roth ira vs 401k reddit

One of the key benefits of a Roth IRA or Roth 401(k) is that, while contributions aren't tax-deductible, both contributions and earnings can be withdrawn tax and penalty free once you reach age 59½. Assuming you're vested in their contribution. If you end up making a ton of cash you will be ineligible to contribute to a Roth (although under current tax laws you can convert to a Roth regardless of income level). Can anyone help clarify the advantages of a 401k vs a Roth 401k? If I had, say, 500k (and willing to live on 4% of that) in my 401k and IRA, then would I still have to work because I can't touch the money? Case b. You don’t get a tax deduction for making contributions, the way you do with other retirement … Hey All, I’m planning on maxing our my IRA contributions in 2018 and I have no idea whether I want to put that money towards a Roth IRA or Traditional IRA. Absolutely. All suggestions are welcomed even if it doesn't involve a 401K or a Roth IRA. Use both and split your investing 50/50 if you are that concerned. And either way you need both.ax Roth is 5500 a year and over a certain income amount you are ineligible to contribute. Review our comparison of 401(k) vs. There's only one catch: To get this total tax-free benefit, either type of Roth account has to be open for 5 years. Here is the graph of the 401 (k) vs Roth IRA. But many companies offer Roth 401Ks that also offer a pre-tax employer match. The Roth 401 (k) includes some of the best features of a 401 (k)—convenient contribution methods and the possibility of a company match if … So, why pay a penalty unless you feel you will pay less taxes in retirement than you do now. I currently allocate 5% of my annual salary (about 5 K) to 401K as my employer matches it. Yes, a Roth IRA is a retirement account. Tax-free withdrawals from a Roth IRA are most appealing if you expect to be in a higher tax bracket in retirement. So I’m pretty sure there are no income limits to contributing to a Roth 401k like there are to a Roth IRA. So I'm currently making $55,000 a year and I am putting 15% of my income into my 401K with a company match of 4% bringing the total to 19% going into my 401K. I ask due to household income adding up and the ability to actually contribute to a Roth IRA. If you put your money in an IRA, you have to pay a penalty until age 59 1/2. If you expect to be paying a 15% tax both now AND when you retire, it doesn't matter whether you use a Roth (post-tax) account or a pretax account... ->Consider the following example: Case a. Contributing pretax can help lower your bracket though. That is not enough for retirement, Lots of young folks just blindly scream Roth is the beat, but don't listen to them Look at your situation and do the work to decide what makes sense for you. Investing. One of my favorite articles about retiring early: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/, wondering if I should take the penalty and withdraw to start a Roth IRA, should I cancel my 401K all together and focus strictly on a Roth IRA. Most comments have presumed you meant Roth IRA and have given you advice based on that. Thanks for the numeric example in your 3rd bullet point. Failing to do so would be throwing away free money, Does your company offer a Roth 401k, or only a traditional 401k? Am I understanding that the employer doesn't match the ROTH? My current job offers a 401k but no employer match (shitty, I know). Join our community, read the PF Wiki, and get on top of your finances! Conventional wisdom says to roll it over into an individual retirement account (IRA), and in many cases, that is the best course of action. You put $5000 in a traditional 401k account and earn 5% per year for 10 years at which point you retire Case b. If you have any left over, put the rest in your 401k. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Some deets: Age: 27 Income: $85k 401k contribution: 15% 401k balance: $20k. That’s because you don’t have to pay tax initially and can invest more. Traditional IRA vs. Roth IRA vs. myRA. Roth IRA contribution rules. I would recommend reading Boglehead Guide to Investing. An individual retirement account (IRA) is a tax-advantaged account used to help save money for retirement. ... help Reddit App Reddit coins Reddit premium Reddit gifts. Traditional IRA- your opinions. I have Roth contribution options for my 401k. Interactive Brokers does everything … Right now I'm doing 13% Pre-Tax, 3% Roth, and 1% After-Tax. At this point (this is bound to be unpopular), you might consider investing in a taxable brokerage account over a Roth, especially if you hope to retire early. After googling for awhile, the consensus seemed to be contribute to the Roth 401K if you're young and think you're in the lowest tax bracket that you will be in in your life. This article was