It seems far fetched to think that you can have too much in savings. But, can have too much in tax-deferred 401k’s? There is a lot of false information floating around out there, not just “fake news” but info that is just flat out wrong or misleading. Join me in this episode as we weed out the myths and get down to the bare bones of the matter.
You will want to hear this episode if you are interested in...
The first time I heard someone talk about too much in tax-deferred accounts [0:41]
Employer matching [3:10]
Are there long term benefits beyond the employer matching program? [6:41]
The big difference when looking at 401k vs Roth 401k [8:53]
The magic tax rate number to consider [10:58]
This week’s FLASHBACK [13:18]
Get that match!
If your employer is offering a match to your 401k contribution, it’s wasteful not to take advantage of it. Maybe they put in 4% if you put in 8%, at a minimum, you should get that 4% they are contributing. The question then becomes, does it make sense for you to go beyond maxing out their match? As always, this comes down to personal situations, but we will discuss it further in this episode of The Equity Compensation Guidebook, be sure to tune in!
To Roth or not to Roth...
The big difference when looking at contributions to a traditional 401k vs a Roth 401k is that the contributions to the Roth 401k go in before taxes are taken out. So we need to adjust our contribution amounts to reflect this difference. If you know with 100% certainty that your tax rate in retirement will be identical to your rate while working it really makes no difference if you're saving in a traditional 401k or Roth 401k.
Here's where it gets complex. If this assumption is true, then the factor that makes a difference when considering the benefit of a traditional 401k is the difference between your tax rate when working and the tax rate when retired. Talk about a mind-blowing conclusion or at least it was for me! I’ll cover this more in-depth in this episode so be sure to listen in!
This week’s FLASHBACK: Funsville
In grade school, the arcade was the stuff dreams were made of. There were games, bad pizza, sodas, and new people— most notably— GIRLS! Funsville in Cuyahoga Falls, Ohio was a short bike ride from my house, and it was there that I got my first taste of freedom. My friends and I had all gone to a Catholic school with the same 35 people since 1st grade, but at the arcade, we got to experience the outside world! It was awesome, and we spent every moment we could there during our grade school years. It’s a great memory and I’m glad I have it!
Resources & People Mentioned