Ask Terry Questions Regular 40l(k) or Roth 40l(k)

Regular 40l(k) or Roth 40l(k)

By Terry Savage on February 02, 2018 | Investments

My daughter can contribute to a 401k pre tax and/or 401k Roth post tax at her place of employment. The company matches up to 6%. Should she put 6% to pre tax and 4% post tax? My guidance to her is she HAS TOO save 15% toward's retirement (includes employer contributions). Is there a rule of thumb for this? Thanks.

Terry Says

The simple rule is that the more she saves, the better!  Assuming the employer matches the 6 percent regardless of whether it is a Roth or traditional, I'd put the 6% into the traditional IRA, because it will be less complicated later.  An employer's match in the Roth 40l(k) is always PRE-tax, meaning some of the money that eventually comes out, and the growth of it, will actually be taxable!  She really wont want to deal with that hassle down the road.  Assuming you want more details, here's a link to a great article on the subject. And, since you are advising your daughter on this matter, the best advice you can give her is to STICK TO HER PLAN when the stock market comes crashing down -- as it inevitably wil!  That means her regular monthly contribution (and the employer match) will buy even more shares at lower prices.  She obviously has a long time horizon, so remind her not to panic and sell when the market decline is making headlines!

Recent Investments Questions



a personal
finance question