Money Matters
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Divvying up Retirement Contributions

Hi everyone!

It's been awhile since I've been on these boards but I lurk every once in awhile and just have a question about retirement contributions.  My husband started a new job several months ago and wasn't eligible for retirement contributions until this month.  His employer will match up to 4% in his 401K and we'd like to contribute a total of 15% (before the employer match).  We plan to open up a Roth IRA as well this year and are in the process of trying to figure out how we should divvy up the contributions.  Is it preferable to put more in one account over the other?  He's currently making 60,000 a year so I believe the most he could contribute to the Roth IRA would be approximately 9% of his salary.  Thanks for your help!

Re: Divvying up Retirement Contributions

  • I would max out the Roth first and then put the remainder in the 401(k).  Roths grow tax-free, and that's worth $$$$$ in retirement.  The max you can do per year in a Roth is currently $5500 (though it goes up in $500 increments every few years).  

    And yes you are correct, that would be just over 9% of his salary into the Roth.

    If you are not maxing out your Roth yet, it would probably make a lot of sense for him to decrease his 401(k) contributions by a further 9% and fund yours with that money too.  You don't have to do them through an employer.

    Of course, you and he would have to few it as joint money and some people don't view it that way.  Others do.  I've been funding my H's Roth for the last couple of years while he's finishing law school.  As I see it, it's essentially a way to save $11K in tax-free accounts as opposed to just $5500.

    Wedding Countdown Ticker
  • I've always contributed to the 401k first.  We are high income earners, so the tax benefits now are important (which allow us to contribute more than if we had to pay tax) and we fully expect to be in a lower tax bracket when we retire.    

    No matter what you decide, you should at a minimum fund the 401k whatever percentage needed to get the employer match.  
  • Hoffse, thanks for the suggestion!  We hadn't considered him using some of his money to fund my Roth IRA (we do treat our money as "joint" and not separate).  I'm self-employed and do max out my own Roth IRA, but that's a good suggestion for the future in case I find I'm unable to do that.  

    Thanks again! :)
  • Fund your employer-matched 401K first (4% so you get the free money). Then fund his roth, your roth and put anything else (if there is any) into the 401K or another retirement account.
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  • I agree with Vikingsfan.  Put 4% into your 401K to get the match--it's free money!  Max your and DH's Roth IRAs.  If you still want to invest more, put the rest into the 401K.
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