GRS Home  Forum Home
Bank Rates Center
   Savings Account Rates
   Money Market Rates
   Highest CD Rates
Insurance Rates Center
  Auto           Health
   Life              Home
Mortgage Rates Center
  Mortgage Rates
  Mortgage Quotes

Last visit was:
A place for Get Rich Slowly readers to ask questions
and exchange ideas
It is currently Thu Sep 09, 2010 12:34 am




Post new topic Reply to topic  [ 14 posts ] 
Author Message
 Post subject: No 401(k) Match - Best Strategy?
PostPosted: Fri Nov 02, 2007 11:45 pm 

Joined: Sun Apr 15, 2007 6:18 pm
Posts: 47
I'll start out by saying that I know I should speak with a qualified financial adviser before making any investment decisions - figured I'd poll the group here, so I have a better idea of what to expect.

I currently contribute to a Roth IRA (I was able to sock away over $2K while still in college by investing my tax returns) that's currently in an IMMA at my local credit union. I plan on moving it to Vanguard once I hit the magical $3K mark.

Once I return to the United States from extended business (where I'm paid in Indian Rupees and contribute to the "Provident Fund"), the company offers a 401(k) plan through Fidelity that I will avail of. Only problem is that due to the fact that said company has very few US national employees relative to the amount of Indian employees - and the Indian employees that come over on visa don't usually contribute to US 401(k)s - they don't match our 401(k) contributions. We're trying to get that changed as more and more US employees are being hired - but it might take a little bit of time.

In the mean time, does anyone have any advice about what to do in such a situation? Should I still max out my 401(k) contributions each year or should I split it between that and my Roth (as I'm not getting any employer match)?


Top
Offline Profile   
 Post subject:
PostPosted: Sat Nov 03, 2007 4:27 am 

Joined: Sun Apr 15, 2007 1:31 pm
Posts: 88
I'd say it depends what kinds of funds are offered with your 401k. Are they good on their own merits? Is it something that you would contribute in your IRA?

I like 401k's personally because it feels like you're saving more when you can save with pre-tax money, even if the tax advantages work out to be similar in the end. And if you save enough to max out your IRA, the 401k would definitely be the next good place to put your money. But without a match, 401k's aren't so great that you should invest in funds you feel tepid about.


Top
Offline Profile   
 Post subject:
PostPosted: Sat Nov 03, 2007 5:27 am 
Moderator

Joined: Fri Mar 30, 2007 5:39 pm
Posts: 282
The best course of action depends on the details of your situation, but here is what I'd do when it comes to investing for retirment:

1. Max your Roth (assuming you're eligible)
2. Contribute to non-matched (but deductible) 401(k) up to limit
3. Focus on tax-efficient investments in taxable accounts

Note that I'm not saying that you should necessarily due these three things ahead of other saving/investing. But when it comes to socking away retirement dollars, this is how I'd rank my options. If you're not eligible for a Roth, then you're likewise not eligible for a deducting your contributions to a traditional IRA (which more or less behaves like a 401(k) anyway), so that's out of the picture. And if you're eligible for both a Roth and a deductible Trad IRA, I'd rank the former over the latter. Of course, you need to consider your current tax bracket, your projected tax rate at retirement (get out your crystal ball), etc...

Note that this is being written from the perspective of someone who now exceeds the Roth IRA contribution limit, and who really, really (REALLY!) misses being able to put money in there.

_________________
personal finance tips :: parenting tips :: sports injuries


Top
Offline Profile   
 Post subject:
PostPosted: Sat Nov 03, 2007 1:04 pm 

Joined: Sat Apr 07, 2007 2:03 am
Posts: 794
Location: Taishan, Guangdong, China
Also depends on what kind of investor you are and what your personality traits are. My first job, I had an unmatched 401Ks and yet I still dumped as much as I could in there. That was almost a decade ago but now it's of great value to me because I rolled it over to an IRA where I could buy all the ETFs I need to fill in classes missing from my current 401K but too tax-inefficient to be in taxable. The flexibility to at anytime sell everything in that account and rebalance to new positions let's me keep my asset allocation on target without getting hit by taxes. (Yes I also have a Roth IRA but the amounts are nowhere enough to do anything complex with.)

So if you are the analytical, detail-oriented, optimizer, engineer-type -- put as much as you can into the 401K to plan for a future rollover to a self-directed IRA. Because 10 years from now, you'll be saying "damn, I need more Zimbabwe+Kenya+Pakistan but I'd incur taxes if I'd sell China+India+Mexico to rebalance!"


Top
Offline Profile   
 Post subject:
PostPosted: Sun Nov 04, 2007 3:33 pm 
User avatar

Joined: Wed May 30, 2007 11:23 am
Posts: 861
Location: Portland, OR
I agree with Nickel. Also, you may consider investing now in the STAR fund (only requires $1k to open) instead of leaving your money to twiddle it's thumbs until you hit $3k...


Top
Offline Profile E-mail   
 Post subject:
PostPosted: Sun Nov 04, 2007 3:36 pm 
User avatar

Joined: Wed May 30, 2007 11:23 am
Posts: 861
Location: Portland, OR
nickel wrote:
Note that this is being written from the perspective of someone who now exceeds the Roth IRA contribution limit, and who really, really (REALLY!) misses being able to put money in there.


Have you considered doing a non-ded TIRA contribution and then converting it to a Roth in 2010 when the limit is raised? You'd only have to pay taxes on the earnings. Just a thought since you probably can't do a ded-TIRA either.


Top
Offline Profile E-mail   
 Post subject:
PostPosted: Sun Nov 04, 2007 3:57 pm 
Moderator

Joined: Fri Mar 30, 2007 5:39 pm
Posts: 282
pf101 wrote:
nickel wrote:
Note that this is being written from the perspective of someone who now exceeds the Roth IRA contribution limit, and who really, really (REALLY!) misses being able to put money in there.


