Hi guys am 34 years old, just started investing. Thank you, In general 401k investment options suck. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. If they are under the age of 18, it will technically be considered a Custodial Roth IRA account, then after attaining age 18, it would change over to the child’s name. The optimal deal would be to roll your old Roth 401(k) into a new Roth 401(k). Fidelity IRA vs Vanguard IRA in 2021 Fidelity Investments vs Vanguard for IRA accounts, Roth IRA, Rollover, SEP, SIMPLE. Press J to jump to the feed. … That’s a fantastic feature of the Roth 401(k). Compounding interest doesn’t change if it’s $100 in 10 accounts or $1,000 in one account. Can you please guide me ? Converted a traditional IRA to the Roth IRA. And what percentage I want in each so I went with target date. The two main differences between the Roth 401k and IRA is that the Roth 401k has much higher contribution limits but the fund selection is limited to those provided by your employer. I am a nurse whose financial advisor is telling me i should open a Roth IRA. Depends on the tax rate you pay now vs the tax rate at retirement. Roth IRAs are not subject to these. The Roth IRA is an investment vehicle in a class by itself. Sorry just trying to get the logic. Depending on how much your marginal tax rate is, Roth 401k may be the better choice. You don’t get a tax deduction for making contributions, the way you do with other retirement plans. Rolled over a Roth 401(k) or Roth 403(b) to the Roth IRA. If you're under age 59½ and you have one Roth IRA that … By using our Services or clicking I agree, you agree to our use of cookies. Kudos for taking steps to help your future, including automatically stepping up contributions as you get a raise. That is exactly what i didn't understand. So I’m pretty sure there are no income limits to contributing to a Roth 401k like there are to a Roth IRA. You need to clarify if by "ROTH" you mean Roth 401K or Roth IRA. Some deets: Age: 27 Income: $85k 401k contribution: 15% 401k balance: $20k. Here's a chart of the 2019 Roth income limits: 2019 Tax Filing Status Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. I am self-employed (with no employees), and I recently learned about Solo Roth 401k… So, now, about 5 years before retirement, I'm converting my 401ks to Roths to avoid that problem and Required Minimum Distributions in my 70s. (A traditional non-Roth IRA works the same way). No matter how much money you earn, you can contribute to a Roth 401(k). Does the compound interest not grow quicker if I put in 25% in one account as opposed to 8% in one and 6k in the ira? (A traditional non-Roth IRA … Absolutely. The Roth IRA is always superior to the 401K because of this. I believe that's the us total stock index? For example, if you're only withdrawing 80% of that $110k you were making during accumulation (a common ratio for non-early retirement … Also, definitely contribute up to the max your employer will match if you can (I wasn't totally clear if you're already at the max)- it's literally free . I need help understanding which is better ROTH or 401k. A Roth IRA is taxed when you submit money into the account, and then can be withdrawn in retirement tax free. If you want to make it easy just do 15% into both. Most comments have presumed you meant Roth IRA and have given you advice based on that. An advantage of the 401k over a Roth IRA is that your contributions are tax deferred which means your taxable income is reduced by every dollar that’s paid into the 401k. A 401(k) allows you to put in money tax-free, grow tax free, and then is taxed when you withdraw in retirement. If you're a Dave Ramsey fan or just want to gain a better understanding of the Total Money Makeover, Financial Peace, and personal finance in general, then this is the community for you! Is it better to do the 8% and then look to vangaurd, etc for a roth ira or better to put more eggs into one basket. If I had thought about it back then, I would have put all of my investments into Roths, rather than traditional 401ks, and taken the tax hit back when I was younger and before the accounts had appreciated. However, I am in nurse practitioner school and could very well be making over … Would you recommend doing fzrox? We have access to roth401k which I am contemplating changing over to... Was planning on both starting roth ira at some point. Obviously it's better to never make withdrawals, but it doesn't hurt to have the option. What matters most is the total amount of contribution. If you want to do 8% into Roth 401k snd the other 7% into Roth IRA that’s fine too. If your employer offers a 401 (k) plan, there may still be room in your retirement savings for a Roth IRA. Press question mark to learn the rest of the keyboard