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Roth 401k vs Traditional 401k

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dietwater53
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Location: Boston
Roth 401k vs Traditional 401k  Reply with quote  

Here's the scoop, and many thanks in advance for replying to my lengthy question(s). I started my first job out of college on August 12, and am eligible to contribute to my company's 401k plans, Roth or Traditional. I understand the pre-tax/post-tax advantages of both, and how much I can contribute, but can't decide what's the best option. I'm 22 years old, single, making 40k. I've heard the argument to opt for Traditional 401k so that my contributions are pre-tax and then when I retire and I'm in a lower tax bracket, I'm good. I've also heard Roth is better suited for people not making a ton of money, and later on when my salary increases switching to Traditional.

I guess I have a couple questions.

1) Can I contribute to both, and is that advisable?

2) Should I contribute enough before Jan 1. to get below the $8,700 mark (10% tax bracket)? I'll have made about 13k pre-tax by Jan 1 by my calculations, meaning I'd have to contribute about 5k to the plan by then. Does that make sense and is that advisable?

3) Which funds should I contribute to? There are many, and I have no idea. I've heard S&P500 is a solid choice...

Bond Options:
- Dfa Inflation Protected Securities I
- Metropolitan West Total Return Bond I
- Prudential High Yield Z
- Vanguard Inflation Protected Securities Inv
- Vanguard Intermediate Term Us Treasury Inv
- Vanguard Short Term Federal Inv

Equity Options:
- Aberdeen Global Small Cap Institutional
- First Eagle Overseas I
- Goldman Sachs Small Cap Value Inst
- Janus Triton I
- Lord Abbett Value Opportunities I
- Mfs International Value R4
- Parnassus Equity Income Inv
- Principal Mid Cap R5
- Schwab S&P Index
- Vanguard Dividend Growth Inv
- Virtus Emerging Market Opportunities Inst
- Wells Fargo Premier Large Company Growth Inst
- Yacktman

Money Market:
- Federated Automated Cash Management Trust Ss

Thanks again.
Jon
Post Fri Sep 13, 2013 2:16 am
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coaster
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Jon, there's no problem splitting between both. You have no idea what the tax laws are going to be when you retire, so what you do now is a toss-up as to which will be more advantageous in 40+ years anyway.

This is a retirement plan. You have no need now for income in a retirement plan. So you have no need for any bond or money-market options. Go with 100% equities.

~Tim~
Post Fri Sep 13, 2013 5:32 am
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