Advice for Roth and 401k
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  1. #1
    BamaNation Hall of Fame Jessica4Bama's Avatar
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    Advice for Roth and 401k

    I have had a mutual fund account with Morgan Stanley since I was a senior in high school. I opened up a Roth IRA several years ago and was putting about $400 a month into it up until August 2017 when I quit my job to finish my degree. Now that Iím done with school, I need to figure out what I need to do from here. My new employer will match my contributions after one year of employment, but they use fidelity. Iím going to talk with my advisor at Morgan Stanley but I was hoping for some advice here.

    Do you recommend me starting back contributing to my Roth IRA with Morgan Stanley or open up an account with my employer? I donít think I will be able to contribute to both, but I donít know which would be best to maximize my money.

    This is what my benefits package says, so Iíll include that because Iím not sure what all it means:

    In addition to the basic contribution, the employer will contribute a matching contribution which is an amount equal to 50% of the first 5% of an eligible employees voluntary contribution (this is the 401k option)

    The Roth option they offer doesnít say much other than contributions are made with after tax dollars/no income limitation to participate like with the Roth option
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  2. #2
    BamaNation Hall of Fame Bamaro's Avatar
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    Re: Advice for Roth and 401k

    Take the match!

  3. #3
    BamaNation Hall of Fame Jessica4Bama's Avatar
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    Re: Advice for Roth and 401k

    I had planned on doing that but I have a lot of money in my Morgan Stanley accounts. What do I do with that? Just keep it open and don’t put any money into it? I can’t afford to contribute to both.
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    BamaNation Hall of Fame 92tide's Avatar
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    Re: Advice for Roth and 401k

    Quote Originally Posted by Jessica4Bama View Post
    I had planned on doing that but I have a lot of money in my Morgan Stanley accounts. What do I do with that? Just keep it open and don’t put any money into it? I can’t afford to contribute to both.
    i think you can just stop contributing to it and let it grow on it's own. for a long time i had an account from an earlier employer that i just left with the mgt company (vanguard, i think) while i participated in the new one.
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  5. #5
    BamaNation Hall of Fame Jessica4Bama's Avatar
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    Re: Advice for Roth and 401k

    Okay. Thank you for the advice. That's probably what I will do. I'll find out more about it when I start orientation.

    What about if I was going to do travel nursing and probably wouldn't be with this employer but for 3-4 years? Still open up one where they match and then go from there if I decide to leave and do travel nursing?
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  6. #6
    BamaNation Hall of Fame Bamaro's Avatar
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    Re: Advice for Roth and 401k

    Quote Originally Posted by Jessica4Bama View Post
    I had planned on doing that but I have a lot of money in my Morgan Stanley accounts. What do I do with that? Just keep it open and don’t put any money into it? I can’t afford to contribute to both.
    Just leave the MS as is and maximize the match if you can.

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    Re: Advice for Roth and 401k

    Contribute as much as you possibly can. At a very minimum, the 5% for the match, but you can contribute up to $19K in 2019, and that number periodically increases over time.

    If you can do it, I'd lean slightly toward the Roth 401k, if your employer offers that option. It's a bit of a guessing game because nobody knows what kind of tax policy we'll have in 5 years, let alone 30+ years from now. But I'd be real surprised if tax rates that far out are lower than they are today.

    If that's right, the Roth is your best option -- your Roth contributions are net of less tax less today than distributions from a non-Roth would be when you take them in retirement. If it's not, you're really not out all that much, and it's nice to have your distributions be tax free.

    Full disclosure: Mrs. Basket Case and I hedged our bets -- some of our contributions were in after-tax dollars (i.e., Roth) and some were regular (i.e., pre-tax dollars contributed, and pay tax on the distributions when they happen).

    One possible option: Contribute the 5% into the 401k, and put other discretionary dollars into the Roth IRA at MS.

    One risk management thing to consider -- 401k balances are 100% for sure off limits to creditors in bankruptcy -- SCOTUS ruling a few years ago. IRAs are less clear, though recent cases point toward them being off limits as well. There is no such uncertainty regarding 401ks.

    Additionally, you can often borrow from your 401k (depends on whether your employer's plan allows that), but you can't do that in an IRA. And if you try to pledge your IRA against a loan, the IRS looks at that as a distribution. Which means it's subject to taxation and penalties associated with early distribution.

    But all that is fine points in the noise, and far less important than what you're already doing -- you're planning for your future, and that alone puts you ahead of most 40-50 year olds, and virtually everybody under 30. Way to get out there and take control of your own destiny!
    Last edited by 4Q Basket Case; June 9th, 2019 at 04:39 PM.
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    BamaNation Hall of Fame Jessica4Bama's Avatar
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    Re: Advice for Roth and 401k

    Thank you! There wasn't much info in my benefits booklet they sent me. But it doesn't say anything on the Roth IRA about them matching my contributions. Does that normally only apply to 401k's or does it happen with Roth's as well?
    Also, here is what the benefit booklet says. I'm not sure what all this means. How much would they match say if I put in $10,000? I don't really know how to do the math here. This is just an example. I just want to see how to do the math.

