Calling All Financial Wizards/Smarties

[bimmer456]

Originally Posted by shadow191

Many 401(k)'s allow Roth contributions as well now - at least most of the bigger plans do. Also, many of them allow after-tax contributions as well to get around the $18K limit without also needing to be 50+ (catch up). Some even allow for self directed brokerage options now to give employees more choice in investments.

There is really no way someone could get enough additional return outside the 401(k) to forego the company match. Even a bad match is usually 50% of what you put in up to some limit.The investment choices in the plan would have to be awful to take away that advantage.

And Roth isn't tax free. You've already paid the taxes on your contributions and you just avoid on the gains. Before-tax contributions can make sense as well if you're in a really high tax bracket right now - it all depends.

That's what I meant by Roth 401K that it grows tax free and is like a Roth IRA that you can use after tax money so you don't pay tax when you pull it out at retirement. Being able to invest on my own has advantages too as I can beat the S&P 500 and the mutual funds I have through work. My company gives me free money with no need to contribute on my own so the only advantage is the tax advantage which I can also get with a Roth IRA. The contribution limits are higher with the 401k plan, I'm not sure if the limit also applies with a Roth 401k or there's no limit. I know with the IRA the limit applies whether it's a roth or traditional IRA. I think it's the limit combined.

[gatorfast]

For those championing the roth 401k/IRA, if you are in one of the upper tax brackets I would do the math on how it will play out over time. A tax savings of 25%+ today (via traditional 401k or IRA) will grow exponentially more over time and likely leave you in a much better position at retirement even if you need to pay tax at that point.

[qba335i]

Originally Posted by mbanks21

I'd rather do a high yield bond fund at 4.5% vs a CD at 0.3%

You know those assets have different risk profiles? They have nothing in common besides being in a fixed income asset class.

What is the spread on HY now? What exposure are you getting? FYI Time to buy HY was in 2016, not now...


OP,

Since this is your down payment money just buy a money market fund and call it a day. Taxable should yield you around 1% - alternatively if you are in a highly tax bracket buy a muni money market (equivalent rate should be 1.3-1.4?).

[Browntrash]

Originally Posted by IllSic_Design

Yeah I'd just go with high yield savings, better than nothing/traditional saving account. Ally is good yield wise, but I use capital one 360 which is decent(.75%?) but has a lot more ATM's/branches available.

FYI, Fidelity has a cash account which comes with a debit card and provides 100% ATM fee refunds. So you can access money from any ATM and have no fees.

Also, i would highly recommend the below book. excellent read/listen. short version = create an automated, low fee system for your money. Furthermore, history has always favored index fund (also read The Little Book of Common Sense Investing - by the founder of Vanguard).

[mbanks21]

Originally Posted by qba335i

You know those assets have different risk profiles? They have nothing in common besides being in a fixed income asset class.

What is the spread on HY now? What exposure are you getting? FYI Time to buy HY was in 2016, not now...


OP,

Since this is your down payment money just buy a money market fund and call it a day. Taxable should yield you around 1% - alternatively if you are in a highly tax bracket buy a muni money market (equivalent rate should be 1.3-1.4?).

I'm aware of the risk profiles, I was saying between those two options I'd take a hy fund paying 10x a cd

[zx10guy]

Originally Posted by gatorfast

For those championing the roth 401k/IRA, if you are in one of the upper tax brackets I would do the math on how it will play out over time. A tax savings of 25%+ today (via traditional 401k or IRA) will grow exponentially more over time and likely leave you in a much better position at retirement even if you need to pay tax at that point.

In addition, if you reach a certain income level, you're prevented from being able to contribute into a Roth IRA. I'm not sure if the same rules apply to Roth 401k. But I know for a fact it does for the Roth IRA.

ETA....Found a site with the information on income levels for Roth IRAs:

https://investor.vanguard.com/ira/ro...limits?lang=en

[Fundguy1]

Originally Posted by mbanks21

I'm aware of the risk profiles, I was saying between those two options I'd take a hy fund paying 10x a cd

A high yield fund paying 4.5% sucks btw. Right now you want to be in the 6% range. Mine is paying over that, and is up over 17% past 12 months through June. But I would not recommend one to someone as a 6 month investment.

[mbanks21]

Originally Posted by Fundguy1

A high yield fund paying 4.5% sucks btw. Right now you want to be in the 6% range. Mine is paying over that, and is up over 17% past 12 months through June. But I would not recommend one to someone as a 6 month investment.

