42

The limit of $19,500 (plus an additional $6,500 for those 50 and over, for a total of $26,000) only applies to employee pre-tax contributions to Traditional 401(k) and employee contributions to Roth 401(k). It does not apply to employer contributions nor to after-tax contributions to Traditional 401(k) (the latter is the basis for the "mega-backdoor ...


40

The biggest benefit of using a Roth 401(k) vs a non-tax-advantaged investment account is that the growth is tax free (not just deferred like a traditional 401(k)). With the managed account, you'll pay taxes on all distributions and realized gains as you get them, which adds friction to long-term growth. The downside is obviously that you can't touch the ...


34

TLDR: That TD Ameritrade product isn't more aggressive, just razzle-dazzle. Invest like endowments. And invest very early, because time means compounding. Aggressiveness is the right strategy. But it's simple. Endowment manager here. Go all-in on retirement, and do it early. Time is money, friend. Endowments are forever-funds which are designed to ...


28

Yes, I think you will be able to withdraw from your 401(k) without penalty. Normally, you need to be age 59½ before you can withdraw without incurring a 10% penalty. However, an exception to this rule is described in an IRS 401(k) Resource Guide: Exceptions. The 10% tax will not apply if distributions before age 59½ are made in any of the following ...


28

You say you're in one of the highest federal tax brackets now, but your math assumes a 10% tax rate now, and an unspecified rate in retirement. Using realistic numbers let's say you're in the 35% bracket now, and when you retire you'll withdraw into the 24% bracket. pre-tax: $10,000 x 1.1 ^ 30 = $175,000 x (100% - 24%) = $133,000 Roth: $10,000 x (100% - 35%)...


24

Personally, I view Traditional/ROTH as another form of diversification. Sure, you can look at existing tax tables and come up with what is the absolute most efficient option. BUT, over 30 years your income is going to change, the tax tables are going to change, and it's possible that the laws surrounding retirement accounts might change. I like holding ...


21

Well, no. True, a Roth has no income tax. The tax was already paid on deposit and no more tax due. But, the Roth, IRA or 401, still might be subject to estate tax, as it is still part of the estate for state and federal estate tax purposes. Keep in mind, the federal estate exemption is high, over $11M per decedent. State varies, by, well, state.


17

The Roth/Traditional decision is complex, but can be broken down into a set of simple rules. Ideally, you want to choose to tax your money at the lowest possible rate. This specifically refers to your marginal rate, the rate you last $100 was taxed or next $100 of income with be taxed. That, in itself, is another issue, answered with questions here ...


16

No, not always. I would also add that your tax bracket at the time you invest also makes a difference in some cases. For example: if you make very little (like a teenager summer camp job), will not have a tax liability, and have the option to invest all your earnings in a retirement account, it would be better to put it in a Roth. That way you aren't paying ...


16

One thing that's not been fully mathed here is that deposits into a pretax 401(k) are at one's marginal rate, but withdrawals at the average rate. Say that while one is working, they make $100K/yr. With a $12K standard deduction, they are in the 24% bracket, but would drop below, so let's use an average 23% saved by using the 401(k). Now, at retirement. ...


13

Yes, you're allowed to contribute to both a Roth 401k and a regular 401k; it's fairly common to do so for the purposes of diversification. You can also contribute to a Roth IRA, assuming you're under the income limits. Note that your employers' contributions to your 401k (like a match) are always pre-tax, not Roth.


13

To me, return isn't a huge consideration when deciding to roll over a 401(k) into an IRA or another 401(k). The main differences to me are : convenience - it is typically less hassle to have all investments in one place (or as few as possible) options - IRAs typically have more investment options that 401(k)s depending on the broker fees - you might be able ...


12

As D Stanley correctly stated, no, the income limit doesn't touch the 401(k), Roth or traditional. And, no, the Roth 401(k) deposit doesn't lower your income, and doesn't impact AGI. The traditional IRA deposit/conversion is the way to go. All that said, I'd ask why you are loading Roth and not using this opportunity for pre-tax deposits? The ideal mix at ...


11

Does the same rule apply to a Roth 401k? No - there is no income limit to participate in a Roth 401(k) If hypothetically subtracting 36K from our annual income means we are below the limit for Roth IRA contributions, does that mean we can then invest the $5500 each? If the 401(k) is a traditional 401(k) and not a Roth 401(k) then yes, but you'll need to ...


