Roth 401k or Roth IRA

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Topic Author
biker2035
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Joined: Sun Dec 17, 2017 3:51 pm

Roth 401k or Roth IRA

Post by biker2035 » Sat Nov 16, 2019 3:19 pm

I get a match through the company roth 401k plan. 50% match on the first 6% that I put in. I currently have it set at 11%, and then fully fund my Roth IRA. This next year, finances will be tighter. Am I better off getting the full match at 6%, and using the rest of the money to fund my Roth IRA, or just apply the roughly 11% to the Roth 401k plan. The company plan is through fidelity, and I don't have to pay transaction fees for many funds if I go through the brokerage plan, so can invest in just about anything. My Roth IRA is in Wells Fargo, and I do not pay any transaction fee for the 1st 100 trades. I have never come close to that mark. Ideally, I do both and have for the past 10 years.

lakpr
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Re: Roth 401k or Roth IRA

Post by lakpr » Sat Nov 16, 2019 3:28 pm

May I ask why you are contributing to Roth 401k? If finances are getting tighter, perhaps consider making Traditional 401k contribution instead?

Roth 401k is the wrong choice for the majority of people. It might be the right choice for you personally, but there is not much evidence in the original post that you are in that 10% or so people for who it might be the right choice.

Wells Fargo -- honestly it really breaks my heart to see people still banking there, and worse, investing there!

Topic Author
biker2035
Posts: 10
Joined: Sun Dec 17, 2017 3:51 pm

Re: Roth 401k or Roth IRA

Post by biker2035 » Sat Nov 16, 2019 4:35 pm

Contributing to the Roth 401k as I figured that it was better to pay taxes now, and not when I need the money. Reading that many prefer the 401k instead or a combination. When I started I was a single dad, am now remarried so income has gone up. I will make that switch today going forward. As far as Wells Fargo, they have been good and more convenient that when I had Vanguard. No trade fees at all. Doesn't that make it better? Thanks for making me check things out :)

HomeStretch
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Re: Roth 401k or Roth IRA

Post by HomeStretch » Sat Nov 16, 2019 4:39 pm

Your 2017 portfolio post states a 25% federal marginal tax rate and you received a suggestion to change from Roth to Traditional (pretax) 401k contributions. If your tax rate is now 22% or higher, a Traditional 401k contribution likely makes more sense. The tax benefit will help you fund the Roth IRA.

Same post also showed some high ER funds in your Roth IRA. If that’s still the case, consider transferring your IRA at a low-cost brokerage like Fidelity or Vanguard.

02nz
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Re: Roth 401k or Roth IRA

Post by 02nz » Sat Nov 16, 2019 4:41 pm

I agree that for most people traditional not Roth 401k, plus Roth IRA, is the right choice.

Wells Fargo is most definitely charging you for the convenience. There's any number of fees that they're probably collecting from you, including through high-expense funds on which they likely get a kickback. Do your research.

MathIsMyWayr
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Re: Roth 401k or Roth IRA

Post by MathIsMyWayr » Sat Nov 16, 2019 5:17 pm

I agree that a large chunk of 401(k) should fill a pre-tax traditional to withdraw in the lower tax bracket ladders. However, it is better to contribute to Roth when income is low than high. If OP is confident that his income will rise significantly in the future, contributing to Roth now is a good idea. His income should be fairly high for this argument to hold.

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1789
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Re: Roth 401k or Roth IRA

Post by 1789 » Sat Nov 16, 2019 5:18 pm

biker2035 wrote:
Sat Nov 16, 2019 3:19 pm
I get a match through the company roth 401k plan. 50% match on the first 6% that I put in. I currently have it set at 11%, and then fully fund my Roth IRA. This next year, finances will be tighter. Am I better off getting the full match at 6%, and using the rest of the money to fund my Roth IRA, or just apply the roughly 11% to the Roth 401k plan. The company plan is through fidelity, and I don't have to pay transaction fees for many funds if I go through the brokerage plan, so can invest in just about anything. My Roth IRA is in Wells Fargo, and I do not pay any transaction fee for the 1st 100 trades. I have never come close to that mark. Ideally, I do both and have for the past 10 years.
Transaction fee doesn't matter because you should not do trading anyway. Buying total market indexes are free in all major brokerages. Go with traditional 401k upto the match and then max out Roth IRA. If you still have money, then come back and add more traditional 401k. Roth 401k only make sense if your projected pretax size maybe around a million or so. This number depends on many factor like your age, how much you have currently, estimated future returns, inflation, time you retire , etc etc.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

Topic Author
biker2035
Posts: 10
Joined: Sun Dec 17, 2017 3:51 pm

Re: Roth 401k or Roth IRA

Post by biker2035 » Sat Nov 16, 2019 8:19 pm

Thanks again. Switched to 401k going forward and changed up funds a bit. Interesting looking at where I was 2 years ago. I made many changes last time, but didn't catch this one.

