Personal Finance 

Where To Save After 401Ks, Roth IRAs

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I was talking to Nickel the other day and we got to talking about retirement saving after 401Ks and Roth IRAs. Hopefully, at some point in your life, you will reach a point where you’ve maxed out your 401K ($15,500 for 2007) and you’ve maxed out your Roth IRA (or you’re no longer eligible because you’re past the phase out) – what should you be doing in terms of savings for the future?

Now, if you don’t have a home, then I say the easy answer is that you should save for a down payment for a home (and perhaps pull back your 401K and Roth contributions). If you have kids or plan on having kids, consider one of the education plans. But what if those easy answers aren’t there (either you’ve maxed those out or you’re not eligible)… what should you save for?

And should you even save? Are you saving too much (very possible!)? Please share your thoughts!

{ 15 comments, please add your thoughts now! }

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15 Responses to “Where To Save After 401Ks, Roth IRAs”

  1. Sun says:

    We maxed out our 401(k)s (almost) and IRAs and for whatever leftovers after all the spendings (actually we save/invest the money before the spendings), we put them in savings account, invest in stocks, mutual funds, bonds, and 529s. Since these investments are in taxable accounts, we can whatever we want with them. Some day we hope we can tap into these funds first before taking distributions from retirement savings.

  2. KMC says:

    My wife and I have put some after-tax money into a S&P Index fund for years. There’s no specific purpose or goal for the account, it just seemed we should have an after-tax investment vehicle. We do 401(k) and Roth to the max and now have two 529s (second baby’s on the way). I just like the idea of having the S&P fund account. I don’t know what will happen in the future and it gives me a little piece of mind to have it there, should we need it. Besides, it’s of the size now that our quarterly dividends from it are greater than our contributions – that’s satisfying.

  3. Jeremy says:

    Nothing wrong with saving above and beyond these accounts. Whether it is just building up a big savings account for spending money available whenever you want it or just various taxable or tax-free investments. I’d say above and beyond the retirement accounts just focus on your priorities to guide you as to what to save for. Maybe it is putting your kids through college, or maybe you want to get a jump on retirement by purchasing that beach house or maybe begin planning for that business you always wanted to start. Retirement savings is fairly general in nature, once you get beyond that you can really start to attack specific goals with the additional savings/investing.

  4. eROCK says:

    One thing that boggles my mind is should I be looking at increasing my 6% 401k contribution to 12-15% first … or should I keep my 6% 401k contribution and instead start saving for a down payment for a house?

    From your post, it appears that I should be doing the latter, unless retiring early is my top priority, but it’s not.

    If I maxed out my 401k/ROTH I’d probably roll my extra money into 529s accounts once I have kids; otherwise, I’d probably put the extra money in a mutual fund or a MMA.

  5. Keith says:

    At this point in time, my wife and I (age 37) save over 33% of our gross income into tax deferred accounts. This includes my 401(k), her 403(b), $4,000 each for Roth IRAs and 529(b) plans for our kids college education.

    We have our house ($250,000) paid off, we own our two vehicles (2005 and 2006 model years) ,no credit card debt and I place $2,500/year into a health care reimbursement account.

    In my opinion, at this point, enough of our money goes towards savings. We take the rest of our money and use it for vacation, private school, braces and all of the other stuff that comes along with raising kids (ours are age 7 and 10).

    I worry about investing for the future, including the consequences of increased taxes to fund Social Security, Medicare and the deficit, but will not stop living for today.

  6. Dus10 says:

    Well, I don’t max out my contributions to my Roth 401(k) or Roth IRA. I am putting 6% of my gross into my 401(k) (one percent higher than necessary for the full employer match). My employer is fairly generous with matches. With their basic match, it places the contributions at 10% of my gross salary, then there is the 8% profit sharing that they throw in there. Suffice it to say, my tax advantaged retirement savings are easily going to surpass my target of $2M.

    I already own a home, and we just refinance to a 30-year fixed that still has a nice rate, so I am sitting pretty there. Some point within the next year, we may begin paying down the principal on the house. Probably nothing over $100/month more (which is about equal to our current principal payments).

    I am just working out the details to start saving in 529 plans for my kids. I am going to have two of them, both in my eldest child’s benefit (because that can always be changed). One will be my state’s 529 plan that gets a 20% state tax credit (up to $1000), and the rest in the TIAA-CREF Independent 529 for use at over 200 private institutions. One is tax-deferred, and the other is tuition prepayment (with a discount).

    My wife is still in school and won’t start working for a few more years, so I am pretty happy with our situation given that we are a family of five that survives on a single income.

    My next goals are to eliminate what little debt we still have. We just paid off nearly all of our debt besides our mortgage, student loans, and car notes. This along with a no-cash out refi has reduced our monthly expenses by $500. Next, I am going to refinance my car, use some 0% BT to cover some of it, and try to pay it down. Then comes the other vehicle.

