Hi guys am 34 years old, just started investing. That would be almost $50,000/year saving for retirement. 401K. 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. Pre-tax: $100k in contributions and gains. Money types: Pre-tax: This money type is, as you mentioned, deducted before taxes. Matching Contributions Matching contributions available from some employers. After tax: Taxed, then contributed to the plan. The reason why I have traditional is to bring down my agi to lower taxes paid to get my Roth contributions in. What's the difference between a 401k and an IRA? I have both traditional 401k and Roth IRA. What is the difference between traditional and Roth? Go ahead and max the regular IRA. Like if I contributed $10k to a traditional 401k I could only contribute $8k to a traditional IRA? If you can max out her 401K/403B as well, you will be in really good shape. 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). 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 ! 401k vs IRA, Roth vs. 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. Yay free money! My net worth is 1.165M with a goal of 2.2M by 58. I'm 28 now and want to start investing in it again. I’m in the same income bracket as you and I do a 401K traditional and then a Roth IRA. level 1 12 months ago. You can't access the money until age 59 1/2. You pay taxes on $100k, upon WD. ⁣ An IRA is an Individual Retirement Account. Top 7 Reasons to Roll Over Your 401(k) to an 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). 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. Total debt between the two is 255K. I max out my 401K but I have never done an IRA. From the plan, 20% will be automatically deducted for federal, unless doing an MRD at 70.5. Join our community, read the PF Wiki, and get on top of your finances! I max out my 401K but I have never done an IRA. ROTH: $80k in contributions (already taxed), $20k in gains. 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. Dive into the details of a traditional 401k vs Roth 401k below: Eligibility. The most important rule is to just start saving already. So no matter which type you contribute, you'll always have a Pre-tax source in there. 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. 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. Finally, the questions...should we max out her 401K first or should we be doing trad IRA and convert to Roth IRA? IRA. Tax implications? Traditional IRA; Roth 401(k) Traditional 401(k) I think the terms can confuse people so let’s break it down. My wife has a 5K rollover IRA. You pay no more in taxes after meeting the Roth guidelines. Feel free to message me if you have questions. And then my employer would put the 6% match (75% of 8%) into the pre-tax bucket? Roth vs Traditional 401(k) In a traditional 401(k), employees make pre-tax contributions. The recession almost cut that $1,000 in half at its lowest and is now hovering around $750. I will take it at 62. Must-Know Rules for Converting Your 401(k) to a Roth 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? Unless you plan on starting your own business, you’ll need to work within the options your employer has provided. 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. ROTH: Is Taxed, then contributed to the plan. That makes sense and is pretty much what my line of thinking was as far as the tax goes after retirement. It is taxed upon withdrawal from the plan (unless rolled over) typically at 20% for federal, and whatever your state is if mandatory. Thank you! So here come the questions. An IRA is by definition not through your employer. This will make the transaction non-taxable, and you'll get back the withheld money as an increased refund when you file your taxes. I currently allocate 5% of my annual salary (about 5 K) to 401K as my employer matches it. My net worth is 1.165M with a goal of 2.2M by 58. 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. 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. Press J to jump to the feed. Upon withdrawal at 59.5, you pay no taxes on the amount you contributed, but you have to pay taxes on the gains. 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. 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. 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. Press question mark to learn the rest of the keyboard shortcuts. What's the best option to do this split? Top Reasons Not to Roll Over Your 401(k) to an IRA. I know there are IRS contribution limits for both ($18k traditional and $5.5k Roth?) Hey Folks! I also know I've read a lot about personal IRAs (for those without 401k plans?) Does your wife's company match her 401K contributions? but is that grand total? Having no debt will give you a lot of flexibility after retirement, and even before in your investing decisions. There are 3 options for contribution: before-tax, after-tax, and Roth 401k. Yep, they match up to 5%, so she is currently doing 6%. Or something else? Report Save. I ended up splitting the difference with half Roth, half tax-deferred contributions in my 401K. Please contact the moderators of this subreddit if you have any questions or concerns. 401K. After tax: $80k in contributions (already taxed), $20k in gains. The 401k versus IRA debate is an opportunity to think about retirement savings, particularly regarding using a tax-advantaged account. 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. Thanks, I decided that my social security will pay for my medical which isn't included in the above calculations. Unless you're 70.5, and doing an MRD, in which case it goes off whatever your tax tables recommend. Retirement. If I split up the initial 8% contribution from my paycheck (e.g. Contributions are deducted directly from you paycheck. Rolling Over Company Stock: A Decision to Think Twice About . By using our Services or clicking I agree, you agree to our use of cookies. Thanks in advance to anybody who can help out :). But it boils down to: Do I want to save money on taxes now, or do I want tax-free money when I retire? There’s no one-size fits all solution to this question. Contribution limit does not apply to conversions from traditional IRA (or qualified employer plans) to Roth IRA. Effective limit is higher compared to traditional IRA as the contributions are post-tax. They've offered you a Roth 401k. I guess it seems people are saying to do IRA over 401K. This community is awesome, I often curse myself for the blissful ignorance for the last 10 years. 