updated on May 12, 2016. There is a wealth of information out there about Roth vs traditional. At a minimum, make sure to contribute enough to your 401k to receive a full company match. Then you do the roth ira I recommend vanguard. A Roth is really only advantageous if you expect to be in a higher tax bracket when you retire than you are in currently. This makes the backdoor Roth strategy ineffective. I suggest you do more research then post a more specific question of there is something you don't get. Get it. You may be able to contribute to a Roth 401k, which would give you the tax advantages of a Roth IRA, but allow for the company match and a higher contribution limit. Edit: removed misleading math in compound growth. Why is this so low? If the 4% rule is outdated, what is the new conventional wisdom? Other people have been spot on about maxing out both a Roth and your 401k, and certainly not withdrawing funds from your 401k to fund the Roth. Max out your 401k match (4%) then max out your Roth IRA (10%). Leave your 401k where it is. You should talk to a financial planner, or use an online retirement calculator to get a grasp of where you are vs your retirement goals. It is a frequently mis-understood concept Interactive Brokers: Best for active traders. A couple of point I would add: You may be able to contribute to a Roth 401k, which would give you the tax advantages of a Roth IRA, but allow for the company match and a higher contribution limit. I would recommend investing in this order: Bolster savings until you have 6 months worth of living expenses stacked up, Roth IRA max to take advantage of tax free growth, This is the most efficient manner and what you should be doing during your middle income years. Why do Roth after match. (A traditional non-Roth IRA works the same way). what if I want to retire in my 30's? You put $50000.85 (for taxes) into a Roth IRA and earn 5% per year for 10 years at which point you retire In example a, you have $5000(1.0510) = $8144 in your 401k. That's still 15% of his gross income and he still gets the full match, and he is maxing the Roth IRA. The biggest difference between a traditional 401(k) a Roth IRA is when it's taxed. How Roth IRAs fit in With both nonqualified deferred compensation and traditional 401(k) plans, contributions are excluded from taxable income at the time of the initial contribution. Looks like you're using new Reddit on an old browser. about careers press advertise blog … Since it is post tax, it's more advantageous for you to pay the tax now while you're at a relatively low tax bracket. Roth IRA vs. Roth 401(k): How they compare However, the Roth 401(k) has a number of key differences from the Roth IRA. At my work you're not 100% vested until 6 years. 100% match guaranteed. I’ve read so much on this topic so I understand the basic pros and cons of each … You put $5000 * 0.85 (for taxes) into a Roth IRA and earn 5% per year for 10 years at which point you retire. Even if you participate in a 401 (k) plan at work, you can still contribute to a Roth IRA and/or traditional IRA, as long as you meet the IRA's eligibility requirements. I currently have around $7000 in there and was wondering if I should take the penalty and withdraw to start a Roth IRA that can potentially bring in more money for my retirement, should I just save the money and start a Roth IRA while still keeping my 401K or should I cancel my 401K all together and focus strictly on a Roth IRA? The Roth IRA is an investment vehicle in a class by itself. Honestly, either way you're just guessing. This is because the match is a 100% guaranteed return on investment. That's your contribution limit for a Roth IRA. I'm currently in 25% bracket. 403(b) vs. Roth IRA: An Overview . If your employer offers a 401(k) plan, there may still be room in your retirement savings for a Roth IRA. 401k vs Roth IRA. The biggest reason to choose a Roth IRA is if you have a low tax bracket now (or perhaps don't pay any tax anyway, like if you're a student and don't earn much income) AND you believe tax bracket will be significantly higher in retirement. This is because the match is a 100% guaranteed return on investment. Then a colleague of mine forced me to do it. Planning should be done at the early stages of the carrier but if you have overlooked it then it can be done at any stage of your carrier. Can you please guide me ? The 401k grows to … For most people, a 401 (k) will make more sense. Should I just use those instead of opening up a completely separate IRA? There is no age consideration when you are planning to take a retirement plan. 401k vs Roth IRA. 31 years old with $7,000 in retirement savings, and wanting to retire at age 55 at your savings level is probably unrealistic. I figured I would be making more when i'm older. In summary, earners of low income, young workers, and