at any time. What should newbie investors do with their Roth IRA accounts?

 

[vi edit]

Originally posted by: manly
Cool, I didn't know you could withdraw Roth IRA contributions at any time. What should newbie investors do with their Roth IRA accounts?

http://www.vanguard.com

About the lowest priced, most regarded mutual fund company out there. Check out their target retirement funds. It's basically a blend of US index funds, international index funds, and a wee bit of fixed income that slowly adjusts to more and more fixed income as the fund approaches the end of it's target.

 

[alrocky]

As a practical matter, with $2000 the only fund you can a get with Vanguard is their STAR fund. AFAIK all other Vanguard funds require a $3000 minimum initial purchase. (T.R. Price is a bit more friendly for those with low beginning balances.) You friend should ask his parents to spot him $1K if he's interested a different fund in Vanguard. Otherwise he'll have to build up the STAR fund and then switch it over to a different fund when it grows large enough.

 

[sygyzy]

Originally posted by: senseamp
The rule of thumb is.
1. Put into 401K whatever amount is matched.
2. Max out Roth
3. Add unmatched funds to 401K.

So in your friend's case, Max out Roth.

Took the words out of my mouth!

 

[manly]

Originally posted by: alrocky
As a practical matter, with $2000 the only fund you can a get with Vanguard is their STAR fund. AFAIK all other Vanguard funds require a $3000 minimum initial purchase. (T.R. Price is a bit more friendly for those with low beginning balances.) You friend should ask his parents to spot him $1K if he's interested a different fund in Vanguard. Otherwise he'll have to build up the STAR fund and then switch it over to a different fund when it grows large enough.

2005's max. Roth IRA contribution was $4K. This year is somewhat higher IIRC.

 

[sandmanwake]

Originally posted by: manly

Originally posted by: alrocky
As a practical matter, with $2000 the only fund you can a get with Vanguard is their STAR fund. AFAIK all other Vanguard funds require a $3000 minimum initial purchase. (T.R. Price is a bit more friendly for those with low beginning balances.) You friend should ask his parents to spot him $1K if he's interested a different fund in Vanguard. Otherwise he'll have to build up the STAR fund and then switch it over to a different fund when it grows large enough.

2005's max. Roth IRA contribution was $4K. This year is somewhat higher IIRC.

No, it's still 4k. In 2008 they'll bump it to 5k.