401k roth

[I GOT ONE MORE]

I have been thinking of one possible use for my Roth 401k and would like advice on whether you think this is a good idea or not. I recently refinanced my mortgage from a 6.125% 30 yr fixed (VA) to a 4.5% 15 yr fixed (VA) with a current balance of about $79K. I plan to resume contributions to my 401k in January of 2012 as I will finally be debt free. I am thinking of using my Roth 401k as a kind of "forced" savings account with the purpose of paying off my mortgage when I turn 59 1/2. I will continue to make my monthly mortgage payments ($860) between now and then which should bring the balance down to $35-40K by the time I retire in 2019. If I contribute 25%, which is roughly $350, per week, I will have $127,400 in principal in the account in 7 years, which would be more than enough to pay off the mortgage.

Does this sound like a good idea or should I simply make additonal principal payments? I like the Roth option as I will (hopefully) make money on my investments whereas if I simply make additonal principal payments I will be saving on interest payments.

Any thoughts?

IMO ....
Even though you lowered your rate, which is good, you will still be shelling out about 3500 bucks (wasted money) in interest at 4.5% in the first year.

If you have the ability, I believe you should pay off your mortgage as soon as possible.

As Dave Ramsey would say, if your house was paid off, would you borrow against it to invest in the stock market?

This is in essence what you would be doing if you diverted too much extra money towards retirement.

What's really good here is that you are thinking about your future, many people can see past next Friday.

 

[moreluck]

Can you come back...........Your avatar got me again. We just had some ants (not many) show up this weekend because we had some hot temps. A few had crawled across my white desk right in front of me and i jumped. We sprayed and there has been one here and one there and then nothing.....'til I clicked on your post. That damn bug crawling!! I thought the ants were getting in again!!

 

[UpstateNYUPSer(Ret)]

IMO ....
Even though you lowered your rate, which is good, you will still be shelling out about 3500 bucks (wasted money) in interest at 4.5% in the first year.

If you have the ability, I believe you should pay off your mortgage as soon as possible.

As Dave Ramsey would say, if your house was paid off, would you borrow against it to invest in the stock market?

This is in essence what you would be doing if you diverted too much extra money towards retirement.

What's really good here is that you are thinking about your future, many people can see past next Friday.

Your words have given me pause to rethink my strategy. I think I can accomplish both goals (saving for retirement and paying off my mortgage) without the Roth 401k. My plan is to contribute all that I can to my current 401k. I will then increase the number of withholdings to ensure that my take-home pay stays about the same. This will then allow me to apply extra principal payments to my mortgage.

Yes, I realize that I will miss out on the tax advantages of the Roth 401k, but I cannot adequately fund a Roth 401k and pay off my mortgage at the same time, especially with only 7 1/2 years to go.

I don't plan on touching my 401k until I am required to at 70 1/2. I plan on supporting myself with my pension and using SS as "fun money".

Any advice?

 

[moreluck]

I'm of a different thinking......any money or anything you have coming, take it as early as you can. Who told you you are going to reach 70??
S.S.at 62..................take it. Nobody has a guarentee going on to 65 or higher.

 

[UpstateNYUPSer(Ret)]

I'm of a different thinking......any money or anything you have coming, take it as early as you can. Who told you you are going to reach 70??
S.S.at 62..................take it. Nobody has a guarentee going on to 65 or higher.

I do plan on taking SS at 62--the difference if I take it then or wait is neglible. I am hoping that between SS and my pension I won't have to touch my 401k until I am forced to start taking withdrawals at 70 1/2. (Why is everything with 401k's in 1/2 year increments?)

 

[Jones]

Your words have given me pause to rethink my strategy. I think I can accomplish both goals (saving for retirement and paying off my mortgage) without the Roth 401k. My plan is to contribute all that I can to my current 401k. I will then increase the number of withholdings to ensure that my take-home pay stays about the same. This will then allow me to apply extra principal payments to my mortgage.

Yes, I realize that I will miss out on the tax advantages of the Roth 401k, but I cannot adequately fund a Roth 401k and pay off my mortgage at the same time, especially with only 7 1/2 years to go.

I don't plan on touching my 401k until I am required to at 70 1/2. I plan on supporting myself with my pension and using SS as "fun money".

Any advice?

Reading those two bolded statements, I wonder why you wouldn't contribute all that you can to your Roth 401K instead of the traditional? The only way that makes sense is if you think your taxes will be lower in retirement than they are now.

 

[UpstateNYUPSer(Ret)]

Reading those two bolded statements, I wonder why you wouldn't contribute all that you can to your Roth 401K instead of the traditional? The only way that makes sense is if you think your taxes will be lower in retirement than they are now.

Contributions to the Roth are after tax. My average take home is $900. If I divert 25% to the Roth that leaves me with $675. If I divert 25% to my current 401k and adjust my withholdings my take home remains $900. I would then apply the $225/week to my mortgage as principal payments.

The Roth 401k would be the way to go but I cannot adequately fund that and pay off my mortgage with just 7 1/2 years to go. Besides, I don't plan on touching my 401k until I am forced to at 70 1/2, when my personal income tax rate should be lower.

This is not set in stone which is why I am asking for advice. I appreciate yours. Dave.

 

[Jones]

Contributions to the Roth are after tax. My average take home is $900. If I divert 25% to the Roth that leaves me with $675. If I divert 25% to my current 401k and adjust my withholdings my take home remains $900. I would then apply the $225/week to my mortgage as principal payments.

The Roth 401k would be the way to go but I cannot adequately fund that and pay off my mortgage with just 7 1/2 years to go. Besides, I don't plan on touching my 401k until I am forced to at 70 1/2, when my personal income tax rate should be lower.

This is not set in stone which is why I am asking for advice. I appreciate yours. Dave.

For either the Roth or the Traditional the 25% percent withholding is figured the same way, from your pre tax gross. The subsequent difference in take home won't be anywhere near what you've come up with as the tax break from the traditional is only applied to the amount that is withheld. You're probably looking at around a $50 per week difference, not $225.

I really think you would benefit from sitting down with a financial analyst who does this kind of planning for a living.

 

[moreluck]

I do plan on taking SS at 62--the difference if I take it then or wait is neglible. I am hoping that between SS and my pension I won't have to touch my 401k until I am forced to start taking withdrawals at 70 1/2. (Why is everything with 401k's in 1/2 year increments?)

The same reason that gas prices end with 'mills'.