Upon withdrawal at 59.5, you pay no taxes on the amount you contributed, but you have to pay taxes on the gains. Thanks in advance to anybody who can help out :). ROTH: Is Taxed, then contributed to the plan. Rolling Over Company Stock: A Decision to Think Twice About . I did not wisen up until I was a fellow and then it was for a 401K and not maxed out even….then as you get more wealthy and need the tax write offs, traditional it is (except for the back door roth IRA). Please contact the moderators of this subreddit if you have any questions or concerns. Does your wife's company match her 401K contributions? 401K. Top 7 Reasons to Roll Over Your 401(k) to an IRA. An IRA is by definition not through your employer. Disadvantages. The difference is just the tax status of the contributions. Hey Folks! Like if I contributed $10k to a traditional 401k I could only contribute $8k to a traditional IRA? 403(b) vs. Roth IRA: An Overview . You pay taxes on the $20k upon WD. I'm 28 now and want to start investing in it again. Feel free to message me if you have questions. Whether you choose a traditional IRA, a Roth IRA or both, your retirement will be richer for it. Cookies help us deliver our Services. It's good stuff. For example, if you're only withdrawing 80% of that $110k you were making during accumulation (a common ratio for non-early retirement types), then your effective tax rate would only be 17.51% and traditional would come out even further ahead. 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. The taxes you will pay will be based on how much you withdraw from your traditional accounts so if you withdraw 50k that will be your income and you will pay taxes accordingly. 401K vs ROTH IRA. New comments cannot be posted and votes cannot be cast, Press J to jump to the feed. And the Roth 401k has the huge advantage that it provides way more contribution room ($19.5k vs $6k). 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. I know there are IRS contribution limits for both ($18k traditional and $5.5k Roth?) That makes sense and is pretty much what my line of thinking was as far as the tax goes after retirement. that being said, it should not be forgotten that after you max out your traditional ira or 401k, you can still contribute to a roth if you are under the income cap. I’m in the same income bracket as you and I do a 401K traditional and then a Roth IRA. 401k vs IRA, Roth vs. My employer suggested I go with a Roth 401k over a traditional 401k because I’m younger and the taxes would affect me less when it comes time to retire. 2. share. I can afford to do IRAs, but my question is, should I max wife's 401K first or max IRAs first? Press J to jump to the feed. You pay taxes on $100k, upon WD. I currently allocate 5% of my annual salary (about 5 K) to 401K as my employer matches it. 401K… I probably can't do both. When is comes to the battle of retirement plans, SEP IRA vs Solo 401k, the Solo 401k is the clear winner (if you are self-employed and you or your spouse are the only employees). ROTH: $80k in contributions (already taxed), $20k in gains. Save some money for health insurance, things will probably change but 7 years in the open market ( retiring at 58 )is going to be brutal. Advantages. By using our Services or clicking I agree, you agree to our use of cookies. Effective limit is higher compared to traditional IRA as the contributions are post-tax. I have a few questions, and hoping that this post doesn't get too long. Now, if you’re self-employed and have employees and you’re curious as to whether to go with the SEP IRA over the SIMPLE IRA or traditional 401k, I would still say, mostly, no. I am a bot, and this action was performed automatically. A 401k is a employer sponsored retirement plan where you can contribute up to 18k a year that does not include matching contributions and has nothing to do with a IRA except that both are retirement plans. 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). What's the best option to do this split? I will take it at 62. Join our community, read the PF Wiki, and get on top of your finances! I guess it seems people are saying to do IRA over 401K. Top Reasons Not to Roll Over Your 401(k) to an IRA. However, she only does 6% on her 403B. And try to get the house paid off. but I'm not entirely clear on those either. Press question mark to learn the rest of the keyboard shortcuts, /r/personalfinance/wiki/index#wiki_retirement_accounts. Get the car debt paid off. Go ahead and max the regular IRA. A "rollover IRA" is just a special category of Traditional that indicates all the money came from a 401k. A couple of things. You can't access the money until age 59 1/2. Traditional, you defer the taxes to your retirement and the thinking is that in retirement you will not have a job so zero income. That's $6,000 each, it will add up over the next 12 years. They've offered you a Roth 401k. Must-Know Rules for Converting Your 401(k) to a Roth IRA . Hi PF, So I've tried my damnedest to read through the Wikis and I'm still