Roth 401k

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gtrplayer
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Roth 401k

Post by gtrplayer »

If you’re not able to max out both a 401k and a Roth IRA, is there any reason to favor the Roth 401k option vs a Roth IRA? Employer match is being met.

I’m just trying to determine whether I should flip what I have going to the Roth 401k back to traditional 401k and then contribute a little more to my separate Roth IRA but I’m not clear whether there are benefits to the Roth 401k I’m not considering. Employer match won’t be affected.
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Re: Roth 401k

Post by sailaway »

401k has better federal protections than IRA. You need to look at your fees and option in your 401k, as well as your actual tax rate, to make the determination you are asking.

For the record, the point of 401k to match, then Roth IRA is to get a bit of tax diversity because the "what is best" calculations make so many future assumptions as to be best guess, more than best practice.
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Re: Roth 401k

Post by bloom2708 »

$4,000 to Pre-tax 401k
$4,000 to Roth 401k

Would be roughly equivalent, but not as flexible as:

$4,000 to Pre-tax 401k
$4,000 to regular Roth IRA

In general, you only get so much pre-tax 401k space. You want a long window for growth, so I would picke pre-tax 401k and Roth IRA to whatever you can save. As you get raises, bump up the savings rates.

Make sure you get the match if possible from the 401k.
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willthrill81
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Re: Roth 401k

Post by willthrill81 »

I've seen few situations where the individual was in a higher federal bracket than 12%, wouldn't receive a pension in retirement, and a Roth 401(k) was likely to be optimal with regard to after-tax wealth generation.

As noted above, the Roth 401(k) has no advantage over the Roth IRA other than a higher maximum contribution and potentially better protections against lawsuits.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
KlangFool
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Re: Roth 401k

Post by KlangFool »

gtrplayer wrote: Tue Oct 12, 2021 8:55 am If you’re not able to max out both a 401k and a Roth IRA, is there any reason to favor the Roth 401k option vs a Roth IRA? Employer match is being met.

I’m just trying to determine whether I should flip what I have going to the Roth 401k back to traditional 401k and then contribute a little more to my separate Roth IRA but I’m not clear whether there are benefits to the Roth 401k I’m not considering. Employer match won’t be affected.
It is very simple.

If you cannot max both, you should not contribute to Roth 401K. In fact, in almost 90+% cases, someone made a mistake by contributing to the Roth 401K.

Since you are asking this question, you had made a mistake by contributing to Roth 401K.

In summary, max up your Trad 401k and put your tax savings into Roth IRA is the best combination.

There is no benefit to contribute to Roth 401K. You pay more taxes and leave less money in your own pocket.

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joverby
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Re: Roth 401k

Post by joverby »

gtrplayer wrote: Tue Oct 12, 2021 8:55 am
I’m just trying to determine whether I should flip what I have going to the Roth 401k back to traditional 401k.
What tax bracket are you in? If you are in the 12% bracket, and you expect strong wage growth over your career and a healthy retirement, then Roth 401k is a no brainer.

If you are in the 22%/24% bracket then a combination of Roth and Traditional likely makes sense.
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willthrill81
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Re: Roth 401k

Post by willthrill81 »

joverby wrote: Tue Oct 12, 2021 11:26 am
gtrplayer wrote: Tue Oct 12, 2021 8:55 am
I’m just trying to determine whether I should flip what I have going to the Roth 401k back to traditional 401k.
What tax bracket are you in? If you are in the 12% bracket, and you expect strong wage growth over your career and a healthy retirement, then Roth 401k is a no brainer.

If you are in the 22%/24% bracket then a combination of Roth and Traditional likely makes sense.
I agree in the first instance you refer to that the Roth 401(k) could make good sense, though early retirement could easily result in it coming out behind of a traditional 401(k).

But in the latter instance, I think that all traditional contributions makes much more sense. Apart from a relatively narrow portion of one's SS benefits potentially being taxed at a higher tax rate or maybe due to ACA subsidies if retiring before age 65, it's difficult for Roth contributions in the 22% and 24% brackets to come out ahead of traditional.
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Re: Roth 401k

Post by retiredjg »

gtrplayer wrote: Tue Oct 12, 2021 8:55 am If you’re not able to max out both a 401k and a Roth IRA, is there any reason to favor the Roth 401k option vs a Roth IRA? Employer match is being met.

I’m just trying to determine whether I should flip what I have going to the Roth 401k back to traditional 401k and then contribute a little more to my separate Roth IRA but I’m not clear whether there are benefits to the Roth 401k I’m not considering. Employer match won’t be affected.
You are actually asking two different questions.

