Episode 141: Mailbag – Should I Contribute to a Roth 401(k)?

Today’s Prep:

If you have the option to contribute to a Roth 401(k), should you do it? In retirement, how can you be sure you won’t run out of money? David answers these questions and one more in today’s podcast.

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Equipping Points:

We all want to have confidence when making financial decisions. To do so, it’s important to make a plan. On today’s episode of the show, David answers three questions from the mailbag in hopes of helping each of them to better plan for their future.

Christopher is turning 70 next year and is annoyed to have to take money out of his IRA because he doesn’t need it! What tips and tricks does David have? The required distributions don’t start now until the year you turn 72. David explains why you have to take RMDs. There isn’t a lot you can do to get out of this, but there are a few ways to lessen the pain. You could do some small Roth conversions over the next few years. Are you still working? You may be able to do a reverse rollover. Finally, you can make a qualified charitable distribution.

Brad said his workplace has recently started offering Roth 401(k) options. Should he put his future savings in that instead of a traditional 401(k)? The way you decide is by determining whether or not you’ll be in a higher or lower tax rate in the future. While you can’t know for sure, it’s fairly likely that the tax rates will go up from where they are now. Keep in mind that you can split it up and contribute to both your Roth 401(k) and traditional 401(k). The company match will go in the traditional 401(k).

Jamie looked forward to retirement for many years but now that he’s actually retired, can’t shake the feeling of eventually running out of money. What can he do to fight this feeling? You need confidence that you won’t run out of money. To get that confidence, you need a plan and a detailed idea of your expenses. Make sure you factor in baseline expenses, extras like travel, and unexpected expenses. Then consider what your income sources are. Meet with an advisor to come up with a plan that suits your needs and gives you the confidence you need.

Check out the Bankrate Calculator.

Key Points: 

[0:28] Who doesn’t like the Chiefs?

[2:24] Mailbag: What if I don’t need my IRA at age 70?

[7:59] Mailbag: Should I put my retirement savings into a Roth 401(k)?

[10:55] Mailbag: Will I ever shake the scared feeling that I might run out of money?

Today’s Takeaway:

You either want confidence that you’re going to be fine, that you’re going to not outlive your money. Or, not quite as happy, but confidence that you do have a problem and should start fixing it now. “

– David Dickens

 

Additional Resources:

PODCAST: 401(k) Millionaires

PODCAST: What Your 401(k) Rollover Options Are

PODCAST: How to Prepare Early for Retirement

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The host: David Dickens

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