I have a 401k. Should I also consider Roth?

[llckll]

My company matches .75% up to 6%. I've been contributing 6%. Should I open a Roth IRA and max out?

I'm 33 married with a boy and another baby on the way. Also trying to pay down debt. No credit card debt. Just wife's student loan, car parent and mortgage.

[disneysteve]

As long as you can afford to, I would definitely fund Roths for you and your wife. There is nothing that replaces the value of time in investing. Putting that money in when you're 33 will pay off big time when you're 65.

Just make sure that your budget makes sense and you aren't carrying the debt longer than necessary just to fund the Roths.

[llckll]

My wife has a 403b but we decided not to contribute to it. No matching whatsoever. Was going to use that to pay down debt.

[humandraydel]

As long as you can afford to, I would definitely fund Roths for you and your wife.

Well, I'll go a step further - and perhaps overstep my bounds - and say that you NEED to start increasing your retirement contributions so figure out a way to afford it. I might be wrong, but I get the feeling you aren't saving enough because of this:

My wife has a 403b but we decided not to contribute to it. No matching whatsoever. Was going to use that to pay down debt.

You should be contributing 10-15% of your combined salary - not just one salary.

[jpham540]

Yes you should fund your Roth IRA if you can afford to. Normally you would put in enough to get the match for your 401k, then max your Roth IRA, then if you still have enough max your 401k.

[bjl584]

It's a good idea if you can afford to. It will be tax free income in retirement. You can't get a much better deal than that.

[llckll]

Thanks for all your feedback.

Let me give you more details on what my wife and I are trying to accomplish.

We are in the process of paying off all our debt using the debt snowball method. We currently have 3 debts:

Wife's student loan: approx. $30k @ 6.85% = $528/month
Car payment: approx. $22k @ 0% = $441/month
Mortgage: approx. $365k @ 3.5% = $2,541/month

We are going to start putting an additional $1,071 towards the student loan. And once the student loan is paid off in a little less than two years, we're going to roll that money over to the car payments. We should be able to pay off those two loan in about 2 years or a little more.

Once those are paid off, we're going to roll the $2,000 over to our mortgage. All said and done, we should be completely debt-free in 9 years, latest. We plan on throwing additional money over the years to try and speed up the process.

During this time, I will still be contributing 6% to my 401k.

Would love to continue to hear your thoughts...

Charlie
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Follow our journey as we try to become debt free: Our Journey To Zero Debt

[snafu]

I don't think you've run the numbers on contributing at least 10% of family income to retirement plans. The major benefit results from long term compounding, making the sums invested in your younger years more valuable than even larger sums in your last ten years. I'd rather put sums into a ROTH than make extra payments to pay off a 0% car loan quicker. The benefit there is your access to the profit from ROTH investment anytime it might be needed in the future.

[llckll]

What I will consider is maxing out a Roth IRA for myself and my wife once we pay off the student loan and car payment which should be in 2.5 years.

Charlie
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Come read about our journey: Our Journey To Zero Debt

[disneysteve]

What I will consider is maxing out a Roth IRA for myself and my wife once we pay off the student loan and car payment which should be in 2.5 years.

I would disagree that prepaying a 0% car loan is more important than saving for retirement?

You can never get back the value of lost time. That car loan is costing you nothing. Not saving for retirement is costing you thousands of dollars. You can't ever go back and make up for contributions you didn't put in.

[jpham540]

I’m with Steve you have a 0% car loan so I would definitely max out those IRA before I pay off the auto loan. You have the power of compounding it’s better to start early. I do agree with you trying to get rid of your student loan, 6.8% is pretty high.

[srblanco7]

Concur with others. If you're going to focus on paying off debt, focus on the student loan. Then ramp up retirement savings to 15% of income. And, while I have an irrational-level of hatred for car loans, if yours is at 0%, paying it off after ramping up retirement savings makes sense.

[llckll]

I would rather save up for retirement as well. But by the time i'm done paying the student loan, I would just need to pay 3-4 months more of the debt snowball to have the car paid off. I guess it's personal preference as well. I would rather free up that capital and then invest it then having to pay the car off in another two years.

[llckll]

I agree that you can never get the value of lost time back but you can always catch up with greater contributions once you're debt-free.

[disneysteve]

I agree that you can never get the value of lost time back but you can always catch up with greater contributions once you're debt-free.

That sounds good, but it doesn't work. First off, you can't make larger Roth contributions. The amount is capped. If you don't contribute $5,500 for 2014, you never have the chance again. Second, you can't recover the value of the lost time unless you save vastly higher amounts.

Obviously it's your choice but financially and mathematically speaking, throwing extra money at a 0% loan instead of taking full advantage of tax-free investing doesn't make any sense. It will result in you having thousands, if not tens of thousands, of dollars less at retirement. Is paying off the car early really worth that?