Hi all,
The company I work for is just about to implement a 401k, and this is the first time I’ve had that option in front of me. (I’m 48, FWIW.)
I’m wondering how people that are using Saul-style investing approach this. Putting enough in to take advantage of employer matching is a no-brainer, as this is an immediate 100% return on investment. But beyond that, the 401k is limited to funds; no individual stocks. I know my performance here is no guarantee of future performance, but YTD I’m up about 29% (TWRR), and my wife, who has everything in ETF’s is up about 11.5% YTD.
My question is, does it make more sense to only put enough for matching in the 401k, and then put everything else into my taxable account (I’ve maxed out an IRA for the year)? At what point do the possibilities of higher rates of return outweigh the taxable benefits of a 401k or a Roth 401k?
How are those of you who are still working approaching this?
Many thanks in advance!
George
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That is an excellent question and one that I would like to figure out soon myself (recently turned 33).
As I have started doing some individual stock investing as of October 2014 and really started to pay a good deal of attention to it since joining The Motley Fool (Stock Advisors and Rule Breakers) in 2016, I am liking the idea of having more of the money for my self-directed account rather than in the 401k.
My company doesn’t even match the 401k, since we have an Employee Stock Ownership Plan (ESOP), so my 10 or 11% going into the 401k might be a bit too high…as that money will be essentially off-limits until I am 59.5 or some such and is limited to various funds.
George, I answered your question here: http://discussion.fool.com/401k-vs-taxable-acct-32777280.aspx
Saul likes for his board to be about discussing growth companies. Taxable vs 401k account issues seem pretty out of play. Feel free to respond to me on the other board.
Bear
4 Likes
Question for Saul/the board that might be somewhere in the Knowledge Base (which I have read about 2/5th of so far).
Just earlier today, I started thinking of a potential new metric or two for determining when you might be ready to retire. I have often heard a rule of thumb of having enough saved up to only need to withdraw about 4% per year for living expenses. That “rule” is probably decent for “conventional” investors/401k retirement savers, but for “Saul-type”/Rule Breaker/Foolish investors, that might not be the best metric.
So, possible metrics for retirement:
- Average annual net worth increase/annual working income (averaged over a 3 to 5 year period)
- Retire from “working” once this factor exceeds 2? (home value appreciation should likely be
factored out of this metric)
- Five year rolling average investment associated income/annual living expenses
- Retire from “working” once this factor has exceeded 1.2 for 6 consecutive years?
Any thoughts on either of these metrics from “Saul-type”/Rule Breaker/Foolish investors who have successfully retired (possibly “early”)?
Whoops, I will throw my questions over to that board too.
Also, here’s a retirement-specific board. I cross-posted my thoughts there.
http://discussion.fool.com/retirement-investing-100154.aspx?mid=…
Question for Saul. Just earlier today, I started thinking of a potential new metric or two for determining when you might be ready to retire.
Hi volfan,
There are MF boards on Retirement issues which are very active.
And, if you go to MF Home, right along the top bar you’ll see Retirement as a category.
And if you go further along the top bar to Community, just go down to Discussion Boards, and you’ll also see a category on Retirement.
OUR BOARD IS NOT FOR RETIREMENT ISSUES.
Thanks
Saul
2 Likes
Also, here’s a retirement-specific board. I cross-posted my thoughts there.
Sorry volcano, My Bad, If I had read the following posts I would have discovered that you had found them yourself. Thanks for posting the link, and sorry about my previous post.
Saul
This is not complicated. Always max out tax favored investment vehicles…hard to beat tax delayed gains over a lifetime (tax free from a Roth perspective).
Maybe more complexity to decisions on Roth 401K vs standard but few would argue against 401K, IRA and their Roth variants.
Roth of course doesn’t require the manadatory age 72 withdrawal and has tax favored estate planning for your children compared to non-Roth as well as tax free returns.
But this isn’t complicated.
As an aside, a Saul type portfolio that does seem to turnover stocks quite frequently, would be a reasonable tax deferrred portfolio…delays all those short and long term gains every year.
Sorry volcano, My Bad, If I had read the following posts I would have discovered that you had found them yourself. Thanks for posting the link, and sorry about my previous post.
Saul
No worries.
I’m still a bit new to this board and am accustomed to a Tennessee sports message board with quite a few off-topic items mixed in, so I started that first post without thinking. You should consider it a compliment that this board, the Rule Breakers board, and the Stock Advisor board are the 3 MF boards I have bookmarked for quick checking.