- December 4, 2023
- Posted by: legaleseblogger
- Category: Related News
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Seeking Assistance with Financial Planning and Retirement Savings
I am considering seeking the assistance of a financial advisor to help me with my financial planning, particularly in determining the best strategy for saving for retirement. However, I have some reservations and would prefer to try and figure things out on my own. Despite this, I am feeling confused and uncertain about the implementation and potential tax implications of my planned actions.
In a nutshell, I have decided to maximize my 401K contributions next year and also set aside additional funds for retirement in a Backdoor Roth account. It appears that I can accomplish this through the online portal provided by my 401K management company.
The primary question I have is whether there are any advantages to maxing out my 401K early in the year and then contributing to the IRA for the remainder of the year. Alternatively, would it be more beneficial to make just enough contributions to the 401K to reach the maximum limit by December, while also simultaneously contributing to the IRA throughout the year? Regardless of the approach, I am committed to saving 15% of my income each month towards my retirement. The only difference lies in whether I allocate the entire 15% to my 401k and then to an IRA, or split it as 12% to the 401k and 3% to the IRA over the course of the year.
I hope this explanation makes sense, and if this decision holds any significance. At present, I feel quite lost and overwhelmed by these decisions. Is there a way to simplify this process and ensure I make the most advantageous choices for my financial future?
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Do you have a company match for the 401k? You typically need to contribute all year to get the match.
You may find these links helpful:
– [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds)
– [401(k) FAQs](/r/personalfinance/wiki/401k)
– [“How to handle $”](/r/personalfinance/wiki/commontopics)
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1. Generally it’s best to spread out your contributions across the year. If your employer has a matching contribution, it will often be issued per-paycheck. So if they match 5% of salary, they might contribute 5% of your gross pay on every paycheck where you do the same. If you contribute more early in the year and nothing later, you may not get the full match. Many employers “true up” contributions at the end of the year to account for this, many do not.
2. You say you can do backdoor contributions directly through the 401k web portal. If so, that would most likely be the “mega backdoor”. Which is perfectly fine. But you should know the mega backdoor does not count as an IRA contribution, even if it involves in-service distributions to a Roth IRA. The only thing that counts as an IRA contribution is money you put directly in an IRA.
The advantage is more time in the market, 75% of the time the market goes up so the sooner the better. However, many 401k plans (employers) make their match per paycheck and don’t true up at the end of the year. So you leave money on the table maxing out early.
Are you sure you’re using your 401k portal to contribute to your IRA? That sounds more like the mega backdoor Roth which goes into your 401k, but may be subsequently rolled into your Roth IRA. That has nothing to do with your IRA contributions (backdoor or otherwise), you’d still have room to make actual IRA contributions.