Starting 401k near the highs in a bull market?

[ET180]

When/if employment ends, the account MUST be properly transfered to ANOTHER equivalent tax-advantaged account, or penalties (and perhaps fines), as well as possible maintenance fees will be accessed. Is it "difficult"? No not really. But you need to know those ins and out.

Really easy to do. Not a problem.

Company matches are USUALLY maxed at 1% to 3% of EMPLOYEE WAGES/INCOME. A 4 or 5 grand pre-tax contribution is unlikely as far as the max company match is concerned. Beyond maxing to the company match, MOST company 401k's carry limited investment options, AND higher than average management fees than an individual can achieve through a self-directed tax-equivalent vehicle. Not maxing to the company match is leaving money on the table. Anything beyond, is better invested through a self-directed vehicle.

If you're starting out, you should be in the lowest tax bracket that you will be for the remainder of your life. If your marginal tax rate is low, I'd only do the company match to the maximum amount that they allow -- take full advantage of that, it's free money. But beyond that, especially if you live in a state with low income tax, you're probably never going to see income taxes as low as they are now assuming that you are making median US income or higher. So in that situation, I'd prefer to pay taxes now while taxes are relatively low. Exception would be if you live in a high tax state. In that case, 401k has an advantage because you can someday move to a lower tax state before you sell and avoid the state income tax.

If you work hard, picked a good major, live within your means, and do your finances right, you should have enough investment / dividend income to always put you in the top one or two tax brackets (as they are now) even after you retire. So in that case, your tax rates at withdrawal would likely be higher than they are now. I also like the flexibility of an individual broker account over a 401k / IRA any day. Naked short options, portfolio margin, and the flexibility of moving the capital into other investments (real estate). If you like your job and want to stay in the area, you're probably better off buying a house and building equity / mortgage tax deduction over investing in stocks anyway.

I'm still contributing to a 401k, but my investments have been moved to stable value and all new money is going into stable value since Jan 2018. In hindsight, I should have switched back last December, but I think there will be a better buying opportunity coming.

 

[HobbyTrading]

The company does not match, hence I am thinking it would be better in my own hands?

Too bad. It would have been nice if they would have helped you build up more capital.

Don't be too worried about starting near a market top. You won't be doing a huge lump sum payment. Instead, you will be gradually increasing your positions and thus be buying at ever lower prices if the market indeed goes down. Most downturns are over and corrected in a couple of years and by then you will have the benefit of having bought your stocks at lower prices. Think with an investment horizon of at least ten years and you will start to see these effects.

 

[SimpleMeLike]

The company does not match, hence I am thinking it would be better in my own hands?

Put your retirement money in ROTH IRA until you find a company that match on the 401K

 

[ET180]

Put your retirement money in ROTH IRA until you find a company that match on the 401K

Do both. Max out the Roth IRA either directly if you make below the income limits or do a backdoor Roth IRA while you can -- contribute to traditional IRA with post-tax funds and then convert it to a Roth IRA (no additional taxes).

 

[volente_00]

I can't give you advise, but my daughter is 31, so I'll tell you what I told her. For long term savings, I believe, IMO, that dollar cost averaging is the best way to save over time. I told her to ignore market conditions and take the max she can put into her 401k they allow her.

I agree with Robert. With a 30 year time frame DCA is a no brainer.

 

[SimpleMeLike]

Do both. Max out the Roth IRA either directly if you make below the income limits or do a backdoor Roth IRA while you can -- contribute to traditional IRA with post-tax funds and then convert it to a Roth IRA (no additional taxes).

ET180, very smart, i agree.

 

[srinir]

Do both. Max out the Roth IRA either directly if you make below the income limits or do a backdoor Roth IRA while you can -- contribute to traditional IRA with post-tax funds and then convert it to a Roth IRA (no additional taxes).

Agree.

Along with this, if one is in High Deductible Health Plan (HDHP), open a HSA account and use that contributions as a retirement account. It is triple tax advantageous.

Also if anyone wants to expand tax advantage space, EE bonds and I bonds acts in similar manner. Currently EE bonds is offering 50 bp advantage for patient investor along with expanding tax advantage space. This is trading forum. Traders fight for single basis point advantage, but not many make use this generous offer from govt.
If one is investing TIPS, I-Bonds acts similarly much more efficiently while expanding tax advantage space. Even taxable accounts can be used in very tax -efficient manner. If one invests in BRK/A, there is no dividends, all the gains are deferred until they sell.

 

[SimpleMeLike]

Agree.

Along with this, if one is in High Deductible Health Plan (HDHP), open a HSA account and use that contributions as a retirement account. It is triple tax advantageous.

Also if anyone wants to expand tax advantage space, EE bonds and I bonds acts in similar manner. Currently EE bonds is offering 50 bp advantage for patient investor along with expanding tax advantage space. This is trading forum. Traders fight for single basis point advantage, but not many make use this generous offer from govt.
If one is investing TIPS, I-Bonds acts similarly much more efficiently while expanding tax advantage space. Even taxable accounts can be used in very tax -efficient manner. If one invests in BRK/A, there is no dividends, all the gains are deferred until they sell.

srinir,

I would I also say, if one makes enough money per year working they can :

1. Max 401K out to government limits (I think it's $18.5K per year) for husband and wife 401K
2. Max ROTH IRA to government limits for husband and wife

This alone is a simpler and straightforward approach. That's about (18.5K*2 + 6K*2) $49K per year invested towards early retirement. lol, that's alot of money in the end.

 

[srinir]

srinir,

I would I also say, if one makes enough money per year working they can :

1. Max 401K out to government limits (I think it's $18.5K per year) for husband and wife 401K
2. Max ROTH IRA to government limits for husband and wife

This alone is a simpler and straightforward approach. That's about (18.5K*2 + 6K*2) $49K per year invested towards early retirement. lol, that's alot of money in the end.

Yes those limits go up after one reaches 50.
For a married investing couple who wants to go crazy and save as much as possible:
401k limit for 50 years & up: $24.5k per person, so $49k + company match if any
Roth/Back door Roth : $7k / person --------- $14k
HSA : $7k per family ---------$7k
EE Bonds $10k per person/ trust----------------------$40k
I bonds $10k per person/ trust +5k while refund --$45k

That is $155k / year, then there is college 529 and if one has their own company with limited employees, they can set-up cash balance plan for additional $200k per year.

As you said, earn as much as you can and save & invest as much you can. Everything else is noise pretty much

 

[shatteredx]

Put as much into the 401k as you can afford. Consider it a separate investment from your trading account. It's backup money in case you blow up your trading account at age 64.

Even if the market tops today, dollar cost averaging will mean that you'll get cheaper shares all the way down to the market bottom and back up again.