This is the Lightning Round, a weekly segment of the show where we answer questions from texts, meetings with people that come up as we create a plan for their future and calls / emails from listeners throughout the week.
This week we answer your questions about employer matched 401(k) compared to Roth 401(k) and if there is a right time to pull from retirement accounts... even if it's for your daughters college fund!
I hope you enjoy the clip from the show.
Full Summary of the Latest More Than Money Podcast
Brandon Asks "How Much Should I Match My Traditional 401(k) At Work Over A Roth 401(k) I Actually Prefer But Don't Get A Company Match?"
Listen in at 1:00
Great question! Let's be sure everyone is on the same page of understanding before I answer.
There are two types of 401(k)'s:
- A traditional 401(k) is pre-taxed. Meaning the tax would come out before he got his paycheck and eventually, Brandon would have to pay taxes on it when he takes the money out. He would pay the tax rate at the time he withdrawals.
- A Roth 401(k) is taxed now before it goes into the account. Then your money grows tax free forever and before you go into retirement, you are free to withdrawal the money with no additional payment.
First off: double check with your employer. The case may be that they can still match, but their match will go into the traditional 401(k) and you can deposit your investment in the Roth 401(k). Most company's will allow you to do this. I suggest you ask a few more questions and find out 100% their policy.
But if not, I'd have to tell you to take the free money and go with the traditional option your company will match over the plan you prefer.
Gene Asks "My Daughter Is Going to Be A Freshman Next Year. Is it possible to pull from your retirement account without penalty to help with college?"
Listen in at 3:31
This is a tough one. Without knowing your whole situation, I'm going to have to speak in generalities, but I believe it will still help you and a lot of our listeners.
You can pull from an IRA and a Roth IRA for college expenses and not have to pay the 10% penalty that would be assessed for anyone under 59 and a half. You will have to pay income tax on what you withdrawal.
Most of the time, however, this is a difficult decision to advice someone to make as it isn't a good move for your future. I know you love your daughter Gene, but long-term it also could impact your children in a bad way if you don't have the right funds in retirement.
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