Regarding 401ks....

[dud]

In your 401k you still get:
- instant tax savings at your highest marginal tax rate
- tax-sheltered growth -- no taxes on dividends and capital gains until you take the money out at retirement

Like mariok2006 says you should try to max out both if you can afford to. If you can only do one then there is no fixed answer but most people the Roth IRA is a better deal since withdrawals at retirement will be tax-free.



Taxes don't work that way. Your first $X dollars are always taxed at the same % rate no matter how much you make. If you make extra money, only that extra money may be taxed at a higher %.

But: the 401k is taken off the top, so the amount you save is based on the part of your income being taxed at the highest rate.

If your employer is NOT matching your traditional 401K then consider only funding your Roth. I say this because I just attended a pre-retirement seminar and it was really frightening. Traditionally, we invest in a 401k for 2 reasons: to defer taxes until we retire and (hopefully) pay taxes in a lower bracket ... and to save for retirement. The problem is this ... the Government will probably have to raise income taxes significantly to balance the budget/deficit. Current income taxes are at 50 year lows ... but with the deficit they are expected to rise.

The bottom line is that you may actually pay HIGHER taxes when you retire if the Government has to balance the budget.

 

[HybridSquirrel]

So, you can only contribute 5000 max? So if I have two accounts it can't be 5000 for each?

 

[Drako]

So, you can only contribute 5000 max? So if I have two accounts it can't be 5000 for each?

The max is $5000($6000 if over 50) for ALL of your IRAs for the year.

You should try to max out both your 401k and IRAs if you can.

The max for 401k is $16500($21500 if over 50) this year.

 

[Schfifty Five]

So, you can only contribute 5000 max? So if I have two accounts it can't be 5000 for each?

Correct. $5,000 max from all your IRA accounts.

 

[Schfifty Five]

The max is $5000($6000 if over 50) for ALL of your IRAs for the year.

You should try to max out both your 401k and IRAs if you can.

The max for 401k is $16500($21500 if over 50) this year.

It's actually $22,000 if over 50. You get a $5,500 catch-up contribution.

 

[HybridSquirrel]

Correct. $5,000 max from all your IRA accounts.

The max is $5000($6000 if over 50) for ALL of your IRAs for the year.

You should try to max out both your 401k and IRAs if you can.

The max for 401k is $16500($21500 if over 50) this year.

So its $5000 for each of them? Or $5000 total for all of them (like 2500 each if you have 2)

And the max is $16,500 for life? Or per year?

 

[Drako]

So its $5000 for each of them? Or $5000 total for all of them (like 2500 each if you have 2)

And the max is $16,500 for life? Or per year?

For each individual, there are limits per year as to how much you can put into various savings plans.

IRA contributions limit per year is $5000 (or $6000 if your old).

If you have 3 IRAs, your total contribution to all 3 cannot exceed the limit, you would divide it up between the 3.

401k contributions limit per year is $16500 (or $21500 if your old).

 

[HybridSquirrel]

For each individual, there are limits per year as to how much you can put into various savings plans.

IRA contributions limit per year is $5000 (or $6000 if your old).

If you have 3 IRAs, your total contribution to all 3 cannot exceed the limit, you would divide it up between the 3.

401k contributions limit per year is $16500 (or $21500 if your old).

ok, so my Roth IRA through e-trade has a $5,000 yearly limit. and my employer 401k through fidelity has a limit of $16500?

Got it now.


I don't make enough to have any limits put on the contribution amounts.

 

[GotIssues]

So its $5000 for each of them? Or $5000 total for all of them (like 2500 each if you have 2)

And the max is $16,500 for life? Or per year?

Consider your IRAs and 401(k)s as seperate entities. Any IRA (Roth or otherwise) gets lumped into the IRA category. Same goes with 401(k) (although I doubt you'll have multiple 401(k) accounts).

At the current time, each year, an individual can contribute a maximum of $5,000 into his/her IRA category. Regardless of how many accounts you have, the total contribution for the calendar year cannot exceed $5,000 ($6,000 if you 50 years old+).

At the current time, each year, an individual can contribute a maximum of $16,500 to his/her 401(k) category ($22,000 if you are 50 years old+).

