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401k vs Roth IRA - New job retirement investment choice recs
Posted on 5/14/21 at 5:40 pm
Posted on 5/14/21 at 5:40 pm
I'm 45 and just switched jobs. I've always had an 401k with previous employers and have been investing in one since about age 25. My new employer is offering a choice of 401k or roth. I know the differences between the two but I'm not sure which would be best at my age. I'm planning on retiring in another 20 years. TIA.
5
Posted on 5/14/21 at 5:44 pm to Nonc Chu Rouge
What tax bracket are you in
Posted on 5/14/21 at 5:46 pm to Nonc Chu Rouge
You can't split and contribute to both?
Posted on 5/14/21 at 6:38 pm to jimbeam
I'm not sure what bracket I'm in but I make slightly above 100k / yr.
Posted on 5/14/21 at 6:40 pm to Powerman
quote:That's a good question and after looking at paperwork I think I can.
You can't split and contribute to both?
Posted on 5/14/21 at 6:58 pm to jimbeam
quote:After some quick research we're in the 25% tax bracket. Also wife doesn't have a work 401k.
What tax bracket are you in
Posted on 5/14/21 at 8:44 pm to Nonc Chu Rouge
How about both.
Put at least enough into 401k to get match but also put some into the Roth 401k.
How to disperse depends on tax rate today vs tax rate at retirement.
Put at least enough into 401k to get match but also put some into the Roth 401k.
How to disperse depends on tax rate today vs tax rate at retirement.
Posted on 5/14/21 at 9:11 pm to Nonc Chu Rouge
My opinion is if you aren’t in the 25% marginal rate, go Roth. This deficit spending isn’t stopping and rates are still relatively low. It’s more likely that your rate now is lower than your rate at retirement.
Posted on 5/14/21 at 10:12 pm to tigeraddict
quote:
How about both.
Put at least enough into 401k to get match but also put some into the Roth 401k.
How to disperse depends on tax rate today vs tax rate at retirement.
Even better, put traditional 401k up to match and then find Roth IRAs for you and the wife outside of the 401k.
Posted on 5/14/21 at 11:39 pm to slackster
quote:New company doesn't match anything.
put traditional 401k up to match
Posted on 5/15/21 at 12:24 am to slackster
If no match, I would fund Roth IRAs outside the 401k first. You will have more investment options and likely less fees. Plus, more withdrawal options later.
If you've never funded a Roth 401k or Roth IRA before, I would lean towards Roth vs traditional so you have tax diversification at retirement. You'll be able to pull some from traditional (taxed as income) and some from Roth (not taxed again) to manage your tax rate each year and avoid tax on SS etc...
As for traditional vs Roth in 401k, the higher your current tax bracket is better to go traditional. Roth 401k is best the lower your current bracket is and longer you plan to keep it invested. You're not in a high tax bracket and have awhile until retirement so I'd go Roth in the 401k.
If wife doesnt have retirement option at work, you should really be funding her Roth IRA and/or aggressively funding your 401k.
Note: if there was employer match, the employer portion has to go into to traditional but employee can be funding either 401k option.
If you've never funded a Roth 401k or Roth IRA before, I would lean towards Roth vs traditional so you have tax diversification at retirement. You'll be able to pull some from traditional (taxed as income) and some from Roth (not taxed again) to manage your tax rate each year and avoid tax on SS etc...
As for traditional vs Roth in 401k, the higher your current tax bracket is better to go traditional. Roth 401k is best the lower your current bracket is and longer you plan to keep it invested. You're not in a high tax bracket and have awhile until retirement so I'd go Roth in the 401k.
If wife doesnt have retirement option at work, you should really be funding her Roth IRA and/or aggressively funding your 401k.
Note: if there was employer match, the employer portion has to go into to traditional but employee can be funding either 401k option.
This post was edited on 5/15/21 at 12:27 am
Posted on 5/16/21 at 3:32 pm to Nonc Chu Rouge
Can’t contributing to a 401k potentially drop you into a lower tax bracket? I think that’s right. If so, contribute until you break that threshold and then move to Roth.
Or just max out both.
Or just max out both.
Posted on 5/16/21 at 9:23 pm to kciDAtaE
Yep. 401K contributions can drop you into a lower tax bracket, depending on how close you are to the lower bracket and how much you invest.
Posted on 5/16/21 at 10:16 pm to kciDAtaE
Right. It would be nice if your 401k contributions would be exempt from FICA though. And in my opinion they should be. It would offer even more incentive to contribute and make drawing from SS in retirement less necessary.
Posted on 5/16/21 at 11:53 pm to brett408
This can get tricky if there are other sources of income and can greatly be impacted by # of dependents and itemizing deductions if practicable among many other factors.
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