Comments on: 25 Rules to Grow Rich By #6: Long-Term Investments

By: steve

steve — Fri, 08 Feb 2008 22:22:07 +0000

It seems like this was your turn to oversimplify. Wether the particular person is saving enough with 6% + $4000 depends, among other things, on what percent of their income $4000. Also I have the opposite opinion from you on starting young – when you’re old enough to have income but young enough to have no kids and some time before you retire, it’s the *perfect* time to sock away as much as you can. It’s only going to get harder to find money once you have some rugrats, but if you saved prodigously while you were young, you might be ok even if you save a lot less while the kids are in the house. And the earlier you invest, the longer it has to grow.

By: Brian (WA)

Brian (WA) — Tue, 30 Oct 2007 23:20:07 +0000

The only problem with a 401K and an IRA is that you are deferring taxes now but you will have to pay them later. Why would you want to pay higher taxes later than you would now? I would suggest investing in non qualified plans rather than qualified plans. That way you can keep all of the money you make. I would rather make 8%, and net 8% keeping all of it during the distribution and transfer years rather than make 8%, pay taxes and wind up with a 5-6% net during the distribution years and pay even more during transfer.

By: Jim Lippard

Jim Lippard — Thu, 04 Jan 2007 17:19:45 +0000

Jonathan: To account for that, I’d put the priorities as:

1. Get the company match on the 401K.
2. Max out a Roth IRA, if eligible.
3. Max out the 401K.
4. Max out a traditional IRA (even if it’s completely nondeductible, to take advantage of the 2010 Roth conversion option).
5. Put money in other investments.

By: Jonathan

Jonathan — Sat, 16 Dec 2006 08:18:31 +0000

This is tricky, as some companies only match up to as little as 0.5%-1% of pay. 1% of pay + $4,000 in a Roth won’t cut it for many people, so I would still consider putting more money in a 401k or similar tax-sheltered options before resorting to taxable accounts.

Remember, if you end up needing money earlier than 59.5, there are ways to to get that money out without penalty. In addition, you can withdraw your Roth IRA contributions at any time without penalty.

By: Jim Lippard

Jim Lippard — Fri, 15 Dec 2006 18:38:11 +0000

One suggested modification: If you currently have too much annual income to contribute to a Roth IRA, you should max out a nondeductible IRA in order to take advantage of the new rule that permits a nondeductible IRA to be converted to a Roth IRA in 2010 (even if your income is too high to contribute to a Roth IRA). This requires paying taxes on the gains you’ve seen in the nondeductible IRA up to the point of conversion, but you can pay those taxes over 2011-12.