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401K/Roth401/Roth IRA Question
Posted on 2/4/12 at 1:45 pm
Posted on 2/4/12 at 1:45 pm
Watching Clark Howard earlier today got me thinking. I currently have a 401K through my employer in which I am fully vested. I'm pulling 10% out of my checks here and still live comfortably. They match 4% to my 10%. First what is a Roth 401K? Second, whould I be better off taking say 5% of that 10% and putting it into a Roth account of some type? I plan on retiring in about 15 years. Thanks for the info.
3
Posted on 2/4/12 at 2:16 pm to JBM210
quote:
First what is a Roth 401K? Second, whould I be better off taking say 5% of that 10% and putting it into a Roth account of some type? I plan on retiring in about 15 years. Thanks for the info.
With your current 401k setup, your contributions are tax deductible. However, when you retire, you will have to pay income tax on your withdrawals.
With a Roth 401k, you contribute money with after-tax income. However, when you withdraw your money during retirement, you don't have to pay taxes on the earnings you accumulated.
Since you are 15 years from retirement, I wouldn't change anything. What you are doing is most likely just fine.
Posted on 2/4/12 at 8:12 pm to JBM210
quote:
I currently have a 401K through my employer in which I am fully vested. I'm pulling 10% out of my checks here and still live comfortably. They match 4% to my 10%.
I'm not a financial pro, so this is just my marginally informed opinion...
Do you have to put in 10% for them to match 4%, or do they match the first 4% and you're just putting in another 6%?
Always make sure you put in enough to reach your company match. If that's 10% to get 4%, I would not change anything. If it's 4% to get 4%, you can look at putting the rest in a Roth.
If it's the latter...with 15 yrs left, you may want to just leave it like it is. BUT...if you foresee yourself being in a higher tax bracket when you retire, I would recommend putting that extra 6%(of course it will be after tax dollars) into a Roth to avoid the higher tax rate.
Posted on 2/4/12 at 9:17 pm to TheChosenOne
quote:
I'm not a financial pro, so this is just my marginally informed opinion...
On that same note...
I've been given the advise before that it's a good idea to have a mix of traditional and Roth. The argument is that it gives you choices from what to pull from at retirement. For example, you might want to pull the maximum allowed from your Roth before pulling from the traditional.
Posted on 2/5/12 at 9:12 am to CoolHand
They match 3 for 3, 3.5 for 4 and 4 for 5. I put the additional 5 in but they don't match that. 10% is the max I can put.
Posted on 2/5/12 at 10:23 am to JBM210
Posted on 2/5/12 at 11:50 am to JBM210
Oh, then you are going to want to put only 5% in the 401k, and start a Roth IRA with the other 5%.
Posted on 2/5/12 at 1:44 pm to LSUtoOmaha
Is there any benefit to putting it in to a Roth IRA instead of the Roth 401k? The only difference I could see is that you have more investment choices with the IRA. Am I missing something?
Posted on 2/5/12 at 1:47 pm to cdl2006
More investment choices plus it is easier to withdraw your money. Actually you can withdraw the principal at anytime penalty free from a Roth IRA. Not sure if the same applies for a Roth 401k, but it would take longer to get out in the event of an emergency.
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