1. Roth 401k vs Roth IRA - not a lot of difference, the Roth 401k may (or may not) have a little more protection from creditors. Roth IRA has more flexibility.

2. Traditional investing vs Roth investing - this is a decision on it's own and depends on many factors. All factors being equal, I'd do about half and half. But all factors are rarely equal.
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willthrill81
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Re: Roth 401k

Post by willthrill81 »

retiredjg wrote: Tue Oct 12, 2021 11:42 am 1. Roth 401k vs Roth IRA - not a lot of difference, the Roth 401k may (or may not) have a little more protection from creditors. Roth IRA has more flexibility.
In the event of early retirement, there are significant and meaningful differences between a Roth 401(k) and a Roth IRA.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
retiredjg
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Re: Roth 401k

Post by retiredjg »

willthrill81 wrote: Tue Oct 12, 2021 12:05 pm
retiredjg wrote: Tue Oct 12, 2021 11:42 am 1. Roth 401k vs Roth IRA - not a lot of difference, the Roth 401k may (or may not) have a little more protection from creditors. Roth IRA has more flexibility.
In the event of early retirement, there are significant and meaningful differences between a Roth 401(k) and a Roth IRA.
I know some people think this, but I don't agree that this presents a problem (edited). The "shortcomings" of Roth 401k are completely eliminated by rolling it to Roth IRA.

I suppose if there is a reason not to roll to Roth iRA, I would agree that there is a problem (edited).
Last edited by retiredjg on Tue Oct 12, 2021 2:16 pm, edited 2 times in total.
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willthrill81
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Re: Roth 401k

Post by willthrill81 »

retiredjg wrote: Tue Oct 12, 2021 12:11 pm
willthrill81 wrote: Tue Oct 12, 2021 12:05 pm
retiredjg wrote: Tue Oct 12, 2021 11:42 am 1. Roth 401k vs Roth IRA - not a lot of difference, the Roth 401k may (or may not) have a little more protection from creditors. Roth IRA has more flexibility.
In the event of early retirement, there are significant and meaningful differences between a Roth 401(k) and a Roth IRA.
I know some people think this, but I don't agree. The "shortcomings" of Roth 401k are completely eliminated by rolling it to Roth IRA.

I suppose if there is a reason not to roll to Roth iRA, I would agree.
Maybe it's just semantics, but after you roll over a Roth 401(k) to a Roth IRA, you no longer have a Roth 401(k) and the associated problems. That seems to me to be a typically simple and effective solution to the Roth 401(k)'s problems in early retirement rather than a disputation as to whether those problems exist.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
retiredjg
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Re: Roth 401k

Post by retiredjg »

I didn't intend to dispute that there are problems. Just saying the problems can be worked around easily. With an easy workaround, there is no reason to avoid Roth 401k.
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willthrill81
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Re: Roth 401k

Post by willthrill81 »

retiredjg wrote: Tue Oct 12, 2021 12:21 pm I didn't intend to dispute that there are problems. Just saying the problems can be worked around easily. With an easy workaround, there is no reason to avoid Roth 401k.
I'm not trying to be argumentative either, just to provide clarity to those who might not be aware of the problems and their solution.
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jmch1990
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Re: Roth 401k

Post by jmch1990 »

willthrill81 wrote: Tue Oct 12, 2021 12:15 pm
retiredjg wrote: Tue Oct 12, 2021 12:11 pm
willthrill81 wrote: Tue Oct 12, 2021 12:05 pm
retiredjg wrote: Tue Oct 12, 2021 11:42 am 1. Roth 401k vs Roth IRA - not a lot of difference, the Roth 401k may (or may not) have a little more protection from creditors. Roth IRA has more flexibility.
In the event of early retirement, there are significant and meaningful differences between a Roth 401(k) and a Roth IRA.
I know some people think this, but I don't agree. The "shortcomings" of Roth 401k are completely eliminated by rolling it to Roth IRA.

I suppose if there is a reason not to roll to Roth iRA, I would agree.
Maybe it's just semantics, but after you roll over a Roth 401(k) to a Roth IRA, you no longer have a Roth 401(k) and the associated problems. That seems to me to be a typically simple and effective solution to the Roth 401(k)'s problems in early retirement rather than a disputation as to whether those problems exist.
For the uninitiated (like me), what are these problems?
Keith5337
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Re: Roth 401k

Post by Keith5337 »

willthrill81 wrote: Tue Oct 12, 2021 12:15 pm
retiredjg wrote: Tue Oct 12, 2021 12:11 pm
willthrill81 wrote: Tue Oct 12, 2021 12:05 pm
retiredjg wrote: Tue Oct 12, 2021 11:42 am 1. Roth 401k vs Roth IRA - not a lot of difference, the Roth 401k may (or may not) have a little more protection from creditors. Roth IRA has more flexibility.
In the event of early retirement, there are significant and meaningful differences between a Roth 401(k) and a Roth IRA.
I know some people think this, but I don't agree. The "shortcomings" of Roth 401k are completely eliminated by rolling it to Roth IRA.

