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My employer offers both at a 6% match. Ive been doing the Roth but want to see if I'm doing the right thing. I am 33 now and am doing things to prepare for future promotions at work so I expect my income to increase over time.
What do I need to look at when choosing between the two? Any other info you need to help me make a decision?
Do you think your Tax Rate will be higher when you retire or lower?
Higher @ Retire then do Roth 401K and Get $ taxfree in 30 yrs
Lower @ Retire then do Reg 401K and pay taxes when you pull money out.
Benifit if roth is all the 'growth' is tax free, in reg 401k you pay tax on growth when you pull money out. @33 i would think roth401k would pay off your you.
Don't have enough info here to help you. What kinds of funds are available in your 401k plan? Most importantly, what are the expense ratios of these funds? That is key.
My employer offers both at a 6% match. Ive been doing the Roth but want to see if I'm doing the right thing. I am 33 now and am doing things to prepare for future promotions at work so I expect my income to increase over time.
What do I need to look at when choosing between the two? Any other info you need to help me make a decision?
My employer offers both but the 401K Roth is not pre-taxed so I plan to use 401K Pre-Tax up to $17K for this year.
Since your employer offers 6% match for BOTH account. I rather pick your employers Roth 401K. So it will 12% total match right?
Roth Roth and Traditional IRA, you have the option to whatever funds you want you are limited to funds on the 401K Roth.
You need to find out. The average expense ratio in a 401k fund is over 1.5%. With an expense ratio this high, the vast majority of gains you might make over a period of several decades will go to the financial company instead of you. Choose the funds with the lowest expense atios. Normally, these will be index funds.
Quote:
Originally Posted by Mr_Geek
6% total from one, the other, or both. It's stocks international stocks bonds mutual funds etc. I have no clue what the expense ratios are.
over 30 years a fund that charges 1.5% eats up about 1/4 - 1/3 of its gains compared to totally unmanaged etf's.
typically most 401k funds are in the 1-1.5% range.
of course the flip side is without the discipline of a forced subtraction from their paycheck most folks would have gains of zero and savings of zero so the fees are a small price to pay.
employer matching offsets those fees even farther maybe even making them a non event.
biggest factor of all is the portfolio you put together and the allocations. they will far and away determine your overall long term performance.
low cost etf's in a bad mix may do far worse than a well structured portfolio even if fees are higher.
a fund does not a portfolio make .... you dont need funds that beat the market, you need a group of funds that function as a well oiled machine .
one of the portfolios i followed for over 25 years from fidelity insight used managed fidelity funds, most never barn burners and all had fees way higher than an etf but still under 1%.
the blended performance of those funds together worked as a coherent team. the sum was definetly greater than any of the parts . the portfolio took a 100k in 1987 and today its 1.2 million. it did it with about 20% less risk than an s&p 500 fund so in that respect it was worth every extra penny in fees following that model as opposed to just throwing a bunch of index funds together and accepting the weightings and sectors for what they are. .
i look at fund statistics like i do odds of getting mugged. while its said that 80% of managed funds fail to beat unmanaged index funds you have to read into that.
there are lots of good areas in new york city where i live that i can go to and my chances of getting mugged are nil . there are other areas where its almost a given.
i have a pretty good idea from long history where not to go . if i dont go there my odds stay slim ill get mugged.
many funds counted are not diversified , they have bad management , they have histories of poor performance.
weed those out and your odds grow much better you will pick a better performing fund in theory. ill bet i can throw out 20% of all funds by just doing a little research on their management .
you dont have to know much to realize if you buy fidelity magellan it will more than likely be a poor choice unless you want to count on luck.
you also need to tune your funds for the big picture . having an s&p 500 index fund isnt as effective as being able to switch between funds with different weightings at times.picking a managed fund weighted for say a weak dollar if the dollar is growing weaker and then if the dollar strengthens swap that fund for another where the manager weighted it to perform better when a dollar is rising and it can yield better performance than either fund on its own ..
while neither fund may beat the markets the combination of you utilizing them both at different times may beat the markets without the funds beating them.
that is just how the models i follow worked over the decades. the portfolio beat the markets over and over even though the funds that were swapped may not. its the sum of all the funds together that really determine how you do not just the fact you picked a low fee fund or a fund that is the market..
Last edited by mathjak107; 04-16-2012 at 04:35 AM..
In the first place, 30 years is not a good measure for retirement savings. I'd use 50 years (age 25 to 75).
What you're not considering is the opportunity cost of the fees you pay that would've been invested. For 1.5% in your 30 year hypo, the expenses amount to $13,697, but the opportunity cost is $22,985. Using the Vanguard Admiral shares fee of .07%, those amounts are: $845 and $1247 respectively. The balance becomes $98,535. That 1.5% cost you 54% of your gains. So fees need to be a HUGE consideration.
Quote:
Originally Posted by mathjak107
NO WAY ITS NOT 2/3
there is an on line fee calulator ill post later. you can put the fee in and the number of years... i did it many times ...
PER 10,000 DOLLARS FOR 30 YEARS AT A LONG TERM AVERAGE OF 8%
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