March 13, 201214 yr What is currently the maximum contribution for a Roth IRA? $5,000 for a person under 50. $6k otherwise.
March 13, 201214 yr $5,000 for a person under 50. $6k otherwise. So it is based on age, not income? Does it increase annually? I have a 401(k) and Roth IRA. From what I understand, the best move is to invest in the 401(k) first (up to the amount that my employer will match) then invest any excess savings to the Roth. That advice makes sense to me. Are there advantages to doing it a different way?
March 13, 201214 yr So it is based on age, not income? Does it increase annually? I have a 401(k) and Roth IRA. From what I understand, the best move is to invest in the 401(k) first (up to the amount that my employer will match) then invest any excess savings to the Roth. That advice makes sense to me. Are there advantages to doing it a different way? It's the smaller of either $5k or your taxable income.
March 13, 201214 yr So it is based on age, not income? Does it increase annually? I have a 401(k) and Roth IRA. From what I understand, the best move is to invest in the 401(k) first (up to the amount that my employer will match) then invest any excess savings to the Roth. That advice makes sense to me. Are there advantages to doing it a different way? Your logic is sound as long as you do not expect to need funds from either the 401k or the Roth. I'm pretty sure there are provisions for withdrawing funds from a Roth for a first-time homebuyer without penalty.
March 13, 201214 yr The only issue I have is that it's so difficult to borrow against your 401K, relative to having the liquidity of a savings account that's accessible. I am trying to get at least 12 months of expenses saved. I am secure in my job, and the company I work for is equal to Starbucks as far as being a good company to work for....actually in some respects better. But I have never had any significant savings, and I've faced many situations where savings would have been a God-send. I'm reluctant to tie up the majority of my savings in a place where my emergency may not match the criteria set forth in a 401K. This may vary from plan to plan, but in the single instance that I borrowed from my 401k, it was not a difficult process at all. It was merely a few clicks and within 7 days I had a check, no questions asked. I believe I paid a one time $75 fee and I paid myself a 4.25% interest rate over the term of the loan. While it has long been considered taboo to borrow from your 401k (and for some good reasons, like lost return on borrowed funds etc...), it worked out very well for my situation. You may want to check out the details of your specific plan, but I would much rather have my 12 months of expenses saved in a place where it has a chance to grow. JMO.
March 13, 201214 yr Your logic is sound as long as you do not expect to need funds from either the 401k or the Roth. I'm pretty sure there are provisions for withdrawing funds from a Roth for a first-time homebuyer without penalty. You could always borrow the funds from your 401k if you need funds earlier. That way you avoid the penalty.
March 13, 201214 yr Your logic is sound as long as you do not expect to need funds from either the 401k or the Roth. I'm pretty sure there are provisions for withdrawing funds from a Roth for a first-time homebuyer without penalty. Can't you withdraw the principal (i.e. your contributions) without penalty? It's only the "earnings" which are penalized, right?
March 13, 201214 yr You could always borrow the funds from your 401k if you need funds earlier. That way you avoid the penalty. True but then those funds are not available to grow your account. Also if you leave your job (quit , fired, laid off) you have 60 days to pay back to loan or it's considered a 401k withdrawal which means taxes and penalties. Some 401k plans do not let you contribute to the 401k plan while you have an outstanding loan.
March 13, 201214 yr Can't you withdraw the principal (i.e. your contributions) without penalty? It's only the "earnings" which are penalized, right? Read this. Fool.com: All About IRAs - The Roth IRA Withdrawals
March 13, 201214 yr True but then those funds are not available to grow your account. Also if you leave your job (quit , fired, laid off) you have 60 days to pay back to loan or it's considered a 401k withdrawal which means taxes and penalties. Some 401k plans do not let you contribute to the 401k plan while you have an outstanding loan. Agreed. That is why it is very important to check out the details of your plan before making a decision.
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