Depending on how much room is in your budget for retirement saving after you have maxed out the employer match on your 401k, you should max out the $5000 annual Roth IRA contribution. You can have a 401(k) plan with a Roth 401(k) provision and still fund a Roth IRA. Rolled over a Roth 401(k) or Roth 403(b) to the Roth IRA. This explosion in popularity and the fear of taxation has resulted in widespread belief that the Roth accounts are superior to Traditional. There are several general factors to consider: Here's a self-description of someone who should probably go Roth: Here's a self-description of someone who should probably go Traditional: No single item is definitive. Yes, current law allows you to have both. I haven't deducted these contributions on my tax returns. Besides IRA being available at workplace, there are two basic types – Traditional IRA established in 1974 and Roth IRA launched in 1997 named on its sponsor, Sen. William Roth. This question relates to IRAs as well as 401 (k) and similar employer-sponsored plans if your employer offers the option to make Roth-style contributions. So, maximizing my Roth 401k plus maximizing both mine and my spouses Roth IRA’s is a start for me (company contribution is Traditional money of course). But if I’m choosing between a traditional 401(k) and a Roth 401(k), I’d go with the Roth 401(k) every time! Once you've maxed out your HSA, see if you qualify to contribute to a Roth IRA. A Roth IRA has three main features. With traditional, most early withdrawals will trigger a 10% penalty. Then the less it matters which you choose. Look up "pro rata rule" to learn more. Hi everyone, hoping you can help clarify the "traditional 401k or Roth 401k" question for me. Sorry! Chris W. Rea. I work in a state with high state income tax and/or I'll probably retire to a state with lower income tax. The IRA contribution limit in … A Roth … High income: If you exceed the income limit to make a full Roth IRA contribution, do a backdoor Roth IRA after maxing out your workplace account (make sure you can. The Roth IRA conversion works this way: You take a distribution from your traditional IRA or 401(k) and contribute that money into a Roth IRA. If you want to be as tax efficient as possible and Betterment can help (not familiar with them), roll the earnings over to a traditional 401k. Can I Have Roth 401k and Roth IRA? Roth or Traditional? Please contact the moderators of this subreddit if you have any questions or concerns. Qualifying exceptions to the penalty tax. Get your financial house in order, learn how to better manage your money, and invest for your future. Press question mark to learn the rest of the keyboard shortcuts. When not on a mobile device, we recommend browsing Personal Finance using the classic version of Reddit. 30.5k 16 16 gold badges 95 95 silver badges 182 182 bronze badges. What I should have done was use pre-tax dollars for the traditional IRA account, but didn't think about the implication until recently. The other major difference between 401k and Roth IRA is the way they are managed. Traditional IRA Plans An IRA (individual retirement account) is your personal savings plan for retirement, offering tax advantages and growth that compounds over time. Make Roth IRA contributions if you can. Your tax rate could go down in the future. You'll want to reconstruct what you did here. The way Roth works, you pay a lot in taxes now, put less money in 401k because of taxes, but you no longer have to pay taxes at retirement. Self-promotional advertising or soliciting, Relationship or personal advice discussion, Press J to jump to the feed. (Only applies to IRAs) I exceed the income limit for making fully-deductible contributions to a Traditional IRA, but am below the Roth IRA phase-out income limits. Do I just have to make sure I am filling out Form 8606 correctly? I did the same mistake years ago, and only realized it a couple years ago. (Two Cents), Your current marginal tax rate compared to your expected, Your state income tax rate now and in retirement (possibly a different state), The higher effective limits on Roth contributions. In Roth IRA, it is your money alone that goes into the fund, and is attractive as you get tax free earnings after retirement. A Roth 401k will likely make you richer than a traditional 401k and is one of the best investment decisions you can make as a younger investor in your 20’s or 30’s because of the tax-free withdrawal advantages given an uncertain future. Make it the implication until recently limits of making a Roth IRA is the way are... 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