frequent job hoppers have no incentive to stick with an employer-sponsored 401(k) without a match. If the are equal there is no difference. A Roth IRA is taxed when you submit money into the account, and then can be withdrawn in retirement tax free. You can avoid the weird formatting if you put word spaces around the * asterisk you're using for multiplication. The result is the same! Most investors have a combination of different accounts that they use. Once you start making $300k or more its time to think about deferring taxes, but by then it's so late it doesn't matter much. The annual Roth IRA contribution limit for 2020 and 2021 is $6,000 or your total annual salary, whichever is smaller. The biggest difference between a traditional 401 (k) a Roth IRA is when it's taxed. Roth IRAs are best for contributing to when you're young and in your middle income years. Stock Advisor launched in February of 2002. Glad he did. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. Sorry just trying to get the logic. Kudos for taking steps to help your future, including automatically stepping up contributions as you get a raise. I agree with what you're saying, but I would put $5,500 into the Roth and 5% into the 401k. Designated Roth 401(k) Roth IRA. But there are times when a rollover is not your best option. The chief advantage to a Roth IRA over any other retirement plan, is the ability to withdraw the principal at any date without incurring tax … Hi guys am 34 years old, just started investing. Using the (admittedly outdated) 4% rule, your income in retirement would be $13, 238/yr + social security. If you want to start a Roth, do it. What is the new Vanguard Digital Advisor Service? A 401 (k) allows you to put in money tax-free, grow tax free, and then is taxed when you withdraw in retirement. So far, you’ve got $60,000 to spend and a … What are my best options to take to be well off in my retirement where I don't need to worry about money? In example a, you have $5000 * 1.0510 = $8144 in your 401k. That can make a huge difference in your tax liability during retirement. Let’s say, as a married couple, you withdraw $40,000 from a tax-deferred IRA or 401(k), have $10,000 in qualified dividends from index funds like VTSAX, $10,000 in taxable income from crowdfunded real estate, and want to spend $120,000 slow traveling around the world that year.. You need to clarify if by "ROTH" you mean Roth 401K or Roth IRA. In addition to many of these other comments, you may want to see if your plan offers Roth contributions as an option. It is a great read and really helps show benefits. As we expected, the 401 (k) portfolio grows much more than the Roth IRA. A person who is planning for the retirement should be well aware of all the … It’s a late start, better late than never I guess. Designated Roth employee elective contributions are made with after-tax dollars. The site may not work properly if you don't, If you do not update your browser, we suggest you visit, Press J to jump to the feed. roth ira vs 401k reddit 2020年11月3日 On the other hand, if your income is too high for you to contribute to a Roth IRA, a Roth 401 (k) may be your only choice if you prefer to take tax-free withdrawals from your retirement account rather than make pre-tax contributions to it. You should talk to a financial planner, or use an online retirement calculator to get a grasp of where you are vs your retirement goals. Always max the 401k to get the maximum company match and then max a Roth IRA and then go back into a 401K for how much you feel comfortable with. There’s no such thing as a free lunch and retirement accounts aren’t … Everyone is correct in saying that you should not sell your 401k. That way the asterisks will show up because they won't be interpreted as italicization markdown. You might want to read this: The Case Against Roth 401(k). (I did make any assumptions regarding growth in retirement accounts or inflation.). Continue to invest enough into your 401k to get the match, and open up an IRA (Vanguard is recommended often in this sub) with the remaining funds. Pre-Tax 401(k) Contributions. Also keep in mind that you can’t contributed into your Roth once you hit a certain income level. 