Comment by ioblomov | Hacker News Reader

Comment by ioblomov | Hacker News Reader

1. Consolidate all spending on a credit card that gives cash back. Autopay all bills that don’t levy fees with it.

Pros: no need to worry about points or blackout dates; maximize cash back; facilitates budget tracking with annual summaries and integration with budgeting sites (otherwise you’ll have to do it manually).

Examples: Double Cash 2% cash back, Apple Card 1-3% depending on payment method

2. Direct deposit your paycheck into one bank account that your credit card from 1 and investment account from 4 are connected to (set it up so only investment account can debit from the bank, not vice versa). Autopay remaining bills from 1.

Pros: only worry about paying one bill (credit card); only the hub bank account is exposed, bulk of savings is isolated in investment account.

3. Max out 401k and IRA every year using automatic deductions from your paycheck/bank account.

Pros: saving/investing on autopilot; lower taxable income

4. Consolidate and invest all savings (and roll over old 401k accounts) into an index fund at Vanguard or Fidelity. Auto-deduct from your paycheck in increasing amounts until you hit the pain threshold.

Pros: automatic diversification; one place to monitor your investments; maximum investing on auto-pilot.

> 3. Max out 401k and IRA every year using automatic deductions from your paycheck/bank account.

> Pros: saving/investing on autopilot; lower taxable income

Does it ever make sense to do Roth 401k instead of traditional 401k?

If you are expecting to be in a higher tax bracket in retirement (counting traditional IRA/401K income) then Roth IRA/401K may be a better choice, since it is after tax when invested but tax-free when withdrawn. Most workers will have substantially higher income subject to income tax during working years than in retirement even with IRA/401K withdrawals as taxable income, but that's not always the case.

For a roth IRA there are two other benefits (not familiar with Roth 401k, so won't speak to that).

* Hedge against different tax rates in the future. Even if now you think you'll be paying a lower rate when retired, there's no guarantees.

* You can withdraw your contributions, though not your earnings, without penalty before retirement. If you add 5k/year for a number of years, that starts to add up should you need to tap it for an emergency or other investment opportunity (real estate or bootstrapping).

I believe you can withdraw early on roth 401k funds as well. You can at least roll it into a roth IRA which I know for sure you can withdraw early from with no penalties. It seems like nobody talks about this, but it's a really nice perk. I put half of my first 2 years of 401k contributions into roth when I started working, and it was great knowing it was there just in case.

I was under the impression that if you contribute the annual limit (currently $19k) every year for 40 years (25 - 65), then pull 1/20th the account value per year once you retire (65 - 85), Roth makes more sense because the amount you will be pulling will be $4.15m, which would be $17.3k/mo before any additional investments (like a maxed out Roth IRA every year). That's $207.5k/yr in income at retirement from just the 401k alone, which would suck to get taxed on I'm sure.

I disagree with your analysis. Taxes due are going to be less a function of your income and more a function of tax law. At least in the United States, we have enjoyed many years of low and lowering taxes, at the expense of ever-increasing debt, and are likely reaching the limits of what we can expect the magic of monetary theory to insulate us from. Upshot: tax rates will have to increase substantially in the medium term.

fun fact, tax revenues in the US are projected to not even cover interest on the debt in the near future.

The concept of raising taxes enough to affect the budget would cause a revolt.

Small quibble: if you have any future tax years that are in a lower bracket than what you're in right now, then a traditional 401k is probably better. You can accelerate taxation into the current tax year via a Roth conversion, which means that if you spend a gap year without taxable income, that's a bunch of room for making a Roth conversion.

Reply on news.ycombinator.com