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. While this reduces your taxable income now, you'll pay regular income tax … Cookies help us deliver our Services. 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. In my 401K I can actually divide up between Roth vs traditional contributions, so this question was an even bigger deal for me. How 401(k) Withdrawals Work When You're Unemployed. You are eligible to contribute to either a traditional 401k or a Roth 401k based on what your employer has made available. Both 403(b) plans and Roth IRAs are vehicles designated for use in retirement planning. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. There is a wealth of information out there about Roth vs traditional. Whether you choose a traditional IRA, a Roth IRA or both, your retirement will be richer for it. 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. It is a frequently mis-understood concept 1.6M in investments and the rest in my HCOL house. Start here: /r/personalfinance/wiki/index#wiki_retirement_accounts. The difference is just the tax status of the contributions. 403(b) vs. Roth IRA: An Overview . It's considered income, so you may owe more in taxes if you had other income that year. Very confused. 401K… If deductible, contributions lower taxable income in the year they are made. I suggest you do more research then post a more specific question of there is something you don't get. Get the car debt paid off. 401K. 401K. Disadvantages. I probably can't do both. And try to get the house paid off. And that Roth vs traditional really just depends more on your expected tax situation in retirement vs in your accumulation phase. Also, we live in a time where tax rates are low. $18k for 401k, $5,500 for IRA. A "rollover IRA" is just a special category of Traditional that indicates all the money came from a 401k. It's good stuff. Total debt between the two is 255K. Fidelity IRA vs Vanguard IRA in 2021 Fidelity Investments vs Vanguard for IRA accounts, Roth IRA, Rollover, SEP, SIMPLE. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Once you hit 59.5, and not moving it for 5 years, you take out the entire amount with no more taxes due. New comments cannot be posted and votes cannot be cast, Press J to jump to the feed. 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). The IRS assess no capital gains or dividend income taxes until the beneficiary makes a withdrawal. I added topic flair to your post, but you may update the topic if needed (click here for help). Both IRAs have a contribution limit of $6,000 in 2020. That's $6,000 each, it will add up over the next 12 years. 401K. 401K. but I'm not entirely clear on those either. I need help understanding which is better ROTH or 401k. Traditional IRA vs. Roth IRA: Which Do I Choose? I think I have more questions but this is all I can think of for now. I'm guessing your income levels mean you can't put money into a Roth IRA. Contribution notes Effective limit is higher compared to traditional 401k as the contributions are post-tax. Overview of Vanguard vs Fidelity For IRA Investors who want good value in brokerage services often turn to Fidelity or Vanguard. 1.6M in investments and the rest in my HCOL house. I have only have car debt and mortgage debt. You pay taxes on the $20k upon WD. And the Roth 401k has the huge advantage that it provides way more contribution room ($19.5k vs $6k). 2. share. A Traditional IRA (Individual Retirement Account) allows individuals to direct pretax income toward investments that can grow tax-deferred. I am a bot, and this action was performed automatically. Traditional. It comes in two “flavors”: Traditional and Roth. I have only have car debt and mortgage debt. However, she only does 6% on her 403B. 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). Limits: The 401k and an IRA don't use the same limits, so knock yourself out if you want to do both. My employer offers a 75% match for the first 8% of my 401k contribution. Large investment selection. 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. I've never seen a company contribute ROTH for match. 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 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. Traditional, you defer the taxes to your retirement and the thinking is that in retirement you will not have a job so zero income. It’s a late start, better late than never I guess. Compare broker retirement account fees, commissions, and offerings. If yes, I suggest contributing up to what the company matches and throwing the rest into a Roth or Traditional IRA. Advantages. 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. 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 … IRA vs. 401K questions. Between my wife and I we should get 35-36K/year in SS. Thanks! 4% to Roth, 2% after-tax, 2% before-tax), would my employer split up the match the same way? 10 Things You May Not Know About Your IRA. I can afford to do IRAs, but my question is, should I max wife's 401K first or max IRAs first? 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). As for the company match, they will always match pre-tax. 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Community is awesome, i decided that my social security will pay for my medical which 401k vs traditional ira reddit Roth! Seen a company contribute Roth for match just depends more on your expected tax situation in retirement vs your... Special category of traditional that indicates all the money until age 59.... You are eligible to contribute to either a traditional 401 ( k ) $!, getting out of debt, credit, investing, and not moving it 5... Of 8 % ) into the details of a traditional 401k i could only contribute 8k. Now and want to do both of debt, credit, investing, this! Contact the moderators of this subreddit if you have questions of this subreddit if you have pay. That indicates all the money came from a 401k traditional and Roth 401k in gains me...