This wasn't mentioned, but one should establish a Roth IRA a few years before you plan on rolling over your Roth 401(k) to a Roth IRA. For tax-free withdrawals from a Roth IRA, you must satisfy 2 conditions: 1) attaining age 59 1/2 and 2) the Roth IRA must be established for at least 5 years. That 5-year clock starts ticking during the year you establish the Roth IRA. So, for example, if you establish it on Dec. 31, 2020, then 2020 would count as Year #1.
A little side note, make sure someone who has a Roth 401k also opens a Roth IRA so when work ends they can roll money over without having to wait 5 years to withdraw.
Thanks for this video regarding Roth 401K. Most if not all of the co-workers that I know here in Silicon Valley make more than the maximum income requirements for a Roth IRA.
Thanks for the comment! Hopefully you and your co-workers have access to a Roth 401(k). If not, there are some other ways high income earners can get money into a Roth IRA. Here's an article I wrote about Roth IRA conversions that goes into more detail. www.theastuteadvisor.com/roth-ira-conversion/
@@alrocky Thanks Al. Proceed with caution. I wrote in more detail about potential tax issues regard to backdoor Roth IRAs. See my reply to avader5 for the link.
@@davidn.waldropcfp2260 Yes, assuming this is their only ($6,000) traditional IRA, the tax consequences are the same as if they could directly contribute (if there were no upper salary limit) to a Roth IRA, so their tax rate for $6,000. Those with a sizable sum in their traditional IRA might consider rolling that traditional IRA into their 401(k).
avader5 I suggest you research mitt Romney. He has over $100 million in a standard Roth IRA. It’s hard to explain, but gave himself preferred shares in private equity... the “co-workers” in Silicon Valley might be smart software coders but lacking wisdom in other areas.
Amazing. Exactly what I needed. I have traditional 401k and Roth 401k under the same employer / work umbrella. Just started Roth because of you. Ill have several questions soon. #1: An Ira isn’t through my company, right? I have to start that on my own or separately right?
Hi Travis and thank you. I'm glad you found it helpful. Yes, IRAs are separate from your employer. But be careful. If you are participating in a company 401(k) plan, you may not be able to make tax deductible contributions to an IRA. You could set up a Roth IRA separate from your employer, but your contributions are limited depending on you income.
Hi Nate, I'm not aware of any prohibition on doing a back door Roth while maxing out Roth 401(k). Make sure you access my 2022 Financial Planning Cheat Sheet located via this link: www.theastuteadvisor.com/2022cheatsheet
I personally benefit from the traditional 401k because I expect to be in a 10 percent lower tax bracket when I retire. And a state that does not tax as well
David N. Waldrop, CFP® weighing doing a catch up fund in 401k or 401k Roth being over 50 or just keeping investing in a taxable growth mutual fund. 10 year retirement horizon, my mutual fund outside the 401k has better returns but of course costs more to maintain.
@@kckuc310 Catching up within the traditional or Roth 401(k) will likely be a better bet than the taxable account. Don't take this as specific advice because I don't know your complete situation.
WHether a traditional or Roth 401(k), doesn't it all boil down to will you be in a higher or lower income tax bracket when retired? My earnings rate will be the same (how I invest won't change rather it is a Roth or standrad 401(k). I can either pay today's tax rate by contributing to a Roth, or pay the tax rate 30-40 years later when retired. What the latter is depends on whether the federal government lowers (LOL) or raises income tax rates.
Thanks for contributing to the conversation. I appreciate your comment. From a general standpoint, yes. However, there are other considerations and variables. Income can and will fluctuate which can effect tax rates from year to year. For example, there might be a period of of years where income is higher than the norm which can bump a person's tax rate into the next bracket. Also, People can go from two income households to one. I could go on but will stop there. Also, not out of the relm of possibility that tax rates go down. They were lowered in 2018. Point being, predicting tax rates years into the future is nearly impossible. During a person's financial journey, there may be periods where funding a tradional make more sense vs Roth and vice versa. Rather than deciding between the two, it's best to evaluate and adjust according to your financial situation. Then upon retirement, you will have more flexibility and plan retirement distributions from Roth and Traditional in a manner that suits your individual financial situation best.
I understand that federal govt doesn’t tax Roth 401k when you withdraw from it in retirement. Are there any states that put state tax on it? Or is it a rule that no states can tax it either?
Very informative video, thank you. So would you recommend someone putting in a traditional 401k and a Roth 401k to diversify there retirement funds? My company matches at 4% and requires you to put in the maximum match prior to putting $ in the Roth 401k they provide. So I put in the 4% to get the match and then I am putting in a 1% increase every yr into my Roth 401k, what would you say about that strategy?
