The Great Debate
I think the varying viewpoint of two different advisors is very interesting and worthy of much consideration.
Suzie Orman, who we can't help but be drawn to for that wild personality, has often suggested that it might be better to only contribute to a 401-K to the extent of the match, then put extra savings money into a Roth, then use any excess to pay off mortgage early, or invest in other savings. Her reasoning: we are likely to experience higher tax rates in the future, so why defer paying tax on the 401K contributions until a higher tax rate day.
Dave Ramsey, on the other hand, says put the max in the 401K, because you're using that temporary tax savings to add to the pile that's in the snowball, and that's what we're going for, is the snowball effect. Only after a 401K contribution is maxed out, he says, should we pay extra toward our mortgage.
I find this debate interesting, since I, like many other Americans, do not qualify for a Roth. Should I heed Suzie, and fear the future higher tax rate, and consider not maxing my 401K?
Or, should I heed Dave, and max my 401K contribution, and have a bigger snowball effect?
Should I consider rather, paying my mortgage off early?
For right now, I'm definitely going for the snowball effect. But I do shudder to think what tax rates might be in the next 30 years.
I'm not so much worried about my mortgage, because my home is on a resort lake, and I could sell it right now and use the equity to pay cash for a down-sized home, which I'll want to do anyway. Not to mention, my house payment is less than most people pay in rent.
But I definitely think the whole issue of whether or not to max out the 401K contribution is worthy of debate.
I suppose it should be decided on a case by case. Certainly, if I were eligible to contribute to a Roth, I would do that, after meeting the match on the 401K.
Dave's point also is this: some people don't get a match on their 401K. He says they are foolish if they let that stop them from contributing to the 401K.
I love Suzie, but I think sometimes she gets carried away by her own drama.
Dave is very practical, and I love that.
Changing the topic, where the heck are Griffin and ATCJeff and 350Z?
Am I going to have to learn to live without them?????
Boo Hoo!
Where's Ronald Reagan When We Need Him!!!
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