Personal Finance

3856 readers

1 users here now

Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Join our community, read the PF Wiki, and get on top of your finances!

Note: This community is not region centric, so if you are posting anything specific to a certain region, kindly specify that in the title (something like [USA], [EU], [AUS] etc.)

founded 2 years ago

MODERATORS

[email protected]

Fidelity 401k options (self.personalfinance)

submitted 4 months ago by root to c/[email protected]

11 comments fedilink hide all child comments

My employer recently switched to Fidelity and for now I've chosen the LIFEPATH IDX 2050 A option. It looks like this one provides quarterly dividends, but the yield is 0.0%(?)

I'm looking for some fairly risk adverse options or blends that provide dividends that will be reinvested. Anyone have any recommendations?

you are viewing a single comment's thread
view the rest of the comments

[–] [email protected] 1 points 4 months ago* (last edited 4 months ago) (1 children)

It's more about tax efficiency. if you open an IRA, you're likely going to be contributing on a Roth basis, meaning that you'll never pay taxes on the growth, whereas in a 401k, you're likely contributing on a pre-tax basis, meaning you will pay taxes on that money. With a taxable brokerage account, you'll be paying taxes on every disbursement, meaning anytime you sell or receive a dividend.

So, generally speaking, you'll want:

Roth accounts (Roth IRA, Roth 401k, etc) - highest expected growth
pre-tax accounts (IRA, 401k) - lowest expected growth
taxable brokerage - lowest capital gains (so low dividends)

In practice, that usually means:

highest growth - growth stocks
lowest growth - bonds
lowest capital gains - value stocks

This can be as complicated or as simple as you'd like. For me personally, I have:

Roth - US stocks - i think these will continue to outperform longer term
pre-tax (401k and HSA) - other stocks & bonds - this is where I rebalance
taxable brokerage - international stocks (for the foreign tax credit)

My overall portfolio composition is the same, I just shift around where I keep each asset class based on tax efficiency.

[–] root 2 points 4 months ago* (last edited 4 months ago)

Ah that makes sense, thank you. For now I'm doing backdoor Roth IRA contributions as I can't do direct contributions. Eventually I hope to be able to also use the mega backdoor after I fill up the pre-tax federal contribution limits for 401k. That will be "after-tax" that is converted to Roth.