I suppose if there is a reason not to roll to Roth iRA, I would agree.
Maybe it's just semantics, but after you roll over a Roth 401(k) to a Roth IRA, you no longer have a Roth 401(k) and the associated problems. That seems to me to be a typically simple and effective solution to the Roth 401(k)'s problems in early retirement rather than a disputation as to whether those problems exist.
Are you saying that you can take out the contributions to a Roth IRA prior to 59.5 if you roll it over to an IRA?
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Re: Roth 401k

Post by willthrill81 »

jmch1990 wrote: Tue Oct 12, 2021 12:52 pm
willthrill81 wrote: Tue Oct 12, 2021 12:15 pm
retiredjg wrote: Tue Oct 12, 2021 12:11 pm
willthrill81 wrote: Tue Oct 12, 2021 12:05 pm
retiredjg wrote: Tue Oct 12, 2021 11:42 am 1. Roth 401k vs Roth IRA - not a lot of difference, the Roth 401k may (or may not) have a little more protection from creditors. Roth IRA has more flexibility.
In the event of early retirement, there are significant and meaningful differences between a Roth 401(k) and a Roth IRA.
I know some people think this, but I don't agree. The "shortcomings" of Roth 401k are completely eliminated by rolling it to Roth IRA.

I suppose if there is a reason not to roll to Roth iRA, I would agree.
Maybe it's just semantics, but after you roll over a Roth 401(k) to a Roth IRA, you no longer have a Roth 401(k) and the associated problems. That seems to me to be a typically simple and effective solution to the Roth 401(k)'s problems in early retirement rather than a disputation as to whether those problems exist.
For the uninitiated (like me), what are these problems?
Withdrawals of any sort before age 59.5 result in penalties and taxation of the entire withdrawal. Roth 401(k)s have RMDs. And withdrawals post 59.5 are not simple from a tax perspective because the employer's contributions to a Roth 401(k) are made pre-tax, so I believe that withdrawals are pro-rated between tax-deferred and Roth and taxed accordingly.
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willthrill81
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Re: Roth 401k

Post by willthrill81 »

Keith5337 wrote: Tue Oct 12, 2021 12:57 pm Are you saying that you can take out the contributions to a Roth IRA prior to 59.5 if you roll it over to an IRA?
I think so.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
KlangFool
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Re: Roth 401k

Post by KlangFool »

Keith5337 wrote: Tue Oct 12, 2021 12:57 pm

Are you saying that you can take out the contributions to a Roth IRA 401K prior to 59.5 if you roll it Roth 401K over to an IRA?
Yes.

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gtrplayer
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Re: Roth 401k

Post by gtrplayer »

willthrill81 wrote: Tue Oct 12, 2021 1:00 pm
jmch1990 wrote: Tue Oct 12, 2021 12:52 pm
willthrill81 wrote: Tue Oct 12, 2021 12:15 pm
retiredjg wrote: Tue Oct 12, 2021 12:11 pm
willthrill81 wrote: Tue Oct 12, 2021 12:05 pm

In the event of early retirement, there are significant and meaningful differences between a Roth 401(k) and a Roth IRA.
I know some people think this, but I don't agree. The "shortcomings" of Roth 401k are completely eliminated by rolling it to Roth IRA.

I suppose if there is a reason not to roll to Roth iRA, I would agree.
Maybe it's just semantics, but after you roll over a Roth 401(k) to a Roth IRA, you no longer have a Roth 401(k) and the associated problems. That seems to me to be a typically simple and effective solution to the Roth 401(k)'s problems in early retirement rather than a disputation as to whether those problems exist.
For the uninitiated (like me), what are these problems?
Withdrawals of any sort before age 59.5 result in penalties and taxation of the entire withdrawal. Roth 401(k)s have RMDs. And withdrawals post 59.5 are not simple from a tax perspective because the employer's contributions to a Roth 401(k) are made pre-tax, so I believe that withdrawals are pro-rated between tax-deferred and Roth and taxed accordingly.
What I’m getting from this is that if you have to choose, go with a Roth IRA vs a Roth 401k - keep pre-tax in 401k and post-tax outside of 401k. I did not even realize that withdrawals were different between the two Roth accounts. One advantage of the Roth IRA, from my understanding, is if you retire early you can withdraw the contributions without a penalty. Sounds like this advantage doesn’t exist in the Roth 401k, if I’m understanding it right.
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Re: Roth 401k