ridiculously confused about retirement funds and hoping to get some help (almost 26, have about $9k in a 401k already, but still have no idea what any of it means and temporarily stopped my contributions to pay down some debt). And that Roth vs traditional really just depends more on your expected tax situation in retirement vs in your accumulation phase. The IRS assess no capital gains or dividend income taxes until the beneficiary makes a withdrawal. Finally, the questions...should we max out her 401K first or should we be doing trad IRA and convert to Roth IRA? While this reduces your taxable income now, you'll pay regular income tax … Contribution notes Effective limit is higher compared to traditional 401k as the contributions are post-tax. If yes, I suggest contributing up to what the company matches and throwing the rest into a Roth or Traditional IRA. I am 48M and married and looking to retire as soon as possible, but will likely have to work to 58 to meet my goals. Contributions are deducted directly from you paycheck. I am 48M and married and looking to retire as soon as possible, but will likely have to work to 58 to meet my goals. That would be almost $50,000/year saving for retirement. I max out my 401K but I have never done an IRA. Have a good, sharp accountant/ life guy look into an annuity, may be a unique way to grow some money tax deferred, that is if all other options are ruled out Good luck, I hope your plan works out ! An IRA is an Individual retirement plan (meaning you set it up and contribute to it on your own as long as you have income) the max is 5500 so together you can contribute up to 23.5k as long as you stay below the income limit for the IRA. So theoretically, could I contribute $18k to the Roth 401k plan and $5500 into a Roth IRA so that I could have $23.5k/year not subject to tax upon withdrawal? As for the company match, they will always match pre-tax. How 401(k) Withdrawals Work When You're Unemployed. There is a wealth of information out there about Roth vs traditional. 401K. Roth as you said you pay the taxes now and won't have to worry about it in retirement since with withdrawals will be tax free. Fidelity IRA vs Vanguard IRA in 2021 Fidelity Investments vs Vanguard for IRA accounts, Roth IRA, Rollover, SEP, SIMPLE. 401K. ⁣ An IRA is an Individual Retirement Account. Limits: The 401k and an IRA don't use the same limits, so knock yourself out if you want to do both. It's considered income, so you may owe more in taxes if you had other income that year. My net worth is 1.165M with a goal of 2.2M by 58. You pay no more in taxes after meeting the Roth guidelines. I need help understanding which is better ROTH or 401k. It is taxed upon withdrawal from the plan (unless rolled over) typically at 20% for federal, and whatever your state is if mandatory. In my 401K I can actually divide up between Roth vs traditional contributions, so this question was an even bigger deal for me. Start here: /r/personalfinance/wiki/index#wiki_retirement_accounts. Money types: Pre-tax: This money type is, as you mentioned, deducted before taxes. If I split up the initial 8% contribution from my paycheck (e.g. Total debt between the two is 255K. IRA. It’s a late start, better late than never I guess. i definitely agree that traditional ira and 401k is a better choice than a roth ira or roth 401k, if it’s an either or situation. Contribution limit does not apply to conversions from traditional IRA (or qualified employer plans) to Roth IRA. The most important rule is to just start saving already. And then my employer would put the 6% match (75% of 8%) into the pre-tax bucket? 10 Things You May Not Know About Your IRA. Very confused. 401K. I think I have more questions but this is all I can think of for now. $18k for 401k, $5,500 for IRA. So I've tried my damnedest to read through the Wikis and I'm still ridiculously confused about retirement funds and hoping to get some help (almost 26, have about $9k in a 401k already, but still have no idea what any of it means and temporarily stopped my contributions to pay down some debt). I’ve browsed this subreddit a few times a people say that you should start a 401k 1st then start a Roth IRA, but I’m confused about a Roth 401k. The 401k versus IRA debate is an opportunity to think about retirement savings, particularly regarding using a tax-advantaged account. You are eligible to contribute to either a traditional 401k or a Roth 401k based on what your employer has made available. 401K. There’s no one-size fits all solution to this question. Yep, they match up to 5%, so she is currently doing 6%. Also, we live in a time where tax rates are low. Matching Contributions Matching contributions available from some employers. This will make the transaction non-taxable, and you'll get back the withheld money as an increased refund when you file your taxes. So no matter which type you contribute, you'll always have a Pre-tax source in there. Traditional. If you can max out her 401K/403B as well, you will be in really good shape. So here come the questions. Tax implications? I suggest you do more research then post a more specific question of there is something you don't get. I'm guessing your income levels mean you can't put money into a Roth IRA. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Retirement. Traditional IRA vs. Roth IRA: Which Do I Choose? I don't know what tax rates will be when I am old so I diversify my tax risk similar to diversifying market risk by buying an index fund. Report Save. 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. After tax: Taxed, then contributed to the plan. My employer offers a 75% match for the first 8% of my 401k contribution. Compare broker retirement account fees, commissions, and offerings. I have both traditional 401k and Roth IRA. Overview of Vanguard vs Fidelity For IRA Investors who want good value in brokerage services often turn to Fidelity or Vanguard. What's the difference between a 401k and an IRA? but is that grand total? My wife has a 5K rollover IRA. Dive into the details of a traditional 401k vs Roth 401k below: Eligibility. What is the difference between traditional and Roth? 1.6M in investments and the rest in my HCOL house. Or something else? I ended up splitting the difference with half Roth, half tax-deferred contributions in my 401K. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. 1.6M in investments and the rest in my HCOL house. My net worth is 1.165M with a goal of 2.2M by 58. From the plan, 20% will be automatically deducted for federal, unless doing an MRD at 70.5. level 1 12 months ago. I have only have car debt and mortgage debt. the beginners guide to retirement 401 k ira, traditional ira vs roth ira the best choice for early, roth 401k and roth ira retirement plans conversion limits, where should i put my retirement money roth 401k vs roth, roth ira vs roth 401 k simplefinancialfreedom com roth Roth vs Traditional 401(k) In a traditional 401(k), employees make pre-tax contributions. Between my wife and I we should get 35-36K/year in SS. Hi guys am 34 years old, just started investing. Pre-tax: $100k in contributions and gains. Yay free money! If deductible, contributions lower taxable income in the year they are made. Total debt between the two is 255K. Once you hit 59.5, and not moving it for 5 years, you take out the entire amount with no more taxes due. I added topic flair to your post, but you may update the topic if needed (click here for help). I've never seen a company contribute ROTH for match. Thank you! There are 3 options for contribution: before-tax, after-tax, and Roth 401k. 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. Unless you're 70.5, and doing an MRD, in which case it goes off whatever your tax tables recommend. IRA vs. 401K questions. Both 403(b) plans and Roth IRAs are vehicles designated for use in retirement planning. It is a frequently mis-understood concept Employer vs. individual accounts: Most 401(k)s are offered through employers, while anyone can open an IRA with any brokerage so people don't … Having no debt will give you a lot of flexibility after retirement, and even before in your investing decisions. I (think I) understand that before-tax comes out before tax does (lowering my AGI) but will be taxed upon withdrawal (though not positive on what the tax rate is based on), after-tax comes out after my current taxes but WON'T be taxed when I take it out, and Roth is some sort of magical being that I can't wrap my head around no matter what I read but seems to be a universal favorite. After tax: $80k in contributions (already taxed), $20k in gains. A Traditional IRA (Individual Retirement Account) allows individuals to direct pretax income toward investments that can grow tax-deferred. Traditional IRA; Roth 401(k) Traditional 401(k) I think the terms can confuse people so let’s break it down. 4% to Roth, 2% after-tax, 2% before-tax), would my employer split up the match the same way? Thanks! Thanks, I decided that my social security will pay for my medical which isn't included in the above calculations. Edit: Oh and I max out my HSA but use half of it every year, so there will be maybe 30K in it by the time I retire. From that point you no longer have any time pressure, and can choose to rollover that money into your new 401k at a later time. Press question mark to learn the rest of the keyboard shortcuts. Both IRAs have a contribution limit of $6,000 in 2020. The reason why I have traditional is to bring down my agi to lower taxes paid to get my Roth contributions in. I also know I've read a lot about personal IRAs (for those without 401k plans?) I have only have car debt and mortgage debt. The recession almost cut that $1,000 in half at its lowest and is now hovering around $750. It comes in two “flavors”: Traditional and Roth. 401K. Unless you plan on starting your own business, you’ll need to work within the options your employer has provided. Retirement. I max out my 401K but I have never done an IRA. 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