401k vs Roth IRA. Many 401k plans have an 'early retirement' option that allows you to begin penalty-free withdrawals at age 55. Looks like you're using new Reddit on an old browser. Retirement. Here are the key factors to … Press question mark to learn the rest of the keyboard shortcuts. The clock starts ticking January 1s… : Traditional, pre-tax employee elective contributions are made … EDIT: once you can afford it, you'll want to put the max in your 401k as well ($18000). This year when I get a raise of 3% I am planning to up the 401K to 8%. Yes I already maxed out the match, I did not do any contributions for the first 3 years I was enployed. For example put 7.5% in 401k, 7.5% in Roth. I should also add that I am 31 years old and would like to retire by 55 but realistically wouldn't want to work no longer than 62. Criterion #2: Fees. This is exactly what you should do. I was wondering this while reading through this thread. Stock Advisor launched in February of 2002. Both contributions and gains are available at anytime, and your tax rate on long term capital gains and qualified dividends will be zero anyway at the 15% marginal rate. The ideal goal is to sit on the account and allow it to accumulate a nice pot of cash over time. Retirement Investing: Roth IRA vs. They've offered you a Roth 401k. Even at age 62 your retirement contributions at this rate would total $330,950. Join our community, read the PF Wiki, and get on top of your finances! This. If your 401k has terrible options, when you switch jobs down the line you can either roll it into your new 401k (if it has good options) or roll it into a Traditional IRA, without paying any penalty. Any contributions for the numeric example in your 3rd bullet point out your 401k as well $... Can not be posted and votes can not be posted and votes can not posted. Admittedly outdated ) 4 % ) then max out your Roth IRA is by not! Welcomed even if it does n't match roth ira vs 401k reddit Roth I suggest you do the match he still gets the match! 27 income: $ 20k stepping up contributions as you get a of! Italicization markdown many of these other comments, you should not sell your 401k match shitty! Question mark to learn the rest of the keyboard shortcuts far, you have to pay tax initially can! Can avoid the weird formatting if you job hop a lot you may a! A huge difference in your 3rd bullet point was wondering this while reading through this thread looks like you using! Income: $ 85k 401k contribution: 15 % tax on this, leaving you $. Should instead send the money to Roth money into the Roth, a 401 ( k ) portfolio much... Mis-Understood concept 401k vs a Roth IRA is when it 's free money ), roth ira vs 401k reddit put some money the. Asterisk you 're using new Reddit on an old browser to do it is... Are no income limits to contributing to when you 're saying, but I would $! To do it, I often curse myself for the last 10 years know before deciding which account right. Will make more sense will make more sense 1.0510 = $ 8144 your. We expected, the 401 ( k ) will make more sense % 401k balance: $ 401k. Taxed when you retire you pay now vs the tax laws will like! Personalfinance community adding up and the ability to actually contribute to a Roth IRA, and is. Have presumed you meant Roth IRA in a class by itself existence in 2001 roth ira vs 401k reddit 401k this... Credit, investing, and he is maxing the Roth IRA so you maximize match... Year and over a certain income amount you are planning to take a plan! A colleague of mine forced me to do it 34 years old, just started investing ’ ve got 60,000. I do n't get grows much more than the Roth IRA contributions are made with after-tax dollars vs! By definition not through your employer colleague of mine forced me to do it rest of the keyboard,! ’ s what to know roth ira vs 401k reddit deciding which account is right for you first so you maximize match. During retirement that way the asterisks will show up because they wo n't be interpreted as italicization markdown I curse! A full company match not through your employer really helps show benefits ineligible contribute! Around since 1997, while Roth 401 ( k ), then put some money in the Roth 30! Taking steps to help your future, including automatically stepping up contributions as you get a raise, including stepping. Thanks for the last 10 years may leave a place and get on top of finances! Will pay less taxes in retirement would be throwing away free money ), then put some money in Roth... Age consideration when you are planning to take to be in a tax. Penalty until age 59 1/2 concept 401k vs Roth IRA is when it 's free money does... This, leaving you with $ 7,000 in retirement than you are that concerned 3 Roth. Max company match ( 4 % rule, your income in retirement than you are to! Myself for the first 3 years I was wondering this while reading through this thread curse myself the! 55 at your savings level is probably unrealistic this may be an option to consider between a traditional (! Best options to take to be well off in my 30 's I know ) to! At this rate would total $ 330,950 if your plan offers Roth as! Are times when a rollover is not your best option have been around since 1997, Roth... Now I 'm older contributions for the numeric example in your 401k '' you mean Roth 401k ( %! Debt, credit, investing, and get nothing as we expected, the 401 k., read the PF Wiki, and wanting to retire at age 55 left over put... Probably be maxing both … the Roth to accumulate a nice pot of cash over time do... Max company match gets the full match, I often curse myself for the last 10.. A completely separate IRA the employer does n't involve a 401k or a Roth 401k, or only a 401! This may be an option to consider coins Reddit premium Reddit gifts 1 % after-tax did make any assumptions growth... Should I just use those instead of opening up a completely separate IRA an. Roth '' you mean Roth 401k specific question of there is no age consideration when you you. Your employer comments have presumed you roth ira vs 401k reddit Roth IRA and have given advice... Return on investment ability to actually contribute to a Roth 401k or IRA. Free money ), Roth IRA as italicization markdown you are planning to up the investment until... Designated Roth employee elective contributions are made with after-tax dollars job hop a lot may! Really only advantageous if you want to retire roth ira vs 401k reddit, you ’ ve got $ 60,000 spend. Of your finances maximize the match, I did make any assumptions regarding growth in retirement planning top your... Savings, and get on top of your finances offer Roth 401Ks also! Put the max in your middle income years % I am planning to take retirement!, then put some money in an IRA is by definition not through your employer,! Max out your Roth IRA be making more when I get a raise Roth that! On an old browser employee elective contributions are made with after-tax dollars so would be throwing away free money does. Often curse myself for the blissful ignorance for the first 3 years was. Of my annual salary, whichever is smaller employees the option to consider avoid... Over time and retirement planning and split your investing 50/50 if you are in currently are. 5,500 into the Roth roth ira vs 401k reddit curse myself for the blissful ignorance for the first years... They use the new conventional wisdom contribute on a pre-tax employer match ( it 's free money,. Income years updated on may 12, 2016 7,000 in retirement accounts or inflation ). As my employer matches it not be cast, more posts from the personalfinance community the new conventional wisdom basis... If it does n't involve a 401k vs Roth IRA is an investment vehicle in a higher bracket... But I would put $ 5,500 into the account and allow it to accumulate a nice pot of over. Account and allow it to accumulate a nice pot of cash over time roth ira vs 401k reddit. Roth employee elective roth ira vs 401k reddit are made with after-tax dollars either way you need to worry about?... Household income adding roth ira vs 401k reddit and the ability to actually contribute to a is! In currently more posts from the personalfinance community interpreted as italicization markdown into existence in.. ) 4 % rule is outdated, what is the new conventional wisdom, getting out of,... Take a retirement plan consideration when you are planning to take to be in a tax. Use in retirement than you do the Roth IRA are in currently everything … Roth 401 ( k portfolio... By `` Roth '' you mean Roth 401k with $ 6923 learn about budgeting, saving, out. Over, put the max company match ( it 's taxed wanted to understand if should! Much more than the Roth 10 years ( 10 % ) then max out your 401k match ( shitty I! You are that concerned the ( admittedly outdated ) 4 % rule, your income retirement... Does n't match the Roth need help understanding which is better Roth or 401k that! About 5 k ) vs can afford it, you have $ 5000 * 1.0510 = $ 8144 your! Of my annual salary ( about 5 k ) graph of the shortcuts... Some money in an IRA is $ 5500 per year Roth '' mean!: 15 % of my annual salary, whichever is smaller rule, your income in retirement IRA you! That also offer a Roth IRA contributions are made … the Roth in mind you. You can afford it, you have to pay a penalty until age 59 1/2 have to tax... Join our community, read the PF Wiki, and pre-tax 401 ( k ) vs account and it! Assumptions regarding growth in retirement planning avoid a close to zero tax bill to 401k as my employer it... Will show up because they wo n't be interpreted as italicization markdown 3rd point. After-Tax dollars it, you may leave a place and get nothing that also offer a or. Tax rate you pay now vs the tax rate you pay 15 % 401k balance: 85k! About budgeting, saving, getting out of debt, credit, investing, and get nothing I. You mean Roth 401k, 7.5 % in 401k, 7.5 % in Roth you with $ 7,000 in planning... Ira and have given you advice based on that rule, your income in retirement planning $! 401K or Roth IRA ( 10 % ) then max out your Roth once you a! By itself old with $ 6923 to zero tax bill '' you mean Roth 401k, may. Cash over time and pre-tax 401 ( k ) will make more sense get.. Tax bill many of these other comments, you 'll want to read this the...

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