Post by willthrill81 »

gtrplayer wrote: Tue Oct 12, 2021 1:06 pm
willthrill81 wrote: Tue Oct 12, 2021 1:00 pm
jmch1990 wrote: Tue Oct 12, 2021 12:52 pm
willthrill81 wrote: Tue Oct 12, 2021 12:15 pm
retiredjg wrote: Tue Oct 12, 2021 12:11 pm I know some people think this, but I don't agree. The "shortcomings" of Roth 401k are completely eliminated by rolling it to Roth IRA.

I suppose if there is a reason not to roll to Roth iRA, I would agree.
Maybe it's just semantics, but after you roll over a Roth 401(k) to a Roth IRA, you no longer have a Roth 401(k) and the associated problems. That seems to me to be a typically simple and effective solution to the Roth 401(k)'s problems in early retirement rather than a disputation as to whether those problems exist.
For the uninitiated (like me), what are these problems?
Withdrawals of any sort before age 59.5 result in penalties and taxation of the entire withdrawal. Roth 401(k)s have RMDs. And withdrawals post 59.5 are not simple from a tax perspective because the employer's contributions to a Roth 401(k) are made pre-tax, so I believe that withdrawals are pro-rated between tax-deferred and Roth and taxed accordingly.
What I’m getting from this is that if you have to choose, go with a Roth IRA vs a Roth 401k - keep pre-tax in 401k and post-tax outside of 401k. I did not even realize that withdrawals were different between the two Roth accounts. One advantage of the Roth IRA, from my understanding, is if you retire early you can withdraw the contributions without a penalty. Sounds like this advantage doesn’t exist in the Roth 401k, if I’m understanding it right.
There's no disputing that Roth IRAs are simpler to deal with than Roth 401(k) plans. Aside from potentially better protection from lawsuits for a Roth 401(k), about the only reason that anyone would select the Roth 401(k) is if they want to make more Roth contributions than what is available to them with a Roth IRA.

You can rollover a Roth 401(k) plan, most likely only after you separate from service to the sponsoring employer, to a Roth IRA and then withdraw your Roth contributions before age 59.5.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Roth 401k

Post by KlangFool »

gtrplayer wrote: Tue Oct 12, 2021 1:06 pm
What I’m getting from this is that if you have to choose, go with a Roth IRA vs a Roth 401k - keep pre-tax in 401k and post-tax outside of 401k. I did not even realize that withdrawals were different between the two Roth accounts. One advantage of the Roth IRA, from my understanding, is if you retire early you can withdraw the contributions without a penalty. Sounds like this advantage doesn’t exist in the Roth 401k, if I’m understanding it right.
gtrplayer,

1) If you retired early, you can access the Trad 401K money by Roth conversion. Why would you choose Roth 401K and pay more taxes?

https://www.madfientist.com/how-to-acce ... nds-early/

2) The reason of not contributing to Roth 401K has nothing to do with you cannot access the money. It has to do with you pay more taxes by contributing to Roth 401K.

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gtrplayer
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Re: Roth 401k

Post by gtrplayer »

KlangFool wrote: Tue Oct 12, 2021 1:12 pm
gtrplayer wrote: Tue Oct 12, 2021 1:06 pm
What I’m getting from this is that if you have to choose, go with a Roth IRA vs a Roth 401k - keep pre-tax in 401k and post-tax outside of 401k. I did not even realize that withdrawals were different between the two Roth accounts. One advantage of the Roth IRA, from my understanding, is if you retire early you can withdraw the contributions without a penalty. Sounds like this advantage doesn’t exist in the Roth 401k, if I’m understanding it right.
gtrplayer,

1) If you retired early, you can access the Trad 401K money by Roth conversion. Why would you choose Roth 401K and pay more taxes?

https://www.madfientist.com/how-to-acce ... nds-early/

2) The reason of not contributing to Roth 401K has nothing to do with you cannot access the money. It has to do with you pay more taxes by contributing to Roth 401K.

KlangFool
That makes sense. I think that gives enough info. I’ll be flipping all my 401k to traditional and use the IRA for Roth going forward. That was the direction I was leaning but now I have better reasoning to back up it. Thank you!
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David Jay
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Re: Roth 401k

Post by David Jay »

Several people have mentioned potentially better protections with the Roth 401K. This is state-specific so one should check the regulations in one's state of residence.

