401k cont vs Long term liquidity

Question

Was wondering what sort of contributions, if any, 1st year analysts are typically making towards 401k/Roth. What contributions going forward?

How much do you value liquidity? At some point would like to be making investments on the side and would like to have access to be able to do this.

Ricky Sargulesh · Accepted Answer

The general advice is:

Contribute enough to 401k to get company match (free money)
Build up liquidity/emergency fund (generally 3 to 6 months expenses + any other short term needs)
Max Roth IRA ($6k) if under income limit
Max remainder of 401k
Invest in taxable account

If you want to build up more accessible funds to invest in RE, then it may make sense to allocate some money to #5  before #3/#4 are fully maxed, but you're probably better with the tax advantaged accounts.  Always do #1 & 2 first no matter what.

Dr. Rahma Dikhinmahas · Answer

No matter what your plans are, the math will almost always favor 401k because you are avoiding so much tax by contributing and you have the opportunity to take the money out in a lean year when you have very low rates.  This is especially true in NYC.

Say you contribute now and your marginal tax rate is 40% after state and local.  Then one day you want to start a business and support yourself with your savings while building that business.

maineiac42 · Answer

Don't start fucking around with co-invest or real estate investing on the side until you are maxing out tax advantaged accounts. The only exception I would make is if you are buying a multi as your primary residence.  You aren't going to generate big enough returns to offset the marginal income tax savings you get from IRA/401k contribution.

rickle · Answer

No. Your contributions are after tax. They are fully available at any time without any tax or penalty. Your gains (held for a minimum of 5 yrs and until 59.5 are tax free when distributed - which is why the Roth is so strong.) If you take your gains out prematurely, you will pay penalties.

So put in 100. It grows to 110. You can take out your contribution (100) whenever you want. The 10 is tax free if you hold it until 59.5 and for at least 5 yrs.

It's an after tax contribution that grows tax deferred and distributes tax free after 59.5.

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401k cont vs Long term liquidity

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