Have you considered doing a non-ded TIRA contribution and then converting it to a Roth in 2010 when the limit is raised? You'd only have to pay taxes on the earnings. Just a thought since you probably can't do a ded-TIRA either.


pf101: It's actually not that simple...

http://www.fivecentnickel.com/2007/10/1 ... s-in-2010/

I was planning on doing this until I did some research on the repercussions. The upshot is that, if you have other IRA holdings that are deductible, you can't simply convert the non-deductible contributions that you made in advance of the 2010 conversion change -- this is even true if you set up a separate account for the non-deductible contributions. Rather, your IRAs are effectively pooled together and you are taxed in proportion to the percentage of your holding that are deductible. So... If you have a sizable portion of deductible IRA funds, a large percentage of your conversion will be exposed to taxes.

Bummer.

_________________
personal finance tips :: parenting tips :: sports injuries


Top
Offline Profile   
 Post subject:
PostPosted: Mon Nov 05, 2007 6:30 am 

Joined: Sun Apr 29, 2007 8:11 am
Posts: 978
Location: Sunny Florida
I would do both if you are able to do so. A 401(k) has the advantage in that you will be able to save a heck of a lot more ($15,500) vs. an IRA ($4000).


Top
Offline Profile E-mail   
 Post subject:
PostPosted: Mon Nov 05, 2007 4:01 pm 
User avatar

Joined: Wed May 30, 2007 11:23 am
Posts: 861
Location: Portland, OR
nickel wrote:
I was planning on doing this until I did some research on the repercussions. The upshot is that, if you have other IRA holdings that are deductible, you can't simply convert the non-deductible contributions that you made in advance of the 2010 conversion change -- this is even true if you set up a separate account for the non-deductible contributions. Rather, your IRAs are effectively pooled together and you are taxed in proportion to the percentage of your holding that are deductible. So... If you have a sizable portion of deductible IRA funds, a large percentage of your conversion will be exposed to taxes.

Bummer.


Yikes. I'm slipping... :roll: Now that you mention it, I remember reading about that but it had completely slipped my mind. Thanks for the reminder. And yes, bummer indeed!


Top
Offline Profile E-mail   
 Post subject:
PostPosted: Thu Nov 08, 2007 10:57 am 

Joined: Tue Sep 18, 2007 12:27 pm
Posts: 354
Unless the funds are spectacular, max the IRA first then go for the 401k.


Top
Offline Profile   
 Post subject:
PostPosted: Fri Nov 09, 2007 2:05 am 

Joined: Sat Jun 30, 2007 10:35 am
Posts: 1381
nickel wrote:
pf101 wrote:
nickel wrote:
Note that this is being written from the perspective of someone who now exceeds the Roth IRA contribution limit, and who really, really (REALLY!) misses being able to put money in there.


Have you considered doing a non-ded TIRA contribution and then converting it to a Roth in 2010 when the limit is raised? You'd only have to pay taxes on the earnings. Just a thought since you probably can't do a ded-TIRA either.


pf101: It's actually not that simple...

http://www.fivecentnickel.com/2007/10/1 ... s-in-2010/

I was planning on doing this until I did some research on the repercussions. The upshot is that, if you have other IRA holdings that are deductible, you can't simply convert the non-deductible contributions that you made in advance of the 2010 conversion change -- this is even true if you set up a separate account for the non-deductible contributions. Rather, your IRAs are effectively pooled together and you are taxed in proportion to the percentage of your holding that are deductible. So... If you have a sizable portion of deductible IRA funds, a large percentage of your conversion will be exposed to taxes.

Bummer.


you are exactly right. the major drawback to the 2010 conversion is that you are going to be taxed according to all your IRA holdings. A better option is to piecemeal TIRA to RIRA conversion over time if you are able to do so. My wife didn't work for 7 months out of this past year, so for us it was a no brainer to convert her entire TIRA into RIRA.


Top
Offline Profile   
 Post subject:
PostPosted: Fri Nov 09, 2007 2:09 am 

Joined: Sat Jun 30, 2007 10:35 am
Posts: 1381
KJS: it really is situationally dependent as nickel mentioned. You have to consider your future earnings to determine if tax deferred is wiser option (i.e. maxing your 401k). You also need to consider that contributing to 401k now reduces your current tax burden.


Top
Offline Profile   
 Post subject:
PostPosted: Fri Nov 16, 2007 5:29 am 

Joined: Sun Apr 15, 2007 6:18 pm
Posts: 47
Yikes, sorry for the delay. Good advice from all. I will definitely take it into account as I chart out my financial positions.

If it helps any, I'll be making $58K gross annually to begin with in the USA.


Top
Offline Profile   
 Post subject:
PostPosted: Fri Nov 16, 2007 9:24 am 

Joined: Fri Nov 16, 2007 9:06 am
Posts: 5
Location: Arlington, VA
As others said...

Since you aren't getting the 401K match.

1) Max the ROTH while you are in a lower tax bracket than you will be in during retirement (especially at your current level of 58K)
2) Focus on the 401K since contributions are pre-tax and can keep you in a lower tax bracket depending on how much you contribute


Top
Offline Profile   
Display posts from previous:  Sort by  
Post new topic Reply to topic  [ 14 posts ]  Moderators: Dylan, JerichoHill, Jethro


Who is online

Users browsing this forum: No registered users and 0 guests


You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot post attachments in this forum

Search for:
Jump to:  
Powered by phpBB © 2000, 2002, 2005, 2007 phpBB Group
Theme created StylerBB.net & kodeki