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re: Roth IRA & 401k tax strategy question
Posted on 3/4/14 at 5:40 pm to Sigma
Posted on 3/4/14 at 5:40 pm to Sigma
quote:
Distributions from a 401K are taxed as regular income regardless of the type of investment device used in the account.
This is true, but only the non-taxed portions. Since he has already paid taxes on his contributions, that portion is tax-free (similar to contributions in a Roth).
The primary difference between a Roth vs after tax 401k is the taxes on growth and contribution limits. Roth is tax free after certain requirements (age 59.5 and 5 year account life). After tax 401k distributions of earnings are taxable as income. There's also advantages for required distributions, but that's irrelevant here.
If you plan to have a split between investments that's conservative/aggressive, it seems obvious to me that the aggressive should be within the fully tax free vehicle, the Roth. There's obvious limitations such as the age restrictions, contribution limits, and salary limits for te Roth. If these are a non-factor in your "aggressive" portfolio, then stick it all there.
Again, I am not a tax/investment expert, but this is my understanding from various research.
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