In my state (Michigan) an IRA receives the same protections as ERISA plans.
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Re: Roth 401k

Post by kelway »

For me, it's a question of using the Roth 401k to optimize space in the 12% tax bracket. I ensure I use just enough tax-deductible space to stay in the 12% bracket ... Both (mine, homemaker spouse) Roth IRAs are maxed and then I end up about 30% Roth 401k.
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Re: Roth 401k

Post by retiredjg »

gtrplayer wrote: Tue Oct 12, 2021 1:06 pm
willthrill81 wrote: Tue Oct 12, 2021 1:00 pm
jmch1990 wrote: Tue Oct 12, 2021 12:52 pm
willthrill81 wrote: Tue Oct 12, 2021 12:15 pm
retiredjg wrote: Tue Oct 12, 2021 12:11 pm I know some people think this, but I don't agree. The "shortcomings" of Roth 401k are completely eliminated by rolling it to Roth IRA.

I suppose if there is a reason not to roll to Roth iRA, I would agree.
Maybe it's just semantics, but after you roll over a Roth 401(k) to a Roth IRA, you no longer have a Roth 401(k) and the associated problems. That seems to me to be a typically simple and effective solution to the Roth 401(k)'s problems in early retirement rather than a disputation as to whether those problems exist.
For the uninitiated (like me), what are these problems?
Withdrawals of any sort before age 59.5 result in penalties and taxation of the entire withdrawal. Roth 401(k)s have RMDs. And withdrawals post 59.5 are not simple from a tax perspective because the employer's contributions to a Roth 401(k) are made pre-tax, so I believe that withdrawals are pro-rated between tax-deferred and Roth and taxed accordingly.
What I’m getting from this is that if you have to choose, go with a Roth IRA vs a Roth 401k - keep pre-tax in 401k and post-tax outside of 401k. I did not even realize that withdrawals were different between the two Roth accounts. One advantage of the Roth IRA, from my understanding, is if you retire early you can withdraw the contributions without a penalty. Sounds like this advantage doesn’t exist in the Roth 401k, if I’m understanding it right.
I have a different understanding from some of what willthrill81 said.

1. Your 401k will determine if you can withdraw traditional 401k and Roth 401k dollars separately. Some plans allow you to pick which one to withdraw from. Some plans do not.

Rolling out to IRA/Roth IRA eliminates this issue. Roth 401k goes to Roth IRA, traditional 401k (including employer contributions) goes to traditional IRA.


2. If you are allowed to choose to withdraw just from Roth 401k, if you are not yet 59.5, whatever you withdraw will be pro-rated between your Roth 401k contributions and the earnings from those contributions. The contributions have already been taxed and are not taxed a second time or penalized.The earnings will have both tax and penalty.

This issue is eliminated if you roll the Roth 401k to Roth IRA because Roth IRA has different withdrawal rules. From Roth IRA, you are allowed to withdraw just the contributions (no tax or penalty). Withdrawal from Roth IRA is NOT pro-rated with earnings.

If you roll from Roth 401k to Roth IRA, the Roth 401k contributions roll right into your Roth IRA basis (available immediately) and the earnings that accrued in Roth 401k roll into the earnings bucket of your Roth IRA. These become the last dollars available to withdraw from Roth IRA. If you are 59.5 and if your first contribution to Roth IRA (not 401k) is more than 5 years ago, these earnings are both tax and penalty free.


3. Roth 401k will eventually have RMDs. This issue is eliminated by rolling to Roth IRA.

gtrplayer, If you follow these points above, you can see that none of these are a reason to avoid using Roth 401k if you want to use it.
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Re: Roth 401k

Post by retiredjg »

Keith5337 wrote: Tue Oct 12, 2021 12:57 pm Are you saying that you can take out the contributions to a Roth IRA prior to 59.5 if you roll it over to an IRA?
A direct contribution to Roth IRA can be withdrawn from the Roth IRA at any time, no tax or penalty.

Other contributions (backdoor process and rollover contributions) are a little more complicated than that.
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Re: Roth 401k

Post by Keith5337 »

KlangFool wrote: Tue Oct 12, 2021 1:04 pm
Keith5337 wrote: Tue Oct 12, 2021 12:57 pm

Are you saying that you can take out the contributions to a Roth IRA 401K prior to 59.5 if you roll it Roth 401K over to an IRA?
Yes.

KlangFool
Thank you all that responded to my question.