    Name:  Screen Shot 2019-06-09 at 6.20.47 PM.jpg
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    Last edited by Jessica4Bama; June 9th, 2019 at 06:22 PM.
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  9. #9
    BamaNation Hall of Fame GrayTide's Avatar
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    Re: Advice for Roth and 401k

    Quote Originally Posted by 4Q Basket Case View Post
    Contribute as much as you possibly can. At a very minimum, the 5% for the match, but you can contribute up to $19K in 2019, and that number periodically increases over time.

    If you can do it, I'd lean slightly toward the Roth 401k, if your employer offers that option. It's a bit of a guessing game because nobody knows what kind of tax policy we'll have in 5 years, let alone 30+ years from now. But I'd be real surprised if tax rates that far out are lower than they are today.

    If that's right, the Roth is your best option -- your Roth contributions are net of less tax less today than distributions from a non-Roth would be when you take them in retirement. If it's not, you're really not out all that much, and it's nice to have your distributions be tax free.

    Full disclosure: Mrs. Basket Case and I hedged our bets -- some of our contributions were in after-tax dollars (i.e., Roth) and some were regular (i.e., pre-tax dollars contributed, and pay tax on the distributions when they happen).

    One possible option: Contribute the 5% into the 401k, and put other discretionary dollars into the Roth IRA at MS.

    One risk management thing to consider -- 401k balances are 100% for sure off limits to creditors in bankruptcy -- SCOTUS ruling a few years ago. IRAs are less clear, though recent cases point toward them being off limits as well. There is no such uncertainty regarding 401ks.

    Additionally, you can often borrow from your 401k (depends on whether your employer's plan allows that), but you can't do that in an IRA. And if you try to pledge your IRA against a loan, the IRS looks at that as a distribution. Which means it's subject to taxation and penalties associated with early distribution.

    But all that is fine points in the noise, and far less important than what you're already doing -- you're planning for your future, and that alone puts you ahead of most 40-50 year olds, and virtually everybody under 30. Way to get out there and take control of your own destiny!
    Jessica, I believe 4Q's advice to be spot on. The one thing to remember is that a 401K match is not guaranteed, it depends on, in most cases, the company's financial performance. You are young and have a long time to prepare for your retirement, that is the best news. Good luck.
    "My momma always said you got to put the past behind you before you can move on." Forrest Gump

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    Re: Advice for Roth and 401k

    Quote Originally Posted by GrayTide View Post
    Jessica, I believe 4Q's advice to be spot on. The one thing to remember is that a 401K match is not guaranteed, it depends on, in most cases, the company's financial performance. You are young and have a long time to prepare for your retirement, that is the best news. Good luck.
    GrayTide makes a great point.

    While you’re young, time is your most valuable, and simultaneously your most perishable, asset.

    The younger you start investing, the louder your 60-year-old self will sing the praises os your 30-year-Old self.

    Time is on your side.....today. But versus a lifetime, it's there for only a fleeting moment. Do not [waste] this opportunity away....you will never get a better chance.
    Last edited by 4Q Basket Case; June 9th, 2019 at 10:35 PM.
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    Re: Advice for Roth and 401k

    4Q & GT with some very good insights.

    At the risk of perturbing financial advisers, you should consider moving all your old Morgan Stanley accounts to whichever provider (Fidelity, Schwab, Vanguard are typically considered the best/cheapest) you choose. Fidelity is probably easiest since that's where you new funds will be. What you want to avoid is ridiculously high AUM fees that don't do anything for you. Basically you tell fidelity you want to move your funds from MS to Fidelity and let them handle telling your FA that you no longer need their services. (DO NOT tell MS that you're considering doing this. Just do it through your new provider!)

    If you stick with following a 3 or 4-fund plan based on what I posted earlier in the year (following the "Bogleheads" 3-fund method) then you have no use for any advisers. If you think you need an advisor, then move your Roths to Vanguard and use their PAS service at 0.3% AUM. You can drop them with no hassle at any point.

    Max out all your pre-tax accounts if you can. If you can, AT A MINIMUM contribute up to whatever your employer will match. This is free money!

    I think I posted this in my detailed financial planning post earlier this year, but even so, it's worth reposting. Read it: https://www.etf.com/docs/IfYouCan.pdf

    The Financial Resources page I put together has a link to IRAHelp.com which the WSJ calls the best site for IRA advice. Might be useful to get some questions answered.

    Obviously, there are a LOT of options for you. Keep it simple and stick with what works and you'll "get rich slowly" (what the article above is about)
    Last edited by BamaNation; June 11th, 2019 at 06:04 AM.

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    BamaNation Hall of Fame Crimson1967's Avatar
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    Re: Advice for Roth and 401k

    The world is ending in 2050. Just send the money to me.


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    Re: Advice for Roth and 401k

    Quote Originally Posted by Crimson1967 View Post
    The world is ending in 2050. Just send the money to me.


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