Comments on: Minimizing My 401k Contributions for Now

By: Carnival of Money Stories

Carnival of Money Stories — Mon, 22 Jun 2009 11:20:58 +0000

[...] presents Minimizing My 401k Contributions for Now posted at No Debt [...]

By: Kevin

Kevin — Wed, 17 Jun 2009 11:35:07 +0000

@Steve: Interesting. Yea I went with the Roth IRA and 401k simply because I’m betting on taxes going up over time. It may come back to bite me, but then at least I know I’ve paid my tax and the amount in my account is the actual amount in my account (rather than having to calculate taxes and withdrawal rates, etc.)

By: Steve @ Start-Up

Steve @ Start-Up — Tue, 16 Jun 2009 17:22:05 +0000

@Kevin: I put all of my self-employed earnings into my individual 401k and then max out my Roth IRA on top of that. When I put my earnings into the individual 401k I don’t have to pay self-employed taxes on them, which allows me to not worry about the quarterly estimated payments.

I like investing my money into both a Roth IRA and an individual 401k because it allows me to diversify my withdrawals. If the tax rate is high I will withdraw from my roth IRA and if it’s low from my individual 401k. We all know the tax rate can change significantly every four years.

By: Kevin

Kevin — Sat, 13 Jun 2009 18:37:25 +0000

@Russell: There are limits, but it’s still a lot of money for us. The tax rate issue is why I use a Roth 401k — I’d rather pay now and be guaranteed to be able to take the full amount with me when I retire.

By: Russell Fascenda

Russell Fascenda — Sat, 13 Jun 2009 14:34:01 +0000

You can only think of two good reasons to stop contributing? How about reading the speculation that future income tax rates could be 50%. The whole premise of the deferred tax plans (IRA, 401k) was that you would defer paying tax at the current rate, in favor of future reduced tax rates resulting from having less income in the future.

I know it’s only speculation, and the 50% would be the top marginal rate on high earners, so it still may be an advantage. But I still have some concerns.

Also you said there are limits to contributing to the Roth IRA based on earnings, I think the rule is, if you participate in a 401k you cannot contribute before-tax money to a traditional IRA. And there are limits to how much you can contribute to Roth IRA in any case.

By: M

Fri, 12 Jun 2009 12:03:06 +0000

My work only recently started offering a Roth 401K as an option. Taxes may indeed go up, but so will your income in comparison. If you’re doing all post-tax though, agreed, it shouldn’t make as much of a difference in your current tax situation.

By: Kevin

Kevin — Fri, 12 Jun 2009 02:44:20 +0000

@Kelly: We do feel really blessed to be able to do this. I’ve just got to remember to increase it when the new year hits.

@TheHappyRock: Well it depends on everyone’s definition of debt. If you considered our mortgage, well, then it will be 10-15 or so years until we’re out of debt (if we kept up current extra payments). What I consider our real debt (that is, what the target is) are my deferred student loans (99% saved for) and our second mortgage. If we keep up the path we are on then we will have the 2nd mortgage knocked out by October or November of 2010. Super, super excited about that.

@Aspirations Purse: That’s the tough part. How can anyone really know how much you would make investing the money? The old rule of thumb used to be 10-12% and we see how that worked out.

@Steve: I’m actually considering this… a self employed IRA or 401k or something like that. Do you adjust your other contributions to show this? That is, let’s say you were contributing to a Roth IRA ($5k/year) and had $6,000 total you could save for retirement. Would you then put $5k into the self employed 401k and $1000 into the IRA?

@Finance Junkie: Ahh I like the unsecured debt part. Curious: would you consider an automobile loan secured debt? I would, but I’d still want to pay that off before investing due to the depreciation.

@brooklynchick: Thanks for stopping by! I’m 25.

@M: We aren’t using a traditional 401k — my work offers a Roth 401k and since I think taxes will go up eventually, that’s what I use. So the tax difference should be nothing for us.

By: M

Thu, 11 Jun 2009 13:00:30 +0000

Only thing I wanted to add is you may need to check your W4 contributions so you don’t get any surprises come tax-time if you’re contributing significantly less to your 401K than before. I need to do that yet for this year since I also dropped my level of contribution.

By: brooklynchick

brooklynchick — Thu, 11 Jun 2009 12:44:10 +0000

Smart move. I don’t know how old you are, but I am in my 30′s, and until I get out of debt, I put in only the minimum for the match (in my case, 6% of my salary – lucky me!).

By: Finance Junkie

Finance Junkie — Thu, 11 Jun 2009 01:06:34 +0000

The correct course of action will vary amongst people. The key determinant is household job security and debt (amount and type).

I believe heavily in no 401k/ROTH contributions beyond 401k match if you have unsecured debt.