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It's a no-brainer really. Start the 401K asap. It will only help you. Roth is good as an additional option but regular 401K has lot of benefits including higher

It's a no-brainer really. Start the 401K asap. It will only help you. Roth is good as an additional option but regular 401K has lot of benefits including higher contribution amounts, employer matching benefit (if any) and why pay a higher tax now than when you will retire since your tax rate will most likely be lower in retirement. By contributing to a 401K, you reduce your taxable income for the year as well as an added benefit. Max out the 401K first before you think of anything else. Who cares if you change jobs frequently. You can always do a roll over into an IRA with providers such as Fidelity or Vanguard for free.

Someone1234 10y ago
This is great advice. Just want to tack on for the OP (or anyone else): Look at the fees. The fees will destroy your retirement. Both the individual fund fees and the account management fees. For example on my 401K provider they have funds with fees ranging from 0.19% (index fund) up to 0.58% (fully managed fund). You'd think that the fully managed funds outperform the index funds which makes the fees worthwhile, but actually the reverse is true (that the index funds have outperformed the managed funds historically). If you don't manually select which funds to invest in they put a lot of your money into the more expensive funds.
- codegeek 10y ago
  Yep another great point. There was another thread about funds question yesterday and I said the same thing. Almost all "managed" funds offered in retirement plans don't even beat S&P 500. So you are probably better off putting most of the contribution in an index fund and just enjoy the "meager" S&P 500 returns. The expense ratio etc. are so much lower for these index funds.
wakkaflokka 10y ago
I just yesterday realized the difference between a Roth 401k and a Roth IRA... because I hadn't been contributing to my Roth 401k assuming it had the same Roth IRA income limit. But it doesn't. Oops. Would you recommend a traditional 401K or Roth 401k? I always assumed that if you weren't going to reinvest the immediate tax savings from a traditional IRA, then a Roth 401k is the way to go.
- mywittyname 10y ago
  If you're a high income earner with low deductions: 401k. If you have a fairly low AGI (thus low overall tax rate): Roth. If you'll need to withdraw the principal before retirement: Roth (you can withdraw principal penalty free from a RothIRA). If your tax rate will remain the same for withdraw as it does now, it doesn't really matter since the after tax value is the same whether you take out taxes now or later (i.e., tax_rate x (principal^gains) = (tax_rate x principal)^gains.
  - wakkaflokka 10y ago
    Not to sound stupid, but I have the option for a 401k Traditional vs 401K Roth. When you say 'Roth', do you mean Roth 401K or Roth IRA? This is what had me confused the entire part of a year - Roth IRA vs Roth 401k.
    - jrs235 10y ago
      >If you have a fairly low AGI (thus low overall tax rate): Roth. >If you'll need to withdraw the principal before retirement: Roth (you can withdraw principal penalty free from a RothIRA). I'm not the original commenter but in regards to the advantages and situations mentioned, they apply to both Roth IRAs and Roth 401k's. Although, check your company's plans as to when you can take early distributions. If you can't unless you retire or leave the company then "If you'll need to withdraw the principal before retirement: Roth (you can withdraw principal penalty free from a RothIRA)." might be moot. I know with my companies plan I don't believe I can even withdraw my Roth 401k contributions without quitting or retiring. With most Roth plans you are allowed to withdraw your contributions tax and penalty free, but you won't be able to "re-add" above and beyond the yearly annual contribution limits, which is why you shouldn't withdraw them.
  - jrs235 10y ago
    > If your tax rate will remain the same for withdraw as it does now, it doesn't really matter since the after tax value is the same whether you take out taxes now or later (i.e., tax_rate x (principal^gains) = (tax_rate x principal)^gains. I would split 50/50 in this case to hedge against what and where tax rates/brackets might be in retirement.

Someone1234 10y ago

This is great advice. Just want to tack on for the OP (or anyone else): Look at the fees. The fees will destroy your retirement. Both the individual fund fees and the account management fees. For example on my 401K provider they have funds with fees ranging from 0.19% (index fund) up to 0.58% (fully managed fund). You'd think that the fully managed funds outperform the index funds which makes the fees worthwhile, but actually the reverse is true (that the index funds have outperformed the managed funds historically). If you don't manually select which funds to invest in they put a lot of your money into the more expensive funds.

codegeek 10y ago
Yep another great point. There was another thread about funds question yesterday and I said the same thing. Almost all "managed" funds offered in retirement plans don't even beat S&P 500. So you are probably better off putting most of the contribution in an index fund and just enjoy the "meager" S&P 500 returns. The expense ratio etc. are so much lower for these index funds.

wakkaflokka 10y ago

I just yesterday realized the difference between a Roth 401k and a Roth IRA... because I hadn't been contributing to my Roth 401k assuming it had the same Roth IRA income limit. But it doesn't. Oops. Would you recommend a traditional 401K or Roth 401k? I always assumed that if you weren't going to reinvest the immediate tax savings from a traditional IRA, then a Roth 401k is the way to go.

mywittyname 10y ago
If you're a high income earner with low deductions: 401k. If you have a fairly low AGI (thus low overall tax rate): Roth. If you'll need to withdraw the principal before retirement: Roth (you can withdraw principal penalty free from a RothIRA). If your tax rate will remain the same for withdraw as it does now, it doesn't really matter since the after tax value is the same whether you take out taxes now or later (i.e., tax_rate x (principal^gains) = (tax_rate x principal)^gains.
- wakkaflokka 10y ago
  Not to sound stupid, but I have the option for a 401k Traditional vs 401K Roth. When you say 'Roth', do you mean Roth 401K or Roth IRA? This is what had me confused the entire part of a year - Roth IRA vs Roth 401k.
  - jrs235 10y ago
    >If you have a fairly low AGI (thus low overall tax rate): Roth. >If you'll need to withdraw the principal before retirement: Roth (you can withdraw principal penalty free from a RothIRA). I'm not the original commenter but in regards to the advantages and situations mentioned, they apply to both Roth IRAs and Roth 401k's. Although, check your company's plans as to when you can take early distributions. If you can't unless you retire or leave the company then "If you'll need to withdraw the principal before retirement: Roth (you can withdraw principal penalty free from a RothIRA)." might be moot. I know with my companies plan I don't believe I can even withdraw my Roth 401k contributions without quitting or retiring. With most Roth plans you are allowed to withdraw your contributions tax and penalty free, but you won't be able to "re-add" above and beyond the yearly annual contribution limits, which is why you shouldn't withdraw them.
- jrs235 10y ago
  > If your tax rate will remain the same for withdraw as it does now, it doesn't really matter since the after tax value is the same whether you take out taxes now or later (i.e., tax_rate x (principal^gains) = (tax_rate x principal)^gains. I would split 50/50 in this case to hedge against what and where tax rates/brackets might be in retirement.