401Ks and ROTH IRAs

Posted by Mrs Money on June 1st, 2011


My employer offers a 401k for retirement savings.  I contribute 6% of my salary, and they contribute 4% of my salary and give me dollar for dollar matching.  I’ve contributed 6% for years, and it’s a number we’ve been comfortable with.  However, I got to thinking the other day how Mr. Money’s employer doesn’t offer any type of retirement savings (they haven’t ever) and how we probably need to get cracking on saving for retirement with him.  We each have a Roth IRA that are in mutual funds, and my account has around $500 in it while his has maybe $2500 in it.  That is all we have saved for retirement minus my 401k, which I know has a decent balance, but not as much as I’d like for both of us, especially with Mr. Money being 34 years old.

This is what I’m thinking: I will take a set amount of his paycheck aside each month and transfer it to an ING account where it can stay until we’ve got enough to contribute to the Roth IRA.  The reason I don’t want to contribute each month directly to the IRA is because every time we make a contribution they charge us.  So it makes sense to go ahead and save up and just make one quarterly or biyearly contribution.

I’m going to have to figure out a dollar amount that works with our budget and go from there.  I guess I’ve always worried we won’t have enough money, but that stands for life in general, so as long as I do SOMETHING about retirement and we continue to save money, I should feel good about it.

I’ll continue to contribute to my 401k at work and may even up the percentage a little bit to try to bump that balance up.  I know I’ve talked about it before but never took action.  I think part of my problem is that I worry too much about everything in general and compare our finances to other people sometimes and those are both big mistakes.  I think if I stop doing that, I’ll be in a lot better shape!

I freak out a lot but I also have to realize that we still are pretty young and really just getting started. With Mr. Money a little older than me, it’s easy to think we should have more money saved at this age, we shouldn’t owe so much on our mortgage, he should have a better retirement account, etc.  The truth is we’ve done pretty well.  We paid off our consumer debt and student loans over the past few years with hard work and determination.  We work hard to live on his income, so we can have me stay at home with our baby when the time comes.

Retirement is a long way away, and we’ll do our best and take it from there.  That’s all we can do.

Do you worry about retirement?

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15 Responses to “401Ks and ROTH IRAs”

  1. i don’t think i worry about retirement enough. i am a state employee and have a guaranteed pension, with a 457(b) account as well so i get a false sense of security with that. i know i should have more than i do but right now we’re working on the rest of our debt and getting through daycare payments. once those are done, we’ll kick up the retirement savings.


    Mrs Money Reply:

    Jana- That’s awesome! I think you’re doing really well if you’ve got those in place. It’s definitely a great start.


  2. krantcents says:

    I am approaching my second retirement in the next six years. I don’t really worry about the financial side as much as what I will do in retirement. I have always been a saver and socked enough away to have a good retirement.


    Mrs Money Reply:

    krantcents- I could see that! I’ll bet I’ll be the same way.


  3. Jessica07 says:

    Slow and steady wins the race… That’s my new mantra. I worry about retirement, only so far as what we will do with everything. I think for as young as we are, my husband and I are on a good path to retiring with a feeling of security and peace of mind. However, beyond the financial part of it, we’re still trying to for a baby. What happens if we retire and still haven’t had one? Who do we leave everything to? Probably a dumb thing to get stuck on, but that’s what I worry about with retirement. Being alone.


    Mrs Money Reply:

    Jessica- I need to adopt that as my new mantra too. I am sure it will happen for you soon. You should email me if you want to talk!


  4. Melissa says:

    I do worry about retirement. We have a good start, but I would like it to be larger. Like you, I get myself in trouble when I compare to other people.

    I wish, on the other hand, that my mom had worried more about retirement. She is set to retire on a very limited amount, and she thinks because it is enough to meet her basic needs now, it will be fine throughout her remaining life. She has not even considered inflation. She just says, “I’ll figure it out; I always do.” Scary.


    Mrs Money Reply:

    Melissa- Exactly! I am so bad about comparing us to other people. It is hard not to sometimes. I hope everything works out for your mom! That is a scary situation.


  5. Julie says:

    I have one comment on your method of IRA contributions — there is a downside to waiting and investing the money all at once, and that is that you miss out on dollar cost averaging. In a nutshell, that means that if you happen to pick a bad day (or month) to buy your shares and the price is high, all of your shares are valued at that price. Conversely, if you invest monthly, the high prices will be more or less averaged out by the low prices and ultimately, your gains should be higher.

    Also, I don’t know a lot about IRA management, but I do not have to pay to make a contribution to my IRA and I do so monthly (for the reason above). It may be wise to look into a different management company that won’t charge you per transaction.


    Mrs Money Reply:

    Julie- Ahh. Great point. I hadn’t thought about that at all. I agree with you- I may have to look into a new company to have my IRA with. Thanks!


  6. The benefit of an IRA or 401K is that you defer taxes. Will you really be in a lower tax bracket when you retire – based on the state of the country (US), I’m guessing that might not be the case.

    We wish we had put money into a tax free muni bond fund instead of the IRAs. We would have paid taxes at the lower rate we had then and be able to avoid the fiduciary fees we pay on the IRAs as well as the complexities of converting to a Roth.


    Mrs Money Reply:

    Marie- We both have Roth IRAs so the money put in has already been taxed.

    That’s very interesting- I hadn’t thought of that. I think I need to do more research!


  7. Wait. What?? “The reason I don’t want to contribute each month directly to the IRA is because every time we make a contribution they charge us.”

    You mean the Roth IRA, right?

    If you’re setting aside post-tax dollars to invest in a Roth IRA, for hevvinsake take your money to Vanguard, which most certainly does not charge you every time you contribute to its Roth IRAs. Is that even legal?

    There are MANY disadvantages to 401k’s and traditional IRAs. Your heirs get a tremendous shafting when they inherit a traditional IRA or 401k from you. Over the long run, especially if you’re fairly young, you (and your kids) are better off investing through a Roth.


  8. It sounds like you’re doing what you can about retirement–all you can do is the best you can. The Roths are a good start, especially since you’ll be giving up your 401k when you have a baby. The Roth offers a number of advantages, including the fact that you can withdraw your contributions tax and penalty free in advance of retirement if that ever needs to be the case.

    But looking to actual retirement, the Roth gives more bang for the buck. You an continue contributing to it past retirement age and you won’t have to take required distributions. That means you can grow it for more years–that can be important if you feel your retirement provisons might be inadequate at age 65.



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