Retirement Funds

[skyguy918]

I’ve only recently discovered that one’s eligibility to contribute to an IRA can be severely limited if you have a 401K at work (Traditional IRA) especially after getting married (Roth and Traditional) and especially if filing separately (Roth & Traditional don’t allow you to contribute if earning more than $10K!).

Are people aware of this? I feel like every article says you can contribute to both but this is probably not true for many people on this forum.

https://www.nerdwallet.com/article/investing/ira-contribution-limits

I was aware of this, and it used to be a much bigger deal for me, since i company plan 6want very good. But they've since revamped their fund lineup and offer Roth 401k, so it's not as big a deal if I can't contribute to IRA.

[Kobe Bryant]

I was aware of this, and it used to be a much bigger deal for me, since i company plan 6want very good. But they've since revamped their fund lineup and offer Roth 401k, so it's not as big a deal if I can't contribute to IRA.

Are you married filing separately? And RIRA is only limited by income.

[ushdadude]

i thought a good strategy would be to FIRST save up for a "simcha", down payment & rainy day funds BEFORE contributing to retirement accounts, assuming no employee match, as any monies would be locked up till retirement.

what i mean by simcha fund is enough money to cover every bris, bar mitzvah, vort, wedding, sheva berachos and support for my kids. obviously depending on family size and how much you spend, this fund goal can easily be $500k plus.

am i wrong? what's recommended?  i would love to max out retirement accounts (incl 529) and make significant contributions to my simcha fund, but its not realistic.

I don't like it.


First off, you lose any tax advantage that a retirement account offers. Second, saving for retirement is important if you want to actually retire. Money in a taxable account is easy to raid and won't actually be there when you need it.

[farmbochur]

i thought a good strategy would be to FIRST save up for a "simcha", down payment & rainy day funds BEFORE contributing to retirement accounts, assuming no employee match, as any monies would be locked up till retirement.

what i mean by simcha fund is enough money to cover every bris, bar mitzvah, vort, wedding, sheva berachos and support for my kids. obviously depending on family size and how much you spend, this fund goal can easily be $500k plus.

am i wrong? what's recommended?  i would love to max out retirement accounts (incl 529) and make significant contributions to my simcha fund, but its not realistic.

I'll refrain from commentary on how to prioritize down payment / simchas over retirement - that's completely up to you to decide. But you might consider contributing to a Roth IRA and earmarking the contributions for your needs prior to age 59.5 and gains for your needs in retirement. That should be more tax efficient than using non-qualified accounts.

[avromie7]

I'll refrain from commentary on how to prioritize down payment / simchas over retirement - that's completely up to you to decide. But you might consider contributing to a Roth IRA and earmarking the contributions for your needs prior to age 59.5 and gains for your needs in retirement. That should be more tax efficient than using non-qualified accounts.

I think this has the potential to be the worst of both because the risk tolerance on money needed soon is much lower. For this reason, I also think it's also a bad idea to overfund your simcha fund early on especially at the expense of retirement savings where time is extremely valuable.

IMO the best solution is to start with a small simcha fund while putting most savings into retirement and switch over when you anticipate needing the simcha fund (I.e. when your son turns 12 you start making sure theres enough $ to cover a bar mitzva). This will definitely be trickier as you get closer to making weddings where you need more money in a shorter amount of time as well as the timeline being unknown until a few months prior when a child gets engaged.

[Fish Tank]

i thought a good strategy would be to FIRST save up for a "simcha", down payment & rainy day funds BEFORE contributing to retirement accounts, assuming no employee match, as any monies would be locked up till retirement.

what i mean by simcha fund is enough money to cover every bris, bar mitzvah, vort, wedding, sheva berachos and support for my kids. obviously depending on family size and how much you spend, this fund goal can easily be $500k plus.

am i wrong? what's recommended?

The problem with this strategy is that you lose out the most important component of a 401k which cant be made up once your done contributing to the Simcha fund - TIME.
Compounding interest is huge, but it requires time.

What about contributing to your 401k, and borrowing "against it" when needed?

(This is all assuming your income can handle the funds needed to cover the simcha fund)

[avromie7]

The problem with this strategy is that you lose out the most important component of a 401k which cant be made up once your done contributing to the Simcha fund - TIME.
Compounding interest is huge, but it requires time.

What about contributing to your 401k, and borrowing "against it" when needed?

(This is all assuming your income can handle the funds needed to cover the simcha fund)

Borrowing from a 401k is risky business.

[Fish Tank]

Borrowing from a 401k is risky business.

I said to borrow against it

[Kobe Bryant]

Borrowing is risky business.

FTFY

[Fish Tank]

FTFY

This isn't the Dave Ramsey thread 

[Kobe Bryant]

This isn't the Dave Ramsey thread 

You don’t need DR to tell you that there is inherent risk when borrowing.

[Fish Tank]

You don’t need DR to tell you that there is inherent risk when borrowing.

Borrowing can be used to your advantage in a massive way, and it can also crush you if not used right.

You pointed out that it's risky to borrow money. You neglected to also point that it can have tremendous advantages. Therefore I posted that isn't the DR thread where in his world the word "borrow" is always followed by "very risky" and never by "biggest opportunity".

[ushdadude]

Borrowing can be used to your advantage in a massive way, and it can also crush you if not used right.

You pointed out that it's risky to borrow money. You neglected to also point that it can have tremendous advantages. Therefore I posted that isn't the DR thread where in his world the word "borrow" is always followed by "very risky" and never by "biggest opportunity".

In this context we're taking about borrowing for expenses, not leverage for an investment.

[Fish Tank]

In this context we're taking about borrowing for expenses, not leverage for an investment.

401k is an investment.

[avromie7]

401k is an investment.

A simcha is not.

[ushdadude]

401k is an investment.

Don't think anyone would advocate borrowing money to invest in 401k

[gozalim]

in strictly numbers, putting into 401k and then borrowing against it for simchas, is likely to be the best ROI, by maximizing the benefits of tax shelter, compound interest, etc. without needing to 'choose' between retirement and simchas.
discipline of steel though... (where the DR thread comes in)

[ExGingi]

One can withdraw the principle from Non-deductible IRA penalty free.

While technically you could, BUT "If you're taking an early withdrawal from a traditional IRA, you must prorate your distribution between nondeductible contributions and the remainder of the account." which is also what makes backdoor IRA conversions a little trickier if you already have non-taxed money (everything is gains) in an IRA.

https://finance.zacks.com/nondeductible-contributions-ira-subject-early-withdrawal-penalties-5239.html

[ExGingi]

in strictly numbers, putting into 401k and then borrowing against it for simchas, is likely to be the best ROI, by maximizing the benefits of tax shelter, compound interest, etc. without needing to 'choose' between retirement and simchas.
discipline of steel though... (where the DR thread comes in)

Not so simple.

First you need to remember that the interest you pay on the 401k loan is after-tax money that will now be added to your 401k balance to be taxed again upon withdrawal. So tax brackets at time of repayment and time of retirement make a difference.

As for the discipline. As someone who has taken multiple 401k loans in my lifetime, I see it as a non-issue. A 401k loan repayment comes off as a payroll deduction. Discipline needed if leaving employer.

[yesitsme]

Bottom line don't retire its many times the worst decision to make