I was not aware that you could take Roth 401k contributions out of a rolled over account prior to 59.5. I have enough contributions in a Roth IRA to bridge the gap to 59.5.

But it's good information to be able to relay to others. Once I find the supporting documents.
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Re: Roth 401k

Post by anon_investor »

Keith5337 wrote: Tue Oct 12, 2021 8:35 pm
KlangFool wrote: Tue Oct 12, 2021 1:04 pm
Keith5337 wrote: Tue Oct 12, 2021 12:57 pm

Are you saying that you can take out the contributions to a Roth IRA 401K prior to 59.5 if you roll it Roth 401K over to an IRA?
Yes.

KlangFool
Thank you all that responded to my question.

I was not aware that you could take Roth 401k contributions out of a rolled over account prior to 59.5. I have enough contributions in a Roth IRA to bridge the gap to 59.5.

But it's good information to be able to relay to others. Once I find the supporting documents.
FYI this depends on the 401k plan.
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Re: Roth 401k

Post by KlangFool »

anon_investor wrote: Tue Oct 12, 2021 8:38 pm
Keith5337 wrote: Tue Oct 12, 2021 8:35 pm
KlangFool wrote: Tue Oct 12, 2021 1:04 pm
Keith5337 wrote: Tue Oct 12, 2021 12:57 pm

Are you saying that you can take out the contributions to a Roth IRA 401K prior to 59.5 if you roll it Roth 401K over to an IRA?
Yes.

KlangFool
Thank you all that responded to my question.

I was not aware that you could take Roth 401k contributions out of a rolled over account prior to 59.5. I have enough contributions in a Roth IRA to bridge the gap to 59.5.

But it's good information to be able to relay to others. Once I find the supporting documents.
FYI this depends on the 401k plan.
Please be more precise with your post.

The employer may not allow OP to rollover his Roth 401K to an Roth IRA while being employed by the same employer. But, as soon as OP retired or work for someone else, aka not working for the same employer, OP can rollover his Roth 401K to a Roth IRA.

KlangFool
Last edited by KlangFool on Tue Oct 12, 2021 9:53 pm, edited 1 time in total.
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Re: Roth 401k

Post by anon_investor »

KlangFool wrote: Tue Oct 12, 2021 9:07 pm
anon_investor wrote: Tue Oct 12, 2021 8:38 pm
Keith5337 wrote: Tue Oct 12, 2021 8:35 pm
KlangFool wrote: Tue Oct 12, 2021 1:04 pm
Keith5337 wrote: Tue Oct 12, 2021 12:57 pm

Are you saying that you can take out the contributions to a Roth IRA 401K prior to 59.5 if you roll it Roth 401K over to an IRA?
Yes.

KlangFool
Thank you all that responded to my question.

I was not aware that you could take Roth 401k contributions out of a rolled over account prior to 59.5. I have enough contributions in a Roth IRA to bridge the gap to 59.5.

But it's good information to be able to relay to others. Once I find the supporting documents.
FYI this depends on the 401k plan.
Please be more precise with your post.

The employer may not allow OP to rollover his Roth 401K to an Roth IRA while being employed by the same employer. But, as soon as OP retired or work for someone else, aka no working for the same employer, OP can rollover his Roth 401K to a Roth IRA.

KlangFool
Thank you for clarifying this point. :sharebeer
Sasquatch1
Posts: 115
Joined: Tue Feb 18, 2020 9:19 am

Re: Roth 401k

Post by Sasquatch1 »

retiredjg wrote: Tue Oct 12, 2021 2:14 pm
gtrplayer wrote: Tue Oct 12, 2021 1:06 pm
willthrill81 wrote: Tue Oct 12, 2021 1:00 pm
jmch1990 wrote: Tue Oct 12, 2021 12:52 pm
willthrill81 wrote: Tue Oct 12, 2021 12:15 pm

Maybe it's just semantics, but after you roll over a Roth 401(k) to a Roth IRA, you no longer have a Roth 401(k) and the associated problems. That seems to me to be a typically simple and effective solution to the Roth 401(k)'s problems in early retirement rather than a disputation as to whether those problems exist.
For the uninitiated (like me), what are these problems?
Withdrawals of any sort before age 59.5 result in penalties and taxation of the entire withdrawal. Roth 401(k)s have RMDs. And withdrawals post 59.5 are not simple from a tax perspective because the employer's contributions to a Roth 401(k) are made pre-tax, so I believe that withdrawals are pro-rated between tax-deferred and Roth and taxed accordingly.
What I’m getting from this is that if you have to choose, go with a Roth IRA vs a Roth 401k - keep pre-tax in 401k and post-tax outside of 401k. I did not even realize that withdrawals were different between the two Roth accounts. One advantage of the Roth IRA, from my understanding, is if you retire early you can withdraw the contributions without a penalty. Sounds like this advantage doesn’t exist in the Roth 401k, if I’m understanding it right.
I have a different understanding from some of what willthrill81 said.

