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401k and Roth 401k
Posted on 8/16/16 at 11:19 am
Posted on 8/16/16 at 11:19 am
I've read online and I'm still confused. My wife has both options available through her employer. Can someone please tell me what's the difference, I'm assuming taxes? Are there more investments available with the Roth 401k or will it be the same ones with the difference being after tax?? Both with fidelity
Thanks in advance. This board is super helpful.
Thanks in advance. This board is super helpful.
This post was edited on 8/16/16 at 11:20 am
1
Posted on 8/16/16 at 11:35 am to ragacamps
quote:
Can someone please tell me what's the difference, I'm assuming taxes?
Correct. You can check the stickied thread at the top of the board for several informative threads on the topic. In short...
401k contributions are taken pre-tax and you pay taxes when you withdraw. Which is great if you know you'll have a lower tax rate when you retire.
Roth 401k contributions are taken post-tax and you don't pay taxes when you withdraw. Which is great if you know you'll have a higher tax rate when you retire.
Since your tax rate when you retire is probably an uncertainty, you should have some form of balance between the two of them in order to protect yourself from any future tax situation. One thing is for sure though, If she receives an employer match on contributions to the 401k, make sure she at least hits that match before contributing to the Roth 401k.
Posted on 8/16/16 at 11:37 am to TheChosenOne
Will the Roth 401k contributions just go into whatever funds We have picked for her 401k?
This post was edited on 8/16/16 at 11:37 am
Posted on 8/16/16 at 11:40 am to ragacamps
That's how mine works, but I'm not sure if it's different elsewhere. Someone else will have to chime in on that.
Posted on 8/16/16 at 11:43 am to TheChosenOne
I'm guessing it will because when I change contribution limit and add percentages to the roth401k it doesn't prompt me to pick investments.
I wonder if I should have less funds. I have 4 now. I'm keeping her 401k at 10% to help with taxes and just adding 5 to her Roth. Seems like 5 percent may not be a lot when divided up into 5 funds
I wonder if I should have less funds. I have 4 now. I'm keeping her 401k at 10% to help with taxes and just adding 5 to her Roth. Seems like 5 percent may not be a lot when divided up into 5 funds
This post was edited on 8/16/16 at 11:44 am
Posted on 8/16/16 at 12:52 pm to ragacamps
I don't have any experience with a Roth 401k so take it for what its worth, but if you make under $184,000 or whatever the limit for a Roth IRA is then I'd do a Roth IRA well before I did a Roth 401k. Reason being is that you can pick other companies for your Roth IRA, such as Schwab or Vanguard and literally can buy anything they offer with your Roth IRA, they are cheaper, and they can't be any easier and user friendly to use. It also allows you to separate from your employer.
So in short I'd go with a 401k with your employer and a Roth IRA outside.
Now, if you already contribute fully to your Roth IRA and can put more into a Roth 401k than that may be different.
So in short I'd go with a 401k with your employer and a Roth IRA outside.
Now, if you already contribute fully to your Roth IRA and can put more into a Roth 401k than that may be different.
This post was edited on 8/16/16 at 12:54 pm
Posted on 8/16/16 at 1:51 pm to baldona
Can't she have a Roth401k and an IRA?
She already has a traditional Ira
She already has a traditional Ira
This post was edited on 8/16/16 at 1:55 pm
Posted on 8/16/16 at 2:18 pm to ragacamps
She can have both certainly, but what I'm saying is that in my opinion if you are going to invest post income tax money into a retirement account a Roth IRA is better than a Roth 401k. You'll most likely have better, cheaper, and more investment choices.
A Roth IRA max contribution is $5500/ year per person. What most recommend is maxing your company 401k match, then investing in the Roth IRA, then finishing up what you can in the 401k.
I'm not sure how company matches work with a Roth 401k if there are benefits to it there than that may make sense.
Overall though an IRA outside of work is going to be better than a 401k at work because 401k's are usually extremely fee heavy and more expensive.
A Roth IRA max contribution is $5500/ year per person. What most recommend is maxing your company 401k match, then investing in the Roth IRA, then finishing up what you can in the 401k.
I'm not sure how company matches work with a Roth 401k if there are benefits to it there than that may make sense.
Overall though an IRA outside of work is going to be better than a 401k at work because 401k's are usually extremely fee heavy and more expensive.
Posted on 8/16/16 at 2:30 pm to baldona
I hear ya. We can't do that though because she already has a traditional Ira. So we will have
my 401k my Roth
Her 401k her roth401k and her Ira
my 401k my Roth
Her 401k her roth401k and her Ira
Posted on 8/16/16 at 10:07 pm to TheChosenOne
I'd like to point out that with a traditional 401k/IRA you are taxed on the principle as well as the growth upon distribution. A key advantage of a Roth account is that you are only taxed on the principle as it is invested and can withdraw with no taxes on the gains. If you are young, the gains should be the bulk of the account in retirement.
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