EarningBack
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Re: Roth 401k or Roth IRA

Post by EarningBack » Sat Nov 23, 2019 9:38 pm

1789 wrote:
Sat Nov 16, 2019 5:18 pm
Go with traditional 401k upto the match and then max out Roth IRA. If you still have money, then come back and add more traditional 401k.
What is your reasoning/logic behind this post? I'm not questioning it, just wondering if it would be the correct strategy for me as well.

Helo80
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Re: Roth 401k or Roth IRA

Post by Helo80 » Sat Nov 23, 2019 9:41 pm

EarningBack wrote:
Sat Nov 23, 2019 9:38 pm
1789 wrote:
Sat Nov 16, 2019 5:18 pm
Go with traditional 401k upto the match and then max out Roth IRA. If you still have money, then come back and add more traditional 401k.
What is your reasoning/logic behind this post? I'm not questioning it, just wondering if it would be the correct strategy for me as well.

you'll find many, many posts here and elsewhere explaining the reasoning if you do some googling. (that is not meant to sound condescending)

The jist of it is that 401k up to match to get employer funds because that's a 50% or 100% ROI instantaneously
Roth IRA b/c IRA monies are more portable. E.g. move from Fidelity to Vanguard, as well as, access to low cost index funds. Sometimes employer 401ks have high administration fees and ERs
Then, back to 401k contributions for tax benefits.

EarningBack
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Re: Roth 401k or Roth IRA

Post by EarningBack » Sat Nov 23, 2019 10:01 pm

So if my current 401k (which is managed by Fidelity) has access to low cost Vanguard and Fidelity funds, and low expenses, I might as well go "all in" on the Traditional 401k before going to Roth IRA, no?

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MNGopher
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Re: Roth 401k or Roth IRA

Post by MNGopher » Sat Nov 23, 2019 10:12 pm

EarningBack wrote:
Sat Nov 23, 2019 9:38 pm
1789 wrote:
Sat Nov 16, 2019 5:18 pm
Go with traditional 401k upto the match and then max out Roth IRA. If you still have money, then come back and add more traditional 401k.
What is your reasoning/logic behind this post? I'm not questioning it, just wondering if it would be the correct strategy for me as well.
The tax deduction for maxing your 401K will save you almost the exact amount to fund your Roth IRA for the year. Win, win :D

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1789
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Re: Roth 401k or Roth IRA

Post by 1789 » Sat Nov 23, 2019 10:56 pm

EarningBack wrote:
Sat Nov 23, 2019 9:38 pm
1789 wrote:
Sat Nov 16, 2019 5:18 pm
Go with traditional 401k upto the match and then max out Roth IRA. If you still have money, then come back and add more traditional 401k.
What is your reasoning/logic behind this post? I'm not questioning it, just wondering if it would be the correct strategy for me as well.
I see that other BHs responded already. Generally, Roth 401k is a bad idea until you have lots of money in traditional 401k to fill upto the top of 12% tax bracket (MJF ~ 100k including standard deduction). Roth IRA is superior as contributions can be pulled anytime. Also as mentioned above, you can fund your Roth IRA with the money you saved by not going into roth 401k route (assume you pocketed 5-6k by deferring taxes, so now you can put this money into your roth ira)
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

EarningBack
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Re: Roth 401k or Roth IRA

Post by EarningBack » Sat Nov 23, 2019 11:00 pm

That doesn't really answer the question I had about the specific advice you gave. For example, I'm currently able to get close to maxing out the 401k (but not completely). So why would I put money up to the match in Trad 401k, then stick 6k in Roth, then go back to Trad 401k IF the fees are low in my 401k plan and I have access to Fidelity and Vanguard index funds with low ER in the 401k. It seems I would be better off trying to max out the Trad 401k, and THEN contributing to Roth IRA, no?

brent0485
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Re: Roth 401k or Roth IRA

Post by brent0485 » Sat Nov 23, 2019 11:34 pm

There was recently a tax cut, which is set to expire. With Roth you’re taking advantage of that now, locking it in, and kicking the government to the curb. A lot of current political talk is about Medicare for all, including provisions for non citizens, green new deal, etc. It’s reasonable to assume taxes will be higher in the future, at the very least to fund social security for future generations. Why not be tax diversified, Roth and pre-tax.

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1789
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Re: Roth 401k or Roth IRA

Post by 1789 » Sat Nov 23, 2019 11:46 pm

EarningBack wrote:
Sat Nov 23, 2019 11:00 pm
That doesn't really answer the question I had about the specific advice you gave. For example, I'm currently able to get close to maxing out the 401k (but not completely). So why would I put money up to the match in Trad 401k, then stick 6k in Roth, then go back to Trad 401k IF the fees are low in my 401k plan and I have access to Fidelity and Vanguard index funds with low ER in the 401k. It seems I would be better off trying to max out the Trad 401k, and THEN contributing to Roth IRA, no?
I understand now. This gameplan i provided of course assumes you don’t have enough money to do both full pretax 401k and Roth IRA. If you can do both thats optimal, and max both. If you don’t have money to do that, then what i said is good. You get free money from your employer match, and then do Roth ira. If one can not max out both then person likely will need money for emergencies, hence Roth IRA superiority comes in to play because one can take out contributions any time. Does this answer your question?
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

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