not following the rule of thumb for retirement...

[Deleted]

am I doomed?

I always read that you need to contribute to your 401K up to what your employer is matching (6% for both of us), go and max your ROTH IRA, than come back and increase your 401K till you can max it.

This year we did not max our ROTH IRA (still got till April though to do so) and we are both contributing 20% (up from 10% 2 weeks ago) to our 401K's.

My logic is that is will reduce our tax liabilities (DINKS, 95K combined) and somewhat force us to save more for retirement.... kinda like the money is gone before you see it type thing.

[The J]

Not at all. My contributions right now go entirely to my 457 (which has no matching) and my pension. The rule of thumb, IMHO, is meant more for people in the 50-60k income range -- as you get higher up, the tax issues become more prevelant.

Besides, it's better that you actually contribute to retirement than not, so if putting the money in your 401(k) ensures it gets put there, that's worth it.

[Deleted]

Dec 29, 2010 9:46:55 GMT -5 The J said:

Not at all. My contributions right now go entirely to my 457 (which has no matching) and my pension. The rule of thumb, IMHO, is meant more for people in the 50-60k income range -- as you get higher up, the tax issues become more prevelant..

Thanks J, this is what I was thinking also... since we have no kids, no mortgage; decreasing our taxable income seems the best way to go.

[Wisconsin Beth]

My logic is that is will reduce our tax liabilities (DINKS, 95K combined) and somewhat force us to save more for retirement.... kinda like the money is gone before you see it type thing.


We have to do it this way. Lately, we don't have the discipline to save on our own.

[resolution]

The idea of the 401k is that when you retire you will be in a lower tax bracket so the taxes will be less. The down side to doing all 401k and no Roth is if your income ends up going up when you retire or if tax rates go up.

In my parents case, their income went up due to a bunch of small pensions. So they are paying taxes at a higher rate now than they would have if they paid the taxes while working. They would have been better off paying taxes up front and collecting the money at the end tax free, but Roths weren't around when they were working.

[thyme4change]

Rule of thump? Is that when you thump as much into retirement investing as you can.

[so1970]

i like the idea of [rule of thumb] way back in the day it was legal for you to beat your unruly spouse with a stick as long as it was no bigger than your thumb. maybe we should install the rule of wrist that would work as a deterant to overspending.

[HoneyBBQ]

Honestly, it seems like if you make 95k combined you should be able to max your Roth with your extra disposable income. You're not doomed, but I would definitely add it into the "room for improvement" column. Can you fund the Roth with your income tax return or something like that?

[phil5185]

kinda like the money is gone before you see it type thing.

Yes, this is by far the most successful way to do it - automatic deposit, then live on the remainder. People who reverse that (try to save the remainder) never seem to have a 'remainder' so they live paycheck-to-paycheck forever.

But IMO you are wrong that this can only be done with retirement accounts, we did it with our taxable accounts before 401k's were invented. Base you decision the highest & best place for your money (that may or may not be the 401k).

[boosmom]

Honestly, it seems like if you make 95k combined you should be able to max your Roth with your extra disposable income. You're not doomed, but I would definitely add it into the "room for improvement" column.

Not when you live in a HCOLA. Rent/mortgage, food, gas, entertainment -- everything costs more.

We've been increasing the pre-tax first.

[thyme4change]

I believe they also have a sizeable amount of student loan debt - but I could be confusing them with another poster.

[The J]

You're right. Six figures

[sp08]

Sorry, I know this is not helpful, but when I see the title of this thread it makes me chuckle! I love the "rule of thump"! (I'm not laughing AT you OP, honest...it's just cute!)

[robbase]

"am I doomed?"

judging by those protrusions on your back in the photo I think so...jk

[Deleted]

Dec 29, 2010 19:42:06 GMT -5 The J said:

You're right. Six figures

yep

- $ 150, 734.32 in student loans and - $111,993.05 is my wife.

[telephus44]

We also contribute a fair amount to 401Ks, for tax purposes. We make enough that a lot of deductions start to phase out, so contributing the the 401K helps keep us eligible for some tax breaks. For you, and I don't remember all the rules, I would want to keep student loan interest deductible. The last 2 years I paid on my student loans we hit the "phase out" window so I got to take some, but not all of the interest we paid on them. Last year we had an AGI just low enough to let us deduct PMI (I can't remember if that tax break has been extended or not for this year).

My other thought is who knows what the tax rules will be when we retire - so I have some in ROTH accounts, some in a regular 401K. That way I'm not putting all my eggs in one basket.