You have just attended the HR Orientation at your new job, and you learned that

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You have just attended the HR Orientation at your new job, and you learned that your employer offers a defined contribution retirement savings plan: a 401k. Your employer will match 100% of your contributions to the plan up to a maximum of 5% of your salary.
You are offered two options:
a traditional 401k, which allows you to contribute pre-tax money and defer paying taxes until you begin taking withdrawals in retirement;
a Roth 401k, which allows you to contribute money that has already been taxed and take tax-free withdrawals in retirement.   
You are also offered the option of choosing to increase your initial contribution amount by 1% annually, to a maximum of 15% of your salary.
After completing the chapter readings and viewing the “Saving for Tomorrow, Tomorrow” video linked in the Module resources, respond to the following questions:
Will you choose the traditional 401k or the Roth 401k?  What factors did you consider in making your decision?
What percentage of your salary will you contribute? Will you choose the automatic 1% annual increases to your contribution? Provide specific rationale for your decisions.
In responding to your peers, respectfully comment on their decisions and rationale.
Note: Document your references in APA format.
PEER 1: Andrea Lakin posted Aug 1, 2022 3:28 PM
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Hi Class and Dr. Dennis,
For the scenario in this week’s discussion, I would choose to go with the traditional 401k. The factors I considered in making this decision were when I want to pay taxes, my age, and the state I live in (Locke, 2021). Since I don’t expect to be in a higher tax bracket when I retire, paying taxes on my 401(k) money then, instead of now, makes more sense to me. Also, generally those that are younger, and have more time to save for retirement, are recommended to choose Roth 401(k) (Locke, 2021). The biggest determining factor in my decision is the state I live in, New Hampshire, which does not have a broad income tax, so I can avoid state tax on payments from my 401(k) plan in retirement (Mengle, 2022).
First let me say, I wish I took this class when I was younger! I would definitely have chosen the automatic 1% annual increase to my contribution. I currently contribute 8% with a company 50% match on every dollar up to the first 6 percent. I need to increase my contribution percentage greatly, to catch up from years of not contributing when I was younger, but having lost so much money in the last year because of the current economy, I have not wanted to increase my percentage yet. I check my rate of return frequently and it is currently -13.34% for the last year and -11.59% year to date. I was averaging 12 to 13 percent return before 2022, so as soon as I see some positive rates of return, I will feel comfortable increasing my contribution percent. I plan to increase 2% every year until I reach the maximum allowed.
References:
Locke, T. (2021). Deciding between a traditional or a Roth 401(k)? Here’s what to consider. CNBC. Retrieved from
https://www.cnbc.com/2021/08/06/differences-between-roth-vs-traditional-401k.html#:~:text=If%20you%20expect%20to%20be,could%20be%20a%20better%20option.
Mengle, R. (2022). 12 states that won’t tax your retirement income. Kiplinger. Retrieved from
https://www.kiplinger.com/retirement/601818/states-that-wont-tax-your-retirement-income#:~:text=New%20Hampshire&text=Instead%2C%20the%20state%20imposes%20a,you%20retire%20to%20New%20Hampshire.
PEER 2: Devin Demarkis posted Aug 2, 2022 8:27 AM
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Hey Everyone,
This week we traversed one of the most important aspects of our working lives; retirement. When I started my current role at Raytheon, I was introduced to retirement savings for the first time. The jobs I had during high school and college included health benefits, but never a retirement plan. Similar to the example provided in the discussion post, Raytheon will match 100% of your contributions, but only up to 3%. Upon my initial hiring we were given extensive literature on the options we had in regards to retirement that I immediately dove into. I began by contributing 3% of my paycheck to the traditional 401K plan offered through Fidelity, which was held in one fund. After a couple years, and talking to some experts in the financial field, I decided to switch my 401K to a Roth IRA and strategically chose my individual investments. I also upped my contribution percentage to 6%. Using contemporary tax rules, every dollar that you withdraw from a traditional 401K will likely decrease by 20-30% when it is time to withdraw the money for retirement due to taxes (Charles Schwab, 2020).
This is why if I were given the option again, I would go with a Roth 401K in a heartbeat. Factors such as taxes and weekly paycheck reductions play a role in my decision making process. When it comes time to retire, the number you see on the homepage of your retirement account will be a lot closer to the actual dollar amount you receive when using a Roth 401K. As I previously mentioned, I began with 3% and increased it to 6% years later. This percentage has varied through the years depending on my current financial goals, such as saving for a home, but has never fell below my initial 3%. I also take advantage of the 1% annual increase option offered by Raytheon, and have it set up to increase every June. This incremental change doesn’t drastically affect your take home pay as much as it would if you bumped it up 3 points on any given day. As time goes on and you get older, your investment strategy will likely change. When you pay your mortgage off or when you reduce your overall debt, you may elect to increase your percentage to something closer to the max of 1%%, as you will have less financial obligations the longer you work (hopefully). Overall, I am very happy with my retirement plan strategy, and have amassed over $50,000 in the past 4 years.
References
Charles Schwab. (2020, July 16). Roth vs. Traditional 401(k) – Which Is Better? Retrieved from Charles Schwab: https://www.schwab.com/learn/story/roth-vs-traditional-401k-which-is-better

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