1. Your 401k will determine if you can withdraw traditional 401k and Roth 401k dollars separately. Some plans allow you to pick which one to withdraw from. Some plans do not.

Rolling out to IRA/Roth IRA eliminates this issue. Roth 401k goes to Roth IRA, traditional 401k (including employer contributions) goes to traditional IRA.


2. If you are allowed to choose to withdraw just from Roth 401k, if you are not yet 59.5, whatever you withdraw will be pro-rated between your Roth 401k contributions and the earnings from those contributions. The contributions have already been taxed and are not taxed a second time or penalized.The earnings will have both tax and penalty.

This issue is eliminated if you roll the Roth 401k to Roth IRA because Roth IRA has different withdrawal rules. From Roth IRA, you are allowed to withdraw just the contributions (no tax or penalty). Withdrawal from Roth IRA is NOT pro-rated with earnings.

If you roll from Roth 401k to Roth IRA, the Roth 401k contributions roll right into your Roth IRA basis (available immediately) and the earnings that accrued in Roth 401k roll into the earnings bucket of your Roth IRA. These become the last dollars available to withdraw from Roth IRA. If you are 59.5 and if your first contribution to Roth IRA (not 401k) is more than 5 years ago, these earnings are both tax and penalty free.


3. Roth 401k will eventually have RMDs. This issue is eliminated by rolling to Roth IRA.

gtrplayer, If you follow these points above, you can see that none of these are a reason to avoid using Roth 401k if you want to use it.

How would the earnings of a Roth account be taxed?? That’s the entire point of Roth contributions, to not be taxed on the contribution or the growth??

What it sound like you are describing is withdrawing after tax dollars that are not in the Roth account.
retiredjg
Posts: 45718
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth 401k

Post by retiredjg »

Sasquatch1 wrote: Wed Oct 13, 2021 1:16 am
retiredjg wrote: Tue Oct 12, 2021 2:14 pm
gtrplayer wrote: Tue Oct 12, 2021 1:06 pm
willthrill81 wrote: Tue Oct 12, 2021 1:00 pm
jmch1990 wrote: Tue Oct 12, 2021 12:52 pm

For the uninitiated (like me), what are these problems?
Withdrawals of any sort before age 59.5 result in penalties and taxation of the entire withdrawal. Roth 401(k)s have RMDs. And withdrawals post 59.5 are not simple from a tax perspective because the employer's contributions to a Roth 401(k) are made pre-tax, so I believe that withdrawals are pro-rated between tax-deferred and Roth and taxed accordingly.
What I’m getting from this is that if you have to choose, go with a Roth IRA vs a Roth 401k - keep pre-tax in 401k and post-tax outside of 401k. I did not even realize that withdrawals were different between the two Roth accounts. One advantage of the Roth IRA, from my understanding, is if you retire early you can withdraw the contributions without a penalty. Sounds like this advantage doesn’t exist in the Roth 401k, if I’m understanding it right.
I have a different understanding from some of what willthrill81 said.

1. Your 401k will determine if you can withdraw traditional 401k and Roth 401k dollars separately. Some plans allow you to pick which one to withdraw from. Some plans do not.

Rolling out to IRA/Roth IRA eliminates this issue. Roth 401k goes to Roth IRA, traditional 401k (including employer contributions) goes to traditional IRA.


2. If you are allowed to choose to withdraw just from Roth 401k, if you are not yet 59.5, whatever you withdraw will be pro-rated between your Roth 401k contributions and the earnings from those contributions. The contributions have already been taxed and are not taxed a second time or penalized.The earnings will have both tax and penalty.

This issue is eliminated if you roll the Roth 401k to Roth IRA because Roth IRA has different withdrawal rules. From Roth IRA, you are allowed to withdraw just the contributions (no tax or penalty). Withdrawal from Roth IRA is NOT pro-rated with earnings.

If you roll from Roth 401k to Roth IRA, the Roth 401k contributions roll right into your Roth IRA basis (available immediately) and the earnings that accrued in Roth 401k roll into the earnings bucket of your Roth IRA. These become the last dollars available to withdraw from Roth IRA. If you are 59.5 and if your first contribution to Roth IRA (not 401k) is more than 5 years ago, these earnings are both tax and penalty free.