Sorry I was referring to a tax free high yield but you're right either way

[Fundguy1]

Originally Posted by mbanks21

Sorry I was referring to a tax free high yield but you're right either way

Gotcha. I'm worried about munis now. They're at a premium, low inventory, and credit ratings are worrisome.

[dzvero]

You can max your 401k. But I think you can use it for less than 50% of the reserve

[ImolaMoop]

Roth IRA contributions on an M forum?

CDs still exist?

[Fundguy1]

Originally Posted by ImolaMoop

Roth IRA contributions on an M forum?

CDs still exist?

Yes
And
They never really did.

[Hawkeye]

Originally Posted by zx10guy

In addition, if you reach a certain income level, you're prevented from being able to contribute into a Roth IRA. I'm not sure if the same rules apply to Roth 401k. But I know for a fact it does for the Roth IRA.

ETA....Found a site with the information on income levels for Roth IRAs:

https://investor.vanguard.com/ira/ro...limits?lang=en

You can still contribute through a "backdoor" contribution when you are over that income level.

[shadow191]

Roth 401(k) has no income limit. It's part of the 401(k) plan so those rules apply. That's why if an employer offers the option, it's a great way to save more than you could in a Roth IRA. Once you leave the employer, you can roll the Roth 401(k) into a Roth IRA.

Originally Posted by zx10guy

In addition, if you reach a certain income level, you're prevented from being able to contribute into a Roth IRA. I'm not sure if the same rules apply to Roth 401k. But I know for a fact it does for the Roth IRA.

ETA....Found a site with the information on income levels for Roth IRAs:

https://investor.vanguard.com/ira/ro...limits?lang=en

[bimmer456]

Originally Posted by shadow191

Roth 401(k) has no income limit. It's part of the 401(k) plan so those rules apply. That's why if an employer offers the option, it's a great way to save more than you could in a Roth IRA. Once you leave the employer, you can roll the Roth 401(k) into a Roth IRA.

Some employers let you roll it over before you leave. I just want to roll it over so I can buy more apple stock, I'm up by thousands of dollars just this morning!

[Axius]

I'll invest for you, day trading is easy peezy.

[zx10guy]

Originally Posted by Hawkeye

You can still contribute through a "backdoor" contribution when you are over that income level.

What's this back door contribution? The only thing I'm aware of is doing a non deductible IRA contribution. But that goes into an IRA account which I won't even be able to take the tax deduction now with after tax money.

I have not run across any way to actually contribute into a Roth IRA and take advantage of all the things that come with a Roth IRA.

[zx10guy]

Originally Posted by shadow191

Roth 401(k) has no income limit. It's part of the 401(k) plan so those rules apply. That's why if an employer offers the option, it's a great way to save more than you could in a Roth IRA. Once you leave the employer, you can roll the Roth 401(k) into a Roth IRA.

That's good to know. I assume the Roth 401k has the same stipulations as a 401k where you're forced to take distributions after reaching a certain age.

[mbanks21]

Originally Posted by zx10guy

What's this back door contribution? The only thing I'm aware of is doing a non deductible IRA contribution. But that goes into an IRA account which I won't even be able to take the tax deduction now with after tax money.

I have not run across any way to actually contribute into a Roth IRA and take advantage of all the things that come with a Roth IRA.

You contribute to the traditional Ira then convert

[shadow191]

If you're referring to the Required Minimum Distribution (RMD) at age 70.5 then no, the Roth 401k and Roth IRA don't have that requirement. But a traditional IRA and before-tax 401(k) contribution would have it as the taxes have been deferred. IRS won't let you defer forever. Roth contributions have already been taxed so not subject to RMD.

Originally Posted by zx10guy

That's good to know. I assume the Roth 401k has the same stipulations as a 401k where you're forced to take distributions after reaching a certain age.

[zx10guy]

Originally Posted by mbanks21

You contribute to the traditional Ira then convert

Ok. Yeah. I remember the Roth conversion process. I've gone back and forth about whether this would be a good thing or not. Taking the tax hit now versus later.

[Hawkeye]

Originally Posted by zx10guy

Ok. Yeah. I remember the Roth conversion process. I've gone back and forth about whether this would be a good thing or not. Taking the tax hit now versus later.

Just make sure that if you do it, the IRA is only for converting. If you convert only part of an IRA the tax treatment/accounting gets all out of whack. I have a friend that made that mistake one time and ended up taking a big tax hit to not have to deal with it anymore.