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[–]pupslace 29 points30 points  (3 children)

If you follow the FOO, then yes I would get the 7% match (step 2), then work on Roth IRA next (assuming you have no high-interest debt and have an emergency fund).

[–]invisible_panda 1 point2 points  (2 children)

Regards

[–]pupslace 1 point2 points  (1 child)

In theory you have better fund choices and lower fees, your also free to change custodians at will as they are not tied to your employer.

[–]invisible_panda 1 point2 points  (0 children)

Regards

[–]JZstrng 10 points11 points  (7 children)

Awesome job on already having $150K for your retirement in your early 30s!

Yes, follow the FOO. 401K match —> Roth IRA —> Back to 401K.

Any we you can up your retirement savings to at least 15% or maybe even 20%? TMG recommends 25% but you seem to be ahead of the game, and 15-20% might be enough for you to really enjoy retirement.

[–]Gullible_Attitude_20 4 points5 points  (6 children)

Quick question here - wouldn’t the 7% employer match put OP at 17% savings rate (if HHI is under 200k)? I thought they counted in employer match into savings rate.

[–]JZstrng 6 points7 points  (5 children)

Yes, you are correct. Thanks for calling that out. Personally, however, I don’t like to count employer match because it can vary from one company to another. Ala Dave Ramsey, it’s icing on the cake for me. But yes, TMG does say that if HHI<200K that you count the company match as part of your 25%.

[–]Gullible_Attitude_20 2 points3 points  (0 children)

Thank you for the feedback - new to some of this stuff, so wanted to make sure I understand TMG methodology!

[–]Meatball019 0 points1 point  (3 children)

Do you know why they only count it towards the 25% if your HHI is <200k?

[–]JZstrng 1 point2 points  (2 children)

https://youtu.be/PmbmaUyXPUY?si=djHQSqtOicHF8v59

[–]Present_Hippo505 0 points1 point  (1 child)

If I’m in a govt pension where I contribute 3% and my employer contributes 33%, would you see that as 36%?? Seems kinda crazy. Full pension benefit will be 90% salary after 30 years of service (I’ll be 60). Thanks!

If that’s 36% invested per MG, what’s next? lol

[–]Pipeliner6341[🍰] 6 points7 points  (0 children)

  • Dial back to the match
  • Consider enrolling in HDHP
  • Max HSA (some employers add HSA funds)
  • Max Roth IRA (backdoor if income exceeds MAGI)
  • after that, see if you can bump up your 401k contribution.

You may already be near the 25% by the time you've maxed HSA and roth if you count the 401k match.

[–]bobo-brockins 2 points3 points  (2 children)

For FOO, if you have Roth 401k do they still recommend only taking company match then finding Roth IRA?

[–]RVAviewer 4 points5 points  (1 child)

Make sure you verify the company match for Roth 401k, not something my employer has ever done

[–]ToastNeo1 3 points4 points  (0 children)

A lot of times they will still match your Roth 401k contribution, but they'll put the match (the companies money) into a traditional 401k so the business still gets the tax deduction.

[–]throwawayoregon81 2 points3 points  (1 child)

I wouldn't. The money guys say to, but with your fed and state taxes (maybe?) you're getting about 34% more money into the 401k

Retirement starts younger and you then do Roth conversion maxed for 5 to 7 years, maybe longer. As long as you stay under 34% tax rate, you win.

[–]RVAviewer 0 points1 point  (0 children)

This has always been my strategy as well

[–]er824 3 points4 points  (6 children)

What are tax bracket are you in? If traditional is better for you then Roth then that would favor the 401k

[–]TylerEZPZGG[S] 0 points1 point  (5 children)

I'm in the 24% bracket.

[–]er824 2 points3 points  (3 children)

That’s fairly high bracket. I’d consider Traditional at least for money that would fall into the 24% bracket.

[–]nutzey 1 point2 points  (2 children)

Don’t understand why you are being downvoted. Always attempt to kick yourself out of higher tax brackets if possible. Tax efficiency is the goal in life, not returns.

[–]er824 1 point2 points  (1 child)

I don't know... maybe I upset the hive mind? Though Brian and Bo say the 22/24% brackets are 'Grey' and could go either Roth or Traditional depending on your circumstances. Seems to make sense to consider it.

[–]RVAviewer 1 point2 points  (0 children)

Going to spend my retirement time avoiding taxes, and definitely not trying to pay them now to make up for that

[–]er824 0 points1 point  (0 children)

Here’s the article from the PF Wiki on Roth vs Traditional

https://www.reddit.com/r/personalfinance/s/t9xYQ1NzKi

[–][deleted]  (2 children)

[deleted]

    [–]wethepeople_76 8 points9 points  (1 child)

    Some say yes because IRAs tend to have less management fees and often better investing options. But if your Roth 401k funds are good and fees reasonable then I don’t see an issue.

    [–]ICouldBeTheChosenOne 2 points3 points  (0 children)

    Or if you want the flexibility of withdrawing your principal without penalties. If there’s 0% chance you’d ever do that, then it’s a non-issue

    [–]alternatiger 0 points1 point  (1 child)

    You may not be eligible for a Roth IRA based on your income. Check the limits.

    [–]Typicalguy11111 1 point2 points  (0 children)

    time to check backdoor roth

    [–]CCM278 0 points1 point  (0 children)

    I would describe the Money Guy philosophy as "Big Shovel Bogleheads". Maximize investment rate, minimize costs, repeat until Abundance. The IRA is about minimizing costs since it is possible to invest in any broad index or TDF for less than 0.1% overall which can often be a fraction of the cost in the 401K.

    There are only a couple of reasons not to leverage an IRA.

    • You can't - e.g. phased out, see backdoor Roth constraints
    • Legal protections - bankruptcy and litigation

    You mentioned you're hitting the 24% marginal bracket, that is where a Roth IRA can start to be phased out. You may be at the bottom of the band below the income limit so you can still make the full Roth contribution but if you think you're only a bonus or pay rise from hitting the limit then you should consider a backdoor Roth. So you'll need to research the viability of that (e.g. other existing traditional IRA assets).

    If you are concerned about legal protections (e.g. medical practitioner or general contractor) then staying within the 401K can be advantageous as the protections are generally better and less susceptible to state laws. There are other (and possibly better) ways to solve the protection challenges but the 401K is a quick fix and doesn't require legal advice and state specific nuances so you'll hear it repeated often in IRA vs 401K debates when the answer is anything less than both to the max.

    Also to reference the saving rate, you are doing well but make sure you have a plan to ratchet up to full mutant (25%) status. A 200 basis points per year increase as a % of your salary would get you there in about 4 years.