Hi Matt, Thanks for the kind words. I'd need to know a lot more about your financial situation to weigh in on that. If you'd like to book some consulting time with me, just send an email via my website www.TheAstuteAdvisor.com
Matt: it all depends on your current tax situation. I tell young people to pile up money in an account that will be tax free later in life. With most income resources taxable, including some portion of Social Security, it is great to have a tax favorable bucket ( tax-free). I don’t know too much about your situation by just your questions. Good luck. Keep on investing.
I'm a one person S-corp for sidekick jobs I perform, and give myself a 1099 income at the end of the year. If I set up a solo roth 401k for my S corp, can I do employee contributions being a 1099 employee, or do I need to be a W2 employee?
Thank you for your question. You should confirm this with a tax professional. If you are NOT receiving W-2 compensation, then you will likely be filing a schedule C for self employment income. In this scenario, you will have until your tax filing deadline to fund both employee AND employer solo 401k contributions. Remember that with a Roth Solo 401k, only your employee contribution up to $19,000 is after-tax or Roth. Employer matching or profit sharing contributions are still pre-tax (traditional).
Good morning thank you so much for Your information Would you please explain about Roth 401 K - qualify distribution ? My HR told me I have to wait 5 year For the each conversion I’m confused Please help Thank you
Thanks for the kind words and I appreciate your question. I won't be able to go into much more detail on this via the comment section. If you're interest in a consult session, let me know and we can arrange a time to discuss your situation in more detail.
Hi Oscar, thanks for the question. There can be tax and penalties resulting from Roth IRA distributions. It depends on many factors...age, length of time the Roth has been open, the reason for the distribution, etc. Not to mention the impact to investment results and future retirement income needs. Be sure to download my latest financial planning cheat sheet located here www.theastuteadvisor.com/2021cheatsheet
Hi Jordan, your tax rate is not considered when contributing to a Roth. If you're participating in a Roth 401(k), there is no income limitation as there is when contributing to a Roth IRA. Roth IRA contributions are limited based on income (not tax rate). Be sure to get my 2020 Financial Planning Cheat Sheet located here www.theastuteadvisor.com/2020cheatsheet
This is all good info, except that someone whose income is above the limits of a Roth IRA could still contribute using the "Backdoor Conversion" You pay tax upfront but you will not be taxed in the future for Distribution or Withdrawal.
Thank you for contributing to the conversation. You're absolutely right. And, I have a video about it. In addition, it covers the pro rata rule which can trip some people up. Check it out!
"contribute using the "Backdoor Conversion" You pay tax upfront" To clarify if one contributes say $6,000 to a traditional IRA and then converts that $6,000 to a Roth IRA there is no additional tax that needs to be paid upfront.
Two individuals at full retirement age. They both apply for social security and Medicare benefits. One have 3 million in a traditional 401K and the other have 3 million in a Roth 401k. Will they be taxed the same on their social security and will their Medicare payments be the same? Thanks
Hi James, thanks for the question. I would defer to a tax professional and medicare expert on this one. My clients have found this cheat sheet helpful and it's updated for 2022 www.theastuteadvisor.com/2022cheatsheet
Hi I’m working at this building as a concierge and for past 4 years my employer got us ( the staff) in to regular 401 k. In the begging. I made a contribution of 50$/ week. I receive te statement and look like for those 4 years the money didn’t grow too much . I’m thinking to retire in 13 years(66), My question is , if I’ll contribute with more money coming from my paycheck I’ll be able to withdraw a nice sume of money when I’ll retire? Than you
Thank you for your question Christian. In theory, the more money you put in, the more you should be able to withdraw when you retire. There are no guarantees unless you're putting money into a guaranteed fixed rate investment. How much your money grows depends on what you are investing in and for how long.
Cristian Culetu , This is a problem of many of my coworkers. They don’t know about possibilities to grow money within 401k or they just afraid because of lack of knowledge. You need to schedule an appt with your financial advisor at work just to get started.
I’m 59.5 y/o, $47k/annual.salary ,35% on 401 k(7% matched) just recently adjusted to10%(401k) and%25 to Roth401k to the same and current co. Do you think is a wise moved? By the way max. my Vanguard Roth IRA since 2013,thanks
Hi and thank you for the question. Hard to without knowing more about you and your financial situation. If you're interested in hiring me for a more thorough review, you can contact me via email through my website www.TheAstuteAdvisor.com
hi, could you please explain a bit about rolling over from roth 401k to roth ira? in a roth ira, i’d be able to take out my contributions at before age 59-1/2 penalty free. but roth 401k does not allow withdrawals like that right? so if i were to rollover my roth 401k to my 5+ year old roth ira, would that be considered a contribution that i can take out? or are the limitations because it used to be a roth 401k?
