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Is there any reason to have an IRA and a 401k?
Posted on 4/3/24 at 4:18 pm
Posted on 4/3/24 at 4:18 pm
I am working to educate myself on retirement savings and the financial markets. I have a traditional IRA and a Roth IRA that I rolled over from my previous employers 401k. I have that in a T Rowe Price target date fund and haven’t contributed to it in years but it’s still growing. I am currently contributing to my current employer’s 401k target date fund with most of it being a Roth contribution and a small precent going to pre-tax contributions.
I feel dumb for not educating myself on this earlier but I’m trying to make up for it now. Ive been working to pay off my house while contributing around 20% to my 401k. Should I rollover my IRA into my current 401k? I’m maxing out my 401k every year.
I feel dumb for not educating myself on this earlier but I’m trying to make up for it now. Ive been working to pay off my house while contributing around 20% to my 401k. Should I rollover my IRA into my current 401k? I’m maxing out my 401k every year.
This post was edited on 4/3/24 at 4:21 pm
11
Posted on 4/3/24 at 7:49 pm to Bourre
Yes, if you roll it over to an ira instead of your current 401k you have more control over it. I was in the same boat as you a couple of years ago and I have been making more money than my 401k. I put it all in the main stocks/etfs and ignored bonds completely.
Posted on 4/3/24 at 8:48 pm to Bourre
quote:
Should I rollover my IRA into my current 401k?
Posted on 4/3/24 at 9:05 pm to Bourre
I’ve rolled all previous employer 401ks into the same IRA. The only 401k I currently have is with my current employer who has a match.
This post was edited on 4/3/24 at 9:06 pm
Posted on 4/3/24 at 9:13 pm to Bourre
quote:
I have a traditional IRA and a Roth IRA that I rolled over from my previous employers 401k.
It's good to have a mix of traditional IRA and Roth. Think of Roth is 100% owned by you while traditional is 20% owned by the government (or whatever your tax rate will be).
As far as consolidating IRAs or 401Ks, that's up to you. It is easier to keep up with in one place. However, I've left a 401K in a former employer's fund because the investment options were so much better.
Posted on 4/3/24 at 9:48 pm to Bourre
I’ve rolled 2 401ks into same traditional IRA. I didn’t want to take the tax hit now going to Roth. I’m up about 116% most recently managing on my own.
This post was edited on 4/3/24 at 9:50 pm
Posted on 4/4/24 at 8:44 am to Bourre
Traditional 401k and IRAs have RMDs at 73
I don’t think Roth 401ks and IRAs have RMDs if you are the original owner. Your heirs will have RMDs though.
RMD= required minimum distribution
I don’t think Roth 401ks and IRAs have RMDs if you are the original owner. Your heirs will have RMDs though.
RMD= required minimum distribution
Posted on 4/4/24 at 11:20 am to Bourre
I always rolled my 401K's over to a traditional IRA when I left a company because an IRA at a good brokerage has more choices and usually at a better cost. However, if you are content with Target Date funds and don't want to try to find other investments, it may not be worth it for you.
One thing I will point out is that Roth is great, but not necessarily better than traditional deferred 401K or IRA. While you are working, you are paying taxes on your Roth contribution at your top marginal income tax rate, which is probably at least 22% fed. After you retire, depending on your income, a significant amount of what you withdraw from a traditional IRA could only be subject to a 10% or 12% FED rate (based on 2024 rate, probably going to change some in the future). So you could be paying 22% today to save 12% when you retire.
A Roth IRA is very useful and flexible.
The ideal approach is to save in traditional tax deferred IRA/401K until you have enough assets to meet your basic spending in retirement up to the top of the 12% tax bracket, then save Roth for everything over that. That way, if you use Roth for a large expense in retirement like a car or something you won't pay a tax penalty, which you would if you had to get the money out of traditional.
Easier said than done, but a simple rule like 70% traditional tax deferred and 30% Roth is probably the best plan for most people. Keep in mind that you can convert traditional to Roth after you stop working, and if you could amass enough traditional savings to get by for a year or two without drawing from your retirement assets, you could convert a lot of deferred to Roth at a lower tax rate.
One thing I will point out is that Roth is great, but not necessarily better than traditional deferred 401K or IRA. While you are working, you are paying taxes on your Roth contribution at your top marginal income tax rate, which is probably at least 22% fed. After you retire, depending on your income, a significant amount of what you withdraw from a traditional IRA could only be subject to a 10% or 12% FED rate (based on 2024 rate, probably going to change some in the future). So you could be paying 22% today to save 12% when you retire.
A Roth IRA is very useful and flexible.
The ideal approach is to save in traditional tax deferred IRA/401K until you have enough assets to meet your basic spending in retirement up to the top of the 12% tax bracket, then save Roth for everything over that. That way, if you use Roth for a large expense in retirement like a car or something you won't pay a tax penalty, which you would if you had to get the money out of traditional.
Easier said than done, but a simple rule like 70% traditional tax deferred and 30% Roth is probably the best plan for most people. Keep in mind that you can convert traditional to Roth after you stop working, and if you could amass enough traditional savings to get by for a year or two without drawing from your retirement assets, you could convert a lot of deferred to Roth at a lower tax rate.
This post was edited on 4/4/24 at 11:23 am
Posted on 4/4/24 at 3:43 pm to Bourre
Yes, i actually cant max out my employer sponsored 401k as a highly compensated employee. So i use both.
Id max out both if I could either way but thats when i started a roth because I couldnt max out my 401k.
Id max out both if I could either way but thats when i started a roth because I couldnt max out my 401k.
Posted on 4/5/24 at 8:53 am to Bourre
Depending on income you can also take advantage of backdoor Roth’s. For example, you can make an after-tax contribution to your spouse’s IRA, and then almost immediately convert it to a Roth.
Posted on 4/7/24 at 10:18 am to Bourre
You should look at other options for the money in the target date fund. They have high fees and average returns. You very likely can do better with the effort you are putting into your investing.
It is common to use IRAs for previous company money and 401k for current employer. Always take the company match. Not a problem to have both. It is good that you have both Roth and pretax contributions.
It is common to use IRAs for previous company money and 401k for current employer. Always take the company match. Not a problem to have both. It is good that you have both Roth and pretax contributions.
Posted on 4/7/24 at 10:22 am to Bourre
quote:
401k target date fund
get out that trash
it has been explained why here ad infinitum.
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