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Retirement Planning – Funding My Wife’s 401(K)

Q : I have 90% of our retirement savings in my pre-tax 401(K) plan,and about  $740,000 plus my pension. My wife just started a new job, and rolled over a ROTH 401(K) to her new employer’s ROTH 401(K) and totals about $10,000. I am maxed out on my pre-tax savings, and have no Roth option. My question is should we be putting money into her ROTH 401(K) to build up some after tax money, or should we use the pre-tax, or a combination of both. We plan to do 6% of her salary of $115,000. She is 58, and I am 59 years old. We have no other outside savings.

 

A : Great question, and given that you don’t have currently have any savings outside of your 401(K) and your wife’s Roth 401(K), here is what we would suggest.

 

1)      Fund an “emergency cash” account (3 to 6 months of total monthly expenses) in either savings, Money Market, or CD’s (100% safe)

 

2)      Max out your wife’s Roth 401(K)

 

3)      Fund taxable joint brokerage account with additional discretionary savings

 

 

You have done a fantastic job funding your 401(K), but it is nice to have a pot of after-tax money you can pull from without creating a taxable event.

 

The Roth 401(K) is great because you get the advantage of compounded tax deferred growth.

 

The taxable account will give you an option to collect dividends, distributions and interest in a money market if you don’t set your investments on automatic reinvest. This will create a nice cash flow stream that you can either reinvest as you see fit, or use to cover expenses.

 

Hope this helps.


 

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