Hi Jeffrey, thank you for the question and contributing to the conversation. According to my research, if you roll Roth 401k contributions into the Roth IRA you've had for 5 years, you have met the 5 year requirement.
@@davidn.waldropcfp2260 thank you. so even though the funds that were once in the roth 401k were contributions AND earnings, once it is rolled over into a roth ira, it can all be withdrawn penalty free as it is all now considered contributions?
@@jeffalex I don't know for sure if they are considered "contributions." However, my understanding is that so long as the Roth IRA meets the 5 year rule, rolled over funds from the roth 401k will too.
I've heard the benefits of Roth 401(k)'s diminish once you start making more money since they are taxed. Can you talk on this? I want to know if at some point in the future when my income increases if I need to look at switching to pre-tax contributions. Another questions that would help with this topic, people talk about making decisions based on the assumed tax bracket I'll be in when I retire. Does this simply mean that I pay taxes in retirement based on my last income? That doesn't seem logical. Thank you!
Hi Ashley, thank you for your question and thoughts on this subject. Before I start, please note that this explanation is limited and would be better explained via phone rather than YT comment section. But here we go...One of the benefits of the Roth 401(k) is the ability to set aside a significant amount of funds that will NOT be taxed when you retire. I do see where you are coming from. The higher your income is now, the more you would benefit in the short term (now) by contributing to a traditional 401(k) because you would get a reduction in your taxable income (now) unlike a Roth 401(k). However, another way to look at it is that you will like have both tax-deferred dollars (taxable) and tax free dollars in retirement. If you steer most or all of your funds toward tax deferred (traditional 401k), you will end up with a much higher amount of taxable money when you retire. This can have the effect of putting you in a higher tax bracket in retirement. It can be very tricky to try and predict where tax rates will be in the future in general and what our personal tax rate will be in 20 to 30 years (much easier to predict when someone is only a few years away from retirement. You are taxed the same way in retirement as you are when you're working. The IRS looks at all of the income and you're taxed based on that. Same goes in retirement but instead of wages, you'll have social security and retirement account withdrawals. Some folks will have rental income or other income from investments. It all get considered to determine your taxes. It's quite possible that I didn't completely answer your question. If I didn't, feel free and contact me via email and we'll schedule a conference call.
@ Ashley Smith: Roth IRAs and Roth 401(k)s are better choices when you are in a relatively low tax brackets and traditional IRAs and traditional 401(k)s are better choices when you are in a relatively high tax bracket.
Al Rocky , If you start to take your MD from your 401k and you are in a higher tax bracket, you have to pay even more in taxes? Or I misunderstood something?
Hi and thank you for the question. You may need to check with the company to see what they allow. However, I do believe in general it is allowed, as long as you don't exceed the annual limit.
Participating in a Roth 401(k) does not exclude utilization of the back door roth IRA. However, do not act on this comment alone. Be sure to consult your own tax and financial counsel to evaluate your specific situation.
So the major difference between Roth 401k and Roth IRA is that you have to take certain amount when you get to certain age. If you don't have much, and you just have to take out more than that minimum amount... For example, you are only expecting half of a million dollars when you retire, you Will be drawing more. Then it does not make any difference? Or is there a bigger overhead expense on one than the other that can be a determining factor? Is it foolish to invest into the same stock on both sides?
The major difference between a Roth 401(k) and Roth IRA is the contribution limits of $19,000 and $6,000. While Roth 401(k) have RMDs you can simply avoid those RMDs by rolling it to a Roth IRA. Q3: No
@@rubyus7332 No, Roth 401(k) has way less freedom to invest as they are limited by the number of investment options, sometimes only a dozen choices. With a Roth IRA you may select from hundreds or thousands of stocks, mutual / index funds and more.
Sorry for the delay in responding. I believe AI Rocky was able to address your question. You should also check out my 2020 Financial Planning Cheat Sheet (linked below). It’s been updated for the new retirement rules taking effect this year. www.theastuteadvisor.com/2020cheatsheet
This wasn't mentioned, but one should establish a Roth IRA a few years before you plan on rolling over your Roth 401(k) to a Roth IRA. For tax-free withdrawals from a Roth IRA, you must satisfy 2 conditions: 1) attaining age 59 1/2 and 2) the Roth IRA must be established for at least 5 years. That 5-year clock starts ticking during the year you establish the Roth IRA. So, for example, if you establish it on Dec. 31, 2020, then 2020 would count as Year #1.
Great video! The Roth 401K option has enormous potential to create wealth.
Thanks Devin. A lot of folks don't even realize it's an option. Very powerful wealth building tool.
A little side note, make sure someone who has a Roth 401k also opens a Roth IRA so when work ends they can roll money over without having to wait 5 years to withdraw.
Thank you for contributing to the conversation Venchenzo.
