Is there any reason to have an IRA and a 401k?

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.

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.

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.

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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.

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This is where I currently am at too. I’m just wanting to make sure that it’s not dumb to have both. I guess I am worried about paying unnecessary fees and not taking advantage of compounding interest. Once again still learning. Been listening to the Money Guys. I’m at #6 on their FOO and trying to make sure I’m prepared to start #7

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I am worried about paying unnecessary fees and not taking advantage of compounding interest. 

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Compounding works the same whether you combine or keep separate accounts (assuming identical returns and fees)

There is a very common misconception that one large sum compounds faster than 2 smaller ones that equal the same total.

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.

Can you put after tax money into your 401k?

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For example, you can make an after-tax contribution to your spouse’s IRA

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You can backdoor both your Roth IRA, as well.


If your company 401k allows it, you can also put after tax money into your 401k up to the IRS limit for combined employee/employer contributions. Then immediately roll that after tax money out of your 401k into your Roth IRA.

It may be worth a call to whoever manages your company 401k about contributing after tax money to your 401k.

Depending on your contributions and your company’s match, you could sock away quite a bit

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Thank you for this suggestion!!! I do have a bucket of after tax money in my 401k that is collected once I hit the max. So if I understand you, I can take that money (7k for 2024) and roll it into my Roth IRA? Is that correct?

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Look up “mega backdoor Roth” and see if your employer plan allows it.

If allowed, that post tax money grows tax free in your Roth IRA.

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Second, I looked at my tax rate and my taxable income. It doesn’t seem to me that I could contribute enough HSA and pre-tax contributions to my 401k to get me to a lower tax bracket so I changed my contributions to 100% Roth. Is that the right move? Most of my IRA money is in my traditional IRA and not my Roth IRA.

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That is a case by case decision and a CFP or CPA would know the best course for you. My CPA recommends the Roth 401k and IRA for me.


All that said, I would get a professional to advise you on what’s best for your situation.