Roth or pre-tax 401k

Jan 18 32 Comments

I am early in career and MSFT only contribute to pre-tax, is it better to do all Roth or mix of 50% Roth and rest pre-tax. I pay fidelity to manage my 401k investment. What index funds in fidelity are good for medium and low risk? married, #401k #msft #fidelity
TC: $195k

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TOP 32 Comments
  • Amazon BlindIy
    Depends on your own situation. However TC is actually very relevant here and not just because it’s Blind.
    Jan 18 9
    • Amazon BlindIy
      You’d be very surprised what most people don’t know.
      Jan 20
    • Airbnb Blahblahxa
      Don’t worry about it. I explained it to OP below. OP probably also knows how to google “AGI.” Hope this reply doesn’t trigger you again.
      Jan 20
  • Google bighead2
    TC?
    it matters here
    Jan 18 4
    • Airbnb Blahblahxa
      Yeah missing details but AGI might be double if OP is married vs Roth only affecting AGI by 19k
      Jan 18
    • Google bighead2
      Gotcha, good point
      Jan 18
  • Google swinglyf
    Assuming high tc, go pretax first and after tax rolled into Roth after.
    Jan 18 0
  • Microsoft mgTL73
    If you are early in your career, then why are the looking for medium to low risk funds? You are in a position to take higher rush when younger.

    Join the invclub DL in Microsoft. There is a great OneNote with lots of good info
    Jan 18 5
    • TriNet faanggg
      Thanks for the insight. Doing the index funds, will look up the bogglegead advice
      Jan 18
    • TriNet faanggg
      If you can can you copy paste the contents into a paste bin and send the link. If not that's fine
      Jan 18
  • Microsoft proclimate
    Max out Pre-tax 401k, then backdoor Roth IRA in that order.

    https://www.investopedia.com/terms/b/backdoor-roth-ira.asp

    If you have 6k spare in your bank right now, make sure you get the 2019 backdoor Roth IRA amount in before tax day, otherwise it is gone forever.
    Jan 18 0
  • Twitch SOp9QsgipC
    How can I start doing backdoor Roth IRA? Any article I can follow to understand the whole system? I already max out my 401. Is there any limit to backdoor Roth IRA?
    Jan 21 1
    • CloudBees / Eng
      rfXQ86

      CloudBees Eng

      PRE
      CloudBees
      rfXQ86more
      Limit for backdoor is 50k. Need to see if you can by talking to the benefits department of your company
      Jan 29
  • Salesforce / Consultant YlP33
    Both
    Jan 29 0
  • Microsoft / Eng
    CloudTown

    Microsoft Eng

    PRE
    Amazon
    CloudTownmore
    Step 1: max out IRA contributions (pretax then Back door Roth)

    Step 2: max out company match on Roth 401K (if you can, traditional will give you more take home now but you pay taxes later, assuming you pay higher tax bracket later in career the Roth is preferred)

    Step 3: if you can afford max annual Roth 401K do it. You get more tax free growth than max traditional 401K.

    Step 4: gamble the rest on IPOs. :)
    Jan 29 0
  • Airbnb Blahblahxa
    OP hasn’t responded so probably doesn’t care about this any more, but we need to know your AGI (Adjusted Gross Income, appears on your tax return every year, includes spouse’s income) since you’re MFJ. TC is only your situation. We need to know your tax filing situation including your family, particularly tax bracket. If you’re in a high tax bracket, pre-tax is always better because you won’t pay taxes on the money until you retire. If you’re in a low tax bracket, Roth is probably better for you. You’ll pay the taxes now, the money will grow tax free, and withdrawals are tax free when you retire.

    You added that you want to know mutual funds that are low risk. Don’t do that. Bet on the highest risk stuff at this point in your career. Go all in on a total market or S&P 500 ETF or mutual fund. You can’t touch the money until you’re at least 60, so don’t worry about market ups and downs.
    Jan 20 0
  • Merrill Lynch Jbox5002
    Remember that the Tax Cuts and Jobs Act sunsets in 2025. Pre-2018 tax rates were noticeably higher for someone in your tax bracket and if the TCJA isn't extended we could see tax rates revert back. For some people, it makes sense to do Roth 401k contributions, after tax contributions, and a back door Roth IRA. Your situation might benefit from more pre-tax contributions. You might actually need to reduce your contributions to maximize just the company match, and focus on an emergency fund. Dont ask questions in a vacuum and assume that someone will be able to provide the correct answer.

    When it comes to risk, I agree with the comments that if you are young you can afford to take on more risk. But if you watch your account closely and it makes you sick when the market drops to the point you want to sell out, then a more balanced portfolio might be appropriate.

    It might make sense to find a financial advisor of sorts who can get the full picture of your situation. You might even have a family member or friend who can help.
    Jan 19 0

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