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Posted: 10/2/2014 10:09:46 PM EST
I'm 31, and have some extra money each month and I'm curious what to do with it. I feel keeping it piling up in my savings account with the measly interest it gains is a waste. I''ve got a good emergency fund, the whole 6 months of living type of thing.

I'm paying $300 more a month on my mortgage, no car payment or other debt.

I contribute the minimum on my 401k in terms of employer match.



So...What would you suggest for the best course of action to keep putting my extra money?

One guy at work says to max out the 401k at work, as that will lower my taxable income. I'm single so I get screwed bad anyway.

I'm not smart on this stuff at all, and I'm not sure where the tax advantages are. My 401k/retirement outlook is weak, I havent been too good on contributing to that.

I'd be looking for long term, pretty stable stuff.

Go!
Link Posted: 10/2/2014 10:15:52 PM EST
Max out your 401k

If you qualify, start a Roth IRA and set up monthly contributions.

Do NOT dip into these accounts under any circumstances
Link Posted: 10/2/2014 10:22:01 PM EST
Discussion ForumsJump to Quoted PostQuote History
Originally Posted By bigkahuna48026:
Max out your 401k

If you qualify, start a Roth IRA and set up monthly contributions.

Do NOT dip into these accounts under any circumstances
View Quote

That will be taxed when I take it out, correct?
Whats the thinking involved, I am taxed less now just to be taxed later?

Not that i doubt the advice, just trying to understand it.
Link Posted: 10/2/2014 10:37:32 PM EST
Discussion ForumsJump to Quoted PostQuote History
Originally Posted By Nate4635:

That will be taxed when I take it out, correct?
Whats the thinking involved, I am taxed less now just to be taxed later?

Not that i doubt the advice, just trying to understand it.
View Quote View All Quotes
View All Quotes
Discussion ForumsJump to Quoted PostQuote History
Originally Posted By Nate4635:
Originally Posted By bigkahuna48026:
Max out your 401k

If you qualify, start a Roth IRA and set up monthly contributions.

Do NOT dip into these accounts under any circumstances

That will be taxed when I take it out, correct?
Whats the thinking involved, I am taxed less now just to be taxed later?

Not that i doubt the advice, just trying to understand it.


You'll be making money off that money. If you have $100, and I tax you 33% on it, you have $66 left. If your money is working for you, I tax you in 30 years for that money, not now. That $100 will be worth more. You'll pay more in taxes, but they won't be taxing $100 anymore either.
Link Posted: 10/2/2014 11:19:33 PM EST
Discussion ForumsJump to Quoted PostQuote History
Originally Posted By Nate4635:

That will be taxed when I take it out, correct?
Whats the thinking involved, I am taxed less now just to be taxed later?

Not that i doubt the advice, just trying to understand it.
View Quote View All Quotes
View All Quotes
Discussion ForumsJump to Quoted PostQuote History
Originally Posted By Nate4635:
Originally Posted By bigkahuna48026:
Max out your 401k

If you qualify, start a Roth IRA and set up monthly contributions.

Do NOT dip into these accounts under any circumstances

That will be taxed when I take it out, correct?
Whats the thinking involved, I am taxed less now just to be taxed later?

Not that i doubt the advice, just trying to understand it.


Tax now vs. tax later isn't necessarily a no brainer either way. It all depends on how your tax bracket changes from now to when you are in retirement and how tax law changes. You don't have a crystal ball so I wouldn't get TOO worked up about it. You can always hedge your bets by contributing to your 401k up to the point that your employer no longer matches and then put everything over and above that into a Roth IRA.

The one thing that EVERYONE is going to agree on is that you should get every last cent of your employer match. That's free money.

Link Posted: 10/3/2014 9:48:22 AM EST
You state that you are already getting your full employer match. That's a great start.

How much extra money a year are we talking here? This year you can put a total of $17,500 in to your 401K and $5,500 in to an IRA. Neither are a bad idea. Typically for optimum efficiency you would get full employer match then max the IRA, then work on maxing the 401K. Depending on your income level you may be better suited for either a Traditional or Roth IRA.

As for the tax question: it's the delay of taxes on the original investment and it's earnings that makes it all worth it.

here's a link to get you started on some good impartial information: http://www.bogleheads.org/wiki/Getting_started
(actually, they will lean towards Vanguard, but the writers have no personal gain from whatever your decision will be)
Link Posted: 10/5/2014 12:00:57 PM EST
401k investment choices are not usually the best. Also consider that the expenses for your 401k option are probably higher than an investments outside your 401k. I would contribute the most money into the 401k that your employer will give you any kind of match for because it's free money.

Next, if you are young and making relatively little money compared to what you will earn when you are older I would look at a Roth IRA. You will pay tax on it at your low current rate and when you are making more money later in life, paying a higher tax rate, your earnings from the Roth IRA will be tax free. Since I'm sure that taxes are going to increase in the future, paying tax now would be a good idea.

An ETF in a standard brokerage account will also be relatively tax efficient.
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