3. Roth 401k will eventually have RMDs. This issue is eliminated by rolling to Roth IRA.

gtrplayer, If you follow these points above, you can see that none of these are a reason to avoid using Roth 401k if you want to use it.

How would the earnings of a Roth account be taxed?? That’s the entire point of Roth contributions, to not be taxed on the contribution or the growth??
If you wait until you are 59.5 and it has been at least 5 tax years since your first contribution to your Roth account, there is no tax (or penalty). This is true for both Roth 401k and for Roth IRA. If you take the earnings out before that, there is tax and might be penalty.

What it sound like you are describing is withdrawing after tax dollars that are not in the Roth account.
I'm not sure what you mean by this, but ask again if the above does not answer your question.
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1789
Posts: 2117
Joined: Fri Aug 16, 2019 3:31 pm

Re: Roth 401k

Post by 1789 »

Traditional 401k + Roth IRA and then if you like more Roth monies, look if you can do Megabackdoor Roth contributions with in plan conversions.
"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)
Sasquatch1
Posts: 115
Joined: Tue Feb 18, 2020 9:19 am

Re: Roth 401k

Post by Sasquatch1 »

retiredjg wrote: Wed Oct 13, 2021 6:44 am
Sasquatch1 wrote: Wed Oct 13, 2021 1:16 am
retiredjg wrote: Tue Oct 12, 2021 2:14 pm
gtrplayer wrote: Tue Oct 12, 2021 1:06 pm
willthrill81 wrote: Tue Oct 12, 2021 1:00 pm

Withdrawals of any sort before age 59.5 result in penalties and taxation of the entire withdrawal. Roth 401(k)s have RMDs. And withdrawals post 59.5 are not simple from a tax perspective because the employer's contributions to a Roth 401(k) are made pre-tax, so I believe that withdrawals are pro-rated between tax-deferred and Roth and taxed accordingly.
What I’m getting from this is that if you have to choose, go with a Roth IRA vs a Roth 401k - keep pre-tax in 401k and post-tax outside of 401k. I did not even realize that withdrawals were different between the two Roth accounts. One advantage of the Roth IRA, from my understanding, is if you retire early you can withdraw the contributions without a penalty. Sounds like this advantage doesn’t exist in the Roth 401k, if I’m understanding it right.
I have a different understanding from some of what willthrill81 said.

1. Your 401k will determine if you can withdraw traditional 401k and Roth 401k dollars separately. Some plans allow you to pick which one to withdraw from. Some plans do not.

Rolling out to IRA/Roth IRA eliminates this issue. Roth 401k goes to Roth IRA, traditional 401k (including employer contributions) goes to traditional IRA.


2. If you are allowed to choose to withdraw just from Roth 401k, if you are not yet 59.5, whatever you withdraw will be pro-rated between your Roth 401k contributions and the earnings from those contributions. The contributions have already been taxed and are not taxed a second time or penalized.The earnings will have both tax and penalty.

This issue is eliminated if you roll the Roth 401k to Roth IRA because Roth IRA has different withdrawal rules. From Roth IRA, you are allowed to withdraw just the contributions (no tax or penalty). Withdrawal from Roth IRA is NOT pro-rated with earnings.

If you roll from Roth 401k to Roth IRA, the Roth 401k contributions roll right into your Roth IRA basis (available immediately) and the earnings that accrued in Roth 401k roll into the earnings bucket of your Roth IRA. These become the last dollars available to withdraw from Roth IRA. If you are 59.5 and if your first contribution to Roth IRA (not 401k) is more than 5 years ago, these earnings are both tax and penalty free.


3. Roth 401k will eventually have RMDs. This issue is eliminated by rolling to Roth IRA.

gtrplayer, If you follow these points above, you can see that none of these are a reason to avoid using Roth 401k if you want to use it.

How would the earnings of a Roth account be taxed?? That’s the entire point of Roth contributions, to not be taxed on the contribution or the growth??
If you wait until you are 59.5 and it has been at least 5 tax years since your first contribution to your Roth account, there is no tax (or penalty). This is true for both Roth 401k and for Roth IRA. If you take the earnings out before that, there is tax and might be penalty.

What it sound like you are describing is withdrawing after tax dollars that are not in the Roth account.
I'm not sure what you mean by this, but ask again if the above does not answer your question.
No your explanation there makes sense and you are correct.

Without realizing you were meaning before 59.5 of age I was saying it sounded like 401k after tax dollars. Where the growth is always taxed no matter what.
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