Saturday, March 08, 2008

Life without a 401(k)

I am about to work for an employer who does not offer a 401(k) plan as a benefit. I feel strongly about the value of retirement saving, but I also believe this is the right opportunity for me, so I am going to make it work.

Since I already have a Roth IRA -- and we are within the income limits -- I will make the maximum contribution for 2008, which is $5,000. Next there are two options. We can either max out a Roth IRA contribution for Jer -- if you are married filing jointly and together earn less than $159,000 in 2008 then each spouse can contribute up to $5,000. Or I could take the extra money and invest it outside of a retirement account. If I did that, it wouldn't be earmarked as "retirement" savings and would be subject to capital gains and losses, however it would still add to the wealth building process. I risk tapping it for other projects pre-retirement however, but the huge benefit is that I *could* tap it before age 59 1/2. Say, if I wanted to retire early.

Here is what I know for sure: I prefer a Roth instead of traditional IRA because even though we can't take tax deductions on contributions, the fact that withdrawals won't be taxed (after a qualifying age) is powerful.

Ultimately my decision will be based on our short-term and long-term goals. If we stay on track, these are basically: buy a house and develop passive income streams.

I am very tempted to use this as an opportunity to build my non-retirement investments. Probably the safest thing (as far as safe goes) would be to max out both Roth IRA contributions and then build investments with what's left over. But the more fun thing, and the thing that would help me build wealth now, would be to invest it in a brokerage account.

I like no-load index funds, if you're curious.

Or we could try to do it all and eat ramen every meal!

Actually that would make a good saying for the 21st century: Instead of "Let them eat cake!" it's "Let them eat ramen!"

Disclaimer: I am not a financial professional. These are my opinions; your situation may differ. Always do your own research.

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