 

[HybridSquirrel]

what other types of IRA's are there? all I knew of was Roth and I opened it when I was like 18 because my employer at the time didn't have one...i haven't been contributing hardly anything till i started working seriously and now I want to max that shit out.

theres no way I can max out my 401k in a year...i'd be living off rocks without an employer match

 

[thomsbrain]

I would max the IRA first and then put additional into the 401k. If there was a match, I'd max the match, then the IRA, then back into the 401k.

 

[Schfifty Five]

For each individual, there are limits per year as to how much you can put into various savings plans.

IRA contributions limit per year is $5000 (or $6000 if your old).

If you have 3 IRAs, your total contribution to all 3 cannot exceed the limit, you would divide it up between the 3.

401k contributions limit per year is $16500 (or $21500 if your old).

Drako, it's $5,500 catch up for a total of $22,000.

 

[Schfifty Five]

If under 50 years of age, maximum contribution to IRA = $5,000 (Doesn't matter if you have one or multiple IRA accounts. The combined amount of contributions from all IRA accounts cannot total more than $5,000)

 

[HybridSquirrel]

I would max the IRA first and then put additional into the 401k. If there was a match, I'd max the match, then the IRA, then back into the 401k.

yeah, theres no match so im going to try max out my IRA, but I got started a little late this year since I traveled and partied to hard this summer....i still am throwing some money into the 401k since its not like saving money has ever been a bad idea...

 

[Drako]

Drako, it's $5,500 catch up for a total of $22,000.

Yep, thanks. I need to adjust my cotribution

 

[airdata]

OP : I'm in the same boat. I have been paying in for about 3 years and stopped around 6 months ago. Well, I still put in a small amount but it's pointless since my 401k lost some 20% in the last 3 months. Had I put that money in a savings account, it would have gained a tiny percent worth of interest.

I see it as gambling. I have seen people liken the stock market to playing poker w\ professional poker players. I for sure wouldn't just gamble my money w\ people who know how to take it. It's the same thing. You're putting your money into a system that has shown to be heavily corrupt.

I'd rather not have people playing with my money. You may as well buy something like silver or gold that is more than likely to increase in value.

 

[Schfifty Five]

yeah, theres no match so im going to try max out my IRA, but I got started a little late this year since I traveled and partied to hard this summer....i still am throwing some money into the 401k since its not like saving money has ever been a bad idea...

You can continue contributing towards your 2011 contribution limit up to the 2011 tax return deadline (April 16th, 2012) I believe.

 

[soulcougher73]

I have a question on the $5000/year limit on the Roth IRA. Roth IRA is not pre-tax is that correct? And on the $5000/year limit is that pre-tax contributions or post-tax?

So if you are taxed at 20% well say and you put in $100 and they take $20 in taxes thus only $80 in your account. Does the $80 or $100 count towards the $5000?

 

[Schfifty Five]

I have a question on the $5000/year limit on the Roth IRA. Roth IRA is not pre-tax is that correct? And on the $5000/year limit is that pre-tax contributions or post-tax?

So if you are taxed at 20% well say and you put in $100 and they take $20 in taxes thus only $80 in your account. Does the $80 or $100 count towards the $5000?

The $5,000 limit counts your post-tax contributions.

So to answer your example question, it would be $80 that counts towards the $5K limit.

Edit: Just think of it like this. Your job paid you an after-tax amount of $5,000. You deposit that $5,000 into a checking account. You then open a Fidelity Roth IRA account. Next, you transfer $5,000 from your checking account to your Fidelity account. You just filled your 2011 $5,000 limit.

Edit 2: It wouldn't make sense to count the Pre-Tax contribution amount since you can be taxed at different tax brackets. So $100 could be worth $65 after taxes, while another $100 could be worth $80 after taxes.

 

[soulcougher73]

The $5,000 limit counts your post-tax contributions.

So to answer your example question, it would be $80 that counts towards the $5K limit.

Thanks. That is what i assumed. Now to just make more money so i can open a Roth IRA and contribute towards it. Unlike OP my work contributes 50% up to 6% so i take the free extra 3% right now in my 401k.