10

Why would somebody want an IRA if they have a 401K and a Roth 401K? The 401K doesn't have very many choices. The 401K has very high expenses. The 401K doesn't offer matching. They want to save more than the maximum of the 401K. They receive a lump sum of money and want to invest it in one shot.


10

Rollovers are different than Contributions. You can rollover any amount as often as you want in every year, as it is basically just a transfer to an equivalent ('already taxed retirement') account. They do not affect the contribution limits. Contributions to 401k ROTH are limited per calendar year, and it doesn't matter through which employer they are made....


10

No, Roth accounts are from already taxed money, and changing the provider has no effect. The only tax you pay for Roth money is on the gains you made and only if you take it out before you are 59.5 and before the account is 5 years old. And in case you are worried about the five year minimum account age, the oldest account you had counts. So moving the ...


10

There are at least two reasons to contribute to an IRA: A backdoor Roth IRA. You can still get your money into a Roth IRA to grow tax free. However, there may be some pitfalls. Deferred tax on growth. If you're deciding between traditional IRA vs. taxable account, the benefit is that the growth (dividends, interest, capital gains) aren't taxed until ...


9

From [Roth-Comparison-Chart][IRS} Designated Roth 401(k) Account: No income limitation to participate The lack of an big income limit is a benefit of the Roth 401K. There is no penalty because there is no limit of the Roth version of the 401K. It get the company match, and it grows tax free. There is still a maximum amount that each person can contribute,...


9

There are two problems with your understanding: The companies I have worked for match based on a percentage of your salary. That is a percentage of your gross pay. It was not based on the percentage of your net pay or after-tax pay. Net pay would be too hard to know. What I mean is the amount of insurance, HSA, Flex spending accounts, etc. determine how ...


9

To your question. Yes. What you propose is typically called the back door Roth. You make the (non-deductible) IRA deposit, and soon after, convert to Roth. As long as you have no other existing IRA, the process is simple, and actually a loophole that's still open. If you have an existing IRA, the conversion may be partially taxed based on untaxed balance. ...


9

The piece you're missing about a traditional IRA is the up-front tax savings that may apply. If you were taxed at 25% and able to deduct the full contribution then you could contribute 33% more to a traditional IRA (assuming room under the annual contribution limit) than you could to a Roth IRA for the same net cost, or have 25% more cash in hand after ...


9

No. No rule against it. There are rules concerning how much you can contribute to each in a year (which are easily searchable and change yearly), but no rule against having both.


8

The annual contribution limits for 401(k) and IRA are independent. So if you want to save the most, you would contribute to both. The principal of Roth IRA contributions can be withdrawn at any time without tax or penalty, so it can double as a penalty-free emergency fund.


8

The most that you could contribute would be maxing out a 401k (of either type) and a Roth IRA. 17.5 + 5.5 = 23k (assuming you aren't old enough for the 401k catch up provision) The 401k contribution limits are regardless of Roth or traditional 401k. If you contribute to a workplace 401k it will phase out your deduction for a traditional IRA. That leaves ...


8

In addition to JoeTaxpayer's thorough answer, I just want to tackle one particular question that was also asked: ...all employer contributions are pretax? There are a few main reasons that employer contributions go into the traditional bucket instead of the Roth bucket: It costs the employer less. Since Roth is after tax money, in order to contribute X ...


8

I wouldn't pay much attention to performance, especially timeframe you're talking about. Everyone's up double digits, 10-15% annual return; you're happy that your funds are in that group but it's nothing to be impressed by. The reason I'd consider consolidating is primarily that you might be able to buy into better funds. Vanguard for example (what I am ...


8

Generally, (and not considering Roth vs traditional status) the way you would want to prioritize/order these contributions would be the following: 401(k) up to whatever is required to capture maximum employer match (in your case this is 0) IRA up to maximum. Currently this maximum is the lesser of your earned income or $6,000 (or $7,000 if you are over 50). ...


7

So first off, this should be handled as a rollover, not a "distribution". Rollovers have different rules than distributions. Therefore, your quote from the IRS does not apply. The simple answer is your entire Roth 401k amount can rollover to a Roth IRA with no penalties or taxes. If Fidelity is routing it differently then they're having an error in their ...


7

If your employer matches a percentage of your contributions, then you should try to max out your plan. Once you have completed maxing out your 401k, you may want to open up an IRA for several reasons: will your 401k be enough to sustain your lifestyle in retirement? Your IRA allows you to save even more for retirement. you can invest in all sorts of stuff ...


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