    In any event, I am at a crossroads with my current employer. If I stick it out, I will increase my monthly income because my insurance will be completely covered by them, however, I have the opportunity to increase my salary by about 20% (I have to look at the benefits package, as well, though). This coupled with our reduction in expenses really puts us in a good position.

    We are saving for a trip to Europe next summer, and then our next home (five to seven years out). Beyond that, I am looking to start putting $400+/month into a brokerage account. I am focusing on income equities and looking to get lots of dividends. Then, in about ten years, I plan on taking a little break to go to law school, where the dividends will come in handy. When I am done there, I am going to try and get my passive income to $5K/month. When that happens, I will officially retire (which unofficially means that I will sleep in sometimes, vacation often, and be my own boss the rest of the time).

    Hopefully, this will encourage my wife to at least contribute up to the full match when she starts working (she isn’t convinced, still).

  7. MFJ says:

    Are you saving too much (very possible!)

    Yeah that’s the thing I worry about myself. This will be the first year that I’ll max out both my 401k and Roth IRAs and just a few years ago I would have been tickled pink had I known I would be saving this much.

    Seems like saving is very similar to salary….you’ll never be happy with where you are at and will always want more. Wish I could just convince myself that I’ve done a good job and should go splurge on a new set of golf clubs and a plasma tv, but that will never happen. I’m a prisoner of my own saving addiction.

  8. I try to save above these limits and invest them in the market. I found that with I can earn a good rate and boost my passive income. Most people’s risk tolerance may lead them to just do what they do in their Roth IRA, just more of it.

    In some cases the benefits from a 401K don’t make them much better than a regular brokerage account, so I see no reason why one wouldn’t do that as well.

  9. Tim says:

    you should have a goal in mind for when you want to purchase a house. For us, we want $100k for downpayment on a house by 2009. From that we can determine how much goes into 401K and how much goes into the house downpayment fund.

    We have other goals as well: stuffing contingency fund to $10k, emergency fund of $10k for medical/dental, $3k for deductibles, $4k for emergency travel, $5k for emergency auto. We are also have a goal of $40k for another car. With all of that, then we can deduct these along with the goal for the house down payment and figure how much we can contribute to other savings or just “want” spending.

  10. MossySF says:

    My wife and I are saving/investing money beyond retirement plans but not so much for a “downpayment”. Goal is to invest a crazy high percentage of our income until rent/buy ratios return to historic levels. Since it may take a decade before that happens, new possibilties may come up where a house is no longer a primary goal.

  11. Peter says:

    Are you saving too much (very possible!)?

    True, this is something that I’m trying to figure out right now. What I’ve realized is that I’ll get to a point where each additional dollar that I save will not go to a better retirement, but will go to whomever my beneficiaries are. Since I don’t have kids, this would probably mean charity. In that case, why not just save less and give more now. Oh, and stop living like a pauper, that money has a much higher utility now than it will later.

  12. eROCK says:

    Thanks Tim … your comment helped me quite a bit!

  13. samerwriter says:

    My wife and I save about 40% of our gross; we max out our 401k accounts (there’s no employer match, but our employer does contribute to a profit-sharing account), pre-pay our mortgage so that our house should be paid off in a few years, then put the remainder into a Vanguard Target Retirement fund.

    The 401k isn’t really accessible until age 60. We’d like the option of “retiring” comfortably around age 45, so that means we need to have substantial savings outside of a retirement account to live off of.

    I don’t think there’s such a thing as saving too much, though there is such a thing as living too frugally.

  14. MossySF says:

    In regards retirement accounts being untouchable before 60, the 10% penalty hurts but tax deferred growth can make up for the penalty depending on how soon your “early” retirement is. Here are rough time frames of where an retirement account goes +10% over a taxable account even with favorable ltcg/qualdiv treatment.

    Bonds (5% yield) – 9 years
    Index REIT (5% yield) – 7 years
    Index Value (2.5% yield) – 14 years
    Index Blend (1.5% yield) – 15 years
    Index Growth (.5% yield) – 17 years
    Managed REIT (5% yield + 2% turnover) – 7 years
    Managed Value (2.5% yield + 2% turnover) – 10 years
    Managed Blend (1.5% yield + 4% turnover) – 10 years
    Managed Growth (.5% yield + 6% turnover) – 9 years

    Extra returns from tax deferred growth exceed 10% over taxable accounts from 7 to 17 years depending on the yield and distribution tax treatment. So say you’re 20 and you want an early retirement at 45-50, it may still make sense to put everything in a 401K/IRA/Roth IRA at the start and take an early withdrawal penalty rather than to have a taxable account.

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