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Is ok if I contribute 2% traditional 401k and 6% roth 401k? Is this a good mix or where I should I be contributing more?

I have 31 years old, My income is 23000 per year, I work to Savemart Supermarket, they offer the traditional 401K and the Roth 401K I don't have debts. I have a good credit 750 .The company that I work don't make contribution to my 401K :(.

Dec 18, 2015 by Jorge in  |  Flag
4 Answers  |  6 Followers
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2 votes
Peter C. Karp Level 20

Jorge

Congratulations on being active in your company’s 401(k) plan and planning to contribute 8% of your salary towards your retirement. Since your plan allows both pre-tax 401(k) contributions and after tax Roth contributions you can contribute to both (2% traditional and 6% Roth). Because you are currently in a relatively low tax bracket, it may be best to contribute the full 8% to Roth, paying a small amount of taxes now and have tax-free distributions upon retirement. Keep in mind that the total combined contributions cannot exceed $18,000 per year for 2015 and 2016. Keep up the good work.

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Comment   |  Flag   |  Dec 23, 2015 from San Francisco, CA

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You are in a low tax-bracket so that would argue in favor of a Roth 401K as a current tax deduction is likely to be lower than the tax benefit you get when withdrawing the funds tax-free from a Roth at retirement.

My only question would be whether you are able to contribute 8% to your retirement plan without compromising your need for cash flow to meet your current spending needs including having an emergency fund.

1 Comment   |  Flag   |  Dec 20, 2015 from Manhattan, NY
Billy Defrance, CFP®

Great answer and suggestion..

Flag |  Dec 21, 2015 near El Paso, TX

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First, I commend you on a stronger than usual participation in your 401(k), particularly at such a young age. I also concur with Robert's suggestion that it is likely you'd benefit more, in the long run, to have all going into the Roth at this point in your life. Your tax bracket is low and the tax cost is perhaps the lowest you will ever experience. The tax free withdrawals in the future will be a great part of efficient tax planning when you actually retire.

A regular review of your circumstances, and increases to your deferral to your 401(k) when you are able to do so, will be of great future benefit. Increase it as often as you can. I usually give half my raise to my 401(k) or other investments, while my wife is more than happy to help utilize the rest.

Comment   |  Flag   |  Dec 21, 2015 from El Paso, TX

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First, I commend you on a stronger than usual participation in your 401(k), particularly at such a young age. I also concur with Robert's suggestion that it is likely you'd benefit more, in the long run, to have all going into the Roth at this point in your life. Your tax bracket is low and the tax cost is perhaps the lowest you will ever experience. The tax free withdrawals in the future will be a great part of efficient tax planning when you actually retire.

A regular review of your circumstances, and increases to your deferral to your 401(k) when you are able to do so, will be of great future benefit. Increase it as often as you can. I usually give half my raise to my 401(k) or other investments, while my wife is more than happy to help utilize the rest.

Comment   |  Flag   |  Dec 21, 2015 from El Paso, TX

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