Hacker News Reader

Comment by Bodell | Hacker News Reader

I would only add the caveat that you should ONLY invest in 401K IF you company is matching. Otherwise look into a vanguard fund or something on the like. I think the automatic opting in on 401k is of course better than no investing, but may not be the best course of action in a company that does not match. The last company I worked for, made the decision of if, and how much it matched at the end of each year. During my 2 years there they never matched a single cent. My money would have been better somewhere else, as well as more ethical than handing it to a major bank to auto invest in it's own subsidiaries.

View on HN

> I would only add the caveat that you should ONLY invest in 401K IF you company is matching.

I think this is NOT good advice. Reasons:

* the more you invest in your 401(k), you reduce your tax bracket

* you can invest more money since its pre-tax. The caveat being here that you will be taxed when you withdraw. Usually its a worthy tradeoff

* you still have the option of directing your money in Vanguard or Vanguard like ETF's since you are in control of where your 401(k) money goes

IANAL so let me know if what I said is factually incorrect.

> the more you invest in your 401(k), you reduce your tax bracket

Reducing your tax bracket isn't meaningful separately from the next item; the idea that it is comes from a misunderstanding of progressive taxation.

> you can invest more money since its pre-tax. The caveat being here that you will be taxed when you withdraw. Usually its a worthy tradeoff

For most people, yes (probably, though obviously this depends on future tax policy and other future events), but this is not universally the case.

> you still have the option of directing your money in Vanguard or Vanguard like ETF's since you are in control of where your 401(k) money goes

Depends on who your employer has managing the 401k and what they offer. This varies a lot.

Regardless, you should always max out 401k and IRA every year. Because you only get taxed with those once, it's better. Investing your after tax income into something that will get taxed /again/ is not optimal compared to 401k and IRA.

It may be better in some cases to hold onto the cash rather than locking it up in a retirement account in order to build up a cash buffer and avoid the penalty for an early withdrawal in case of emergency expenses.

Sure, but I'm not assuming such weird scenarios.

You're supposed to have your emergency fund completely built up before you save for retirement.

A Roth IRA may be a good alternative to a 401(k), but after you've matched that out, a 401(k) is probably your next best bet given the tax incentives (pre-tax savings.)

Depending on how much you've earned during the year, a Roth IRA may not be an option (exact threshold I've forgotten but it's around $120,000)

The Backdoor Roth IRA circumvents this. In short, you invest in a Traditional IRA and convert the contribution to a Roth IRA. https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

Reply on news.ycombinator.com