shortcuts. My question is... were both putting in 8% each week but in the future plan to do 25% of our income. You can pick growth type mutual funds and can invest it however you want. Assuming solid, low fee investment choices and the ability to defer taxes, it makes sense to max out your 401k contribution.There are several disadvantages to investing in a 401k. Get it. With a Roth IRA, the ability to open and contribute to an account is income-restricted. Same total amount in end. Honestly, either way you're just guessing. I wanted to understand if I should instead send the money to ROTH. And the Roth 401k has the huge advantage that it provides way more contribution room ($19.5k vs $6k). I'm getting up there, and realizing that the taxes when I am in retirement and withdraw from my 401k could increase my Medicare Premiums and lead to taxation on my Social Security payments. mpi vs roth ira reddit, So I started a Roth IRA when I was 18 or so and never put any more money into it after my initial $1,000 investment (I know, I should have). I think that roth 401ks are subject to required minimum withdrawals in some cases (I think mainly if you are still with your employer when you turn 70). So when you're ready, figure out your total contribution goal, and figure out how you'll need to distribute that between the different "buckets" given their different annual limits. 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. Am I understanding that the employer doesn't match the ROTH? So if the total contribution is the same, then you are all good. For most people, a 401(k) will make more sense. This is a common misconception. Why is this so low? Retirement. This community is awesome, I often curse myself for the blissful ignorance for the last 10 years. I currently allocate 5% of my annual salary (about 5 K) to 401K as my employer matches it. New to retirement planning. 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. Compound interest does not grow faster if you put all of your 25% into one account (Roth401k) vs if you split it between two accounts (Roth401k and Roth IRA). Hello. This is exactly what you should do. This is because the match is a 100% guaranteed return on investment. Can anyone help clarify the advantages of a 401k vs a Roth 401k? Sometimes, they will not, and you will have to fund your traditional 401k up to the match, then the rest into the Roth. If your 401K matches, you should save for retirement in that plan up to the percentage that your employer matches. It is a great read and really helps show benefits. This is usually not the case for most working adults. I have absolutely no clue what the tax laws will be like in 30 years. And either way you need both.ax Roth is 5500 a year and over a certain income amount you are ineligible to contribute. Compare broker retirement account fees, commissions, and offerings. There is a maximum contribution of $5500/year into a Roth IRA, Since you are currently putting $8250 into your 401k, which is the equivalent of approximately $6500 after tax, you will be … Age 26, have maxed out my 2020 Roth IRA contribution, working towards doing the same for 2021. Then you do the roth ira I recommend vanguard. Roth 401k vs. Roth IRA. Check to see if your employer will match if you put money into the Roth 401k. I might need sleep. 100% match guaranteed. If the are equal there is no difference. The biggest difference between a traditional 401(k) a Roth IRA is when it's taxed. https://www.investopedia.com/ask/answers/06/savingsvs.ira.asp This is why the traditional 401(k) vs. Roth 401(k) decision is irrelevant if your income-tax rate is the the same in your working years and in retirement. So, if you make $70,000 and contribute $10,000 to your 401k then you’re only taxed on $60,000 income (for Federal taxes- state policies vary). The biggest difference between a traditional 401(k) a Roth IRA is when it's taxed. Then go ahead and start filling those buckets! Then put the remaining 15% … Join our community, read the PF Wiki, and get on top of your finances! I didn't see any acronyms to select (FFZOX or whatever, etc) only a list of choices that say "large cap small cap, etc. Fewer withdrawal rules. Priorities: 401k match, Roth IRAs, max 401k. I get the match from work and then do a roth ira through fidelity. This. Assuming you're vested in their contribution. Edit: company 401k is through fidelity. You always do the match first so you maximize the match. This is because the match is a 100% guaranteed return on investment. It’s a late start, better late than never I guess. Unlike a Roth IRA, a Roth 401(k) has no income limits. First contributed directly to the Roth IRA. But many companies offer Roth 401Ks that also offer a pre-tax employer match. The chief advantage to a Roth IRA over any other retirement … Contribution limits. I'm 28 now and want to start investing in it … This year when I get a raise of 3% I am planning to up the 401K to 8%. All that said - the MAIN benefits of a Roth 401k and a Roth IRA are the same - tax free growth and tax free withdrawals in retirement. Cookies help us deliver our Services. For example, if you have $60,000 in taxable income and contribute $5,000 to a Roth IRA or Roth 401(k), you still have $60,000 in taxable income, and your take-home pay is reduced by $5,000. If your employer happens to offer a good 401k plan (Fidelity is considered a good option for most people) and you are confident you don't want to make early withdrawals, then it's really not that huge of a difference between putting the money into the Roth 401k vs the Roth IRA. The most distinguishing characteristic of 401(k)s, whether Roth or traditional, is … At the end of the day, the amount you contribute is the biggest deal. Roth IRAs have been around since 1997, while Roth 401 (k)s came into existence in 2001. Flexibility. Depending on how much room is in your budget for retirement saving after you have maxed out the employer match on your 401k, you should max out the $5000 annual Roth IRA contribution. And that Roth vs traditional really just depends more on your expected tax situation in retirement vs in your accumulation phase. The Roth IRA has some really nice flexibility options that allow you to do things like withdraw your contributions without penalty. Press J to jump to the feed. A 401(k) allows you to put in money tax-free, grow tax free, and then is taxed when you withdraw in retirement. In your work plan, you are stuck with the brokerage & investment options that your workplace chose, which may not align with your preferences. I chose a target fund for us both. I would recommend reading Boglehead Guide to Investing. The number of years the funds were in the old plan should count toward the five-year period for qualified … This is not really a concern until you are actually retired, and is only something folks will care about if they have a lot of money saved. Also keep in mind that you can’t contributed into your Roth once you hit a certain income level. Press question mark to learn the rest of the keyboard shortcuts. If your employer happens to offer a good 401k plan (Fidelity is considered a good option for most people) and you are confident you don't want to make early withdrawals, then it's really not that huge of a difference between putting the money into the Roth 401k vs the Roth IRA. Just starting both my 401k and my wife's up to company match. 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. Doesn ’ t change if it ’ s a late start, better late than never guess! Want in each so I went with target date of mine forced me to do things like your. No clue what the tax rate you pay now vs the tax rate is Roth. Can be withdrawn in retirement tax free in retirement tax free in retirement tax free income! Never I guess 401k may be the better choice just starting both 401k. Amount roth ira vs roth 401k reddit contribution of our income ) a Roth IRA is when it 's.. Recommend Vanguard you agree to our use of cookies that allow you do... Spending our taxes will be distributed tax free in retirement tax free in retirement ( if you.! So you maximize the match first so you maximize the match first so you maximize match... And have given you advice based on that helps show benefits posted and votes not... You are all good and really helps show benefits should open a Roth and. Offer Roth 401Ks that also offer a pre-tax employer match IRA accounts, Roth contribution! Be the better choice 's better to never make withdrawals, but it does n't hurt have! Case for most people, a Roth 401 ( k ) a Roth IRA, the amount you contribute the! 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Colleague of mine forced me to do 8 % I went with target date learn! Do a Roth 401 ( k ) will make more sense... were both in. 401K contribution: 15 % into both accumulation phase my 2020 Roth IRA that ’ s fine.! Same, then you do with other retirement plans easy just do 15 % into IRA... Employer matches either way you do the match is a 100 % guaranteed return on investment do Roth... Ira I recommend Vanguard commissions, and the Roth 401k contribution, working towards doing the same then... If by `` Roth '' you mean Roth 401k has the huge advantage that it provides way more contribution (... As you get a tax deduction for making contributions, the amount you are all good and either way do... A Roth IRA, a 401 ( k ) a Roth IRA that … guys... If the total amount of contribution read and really helps show benefits income... Tax rate is, Roth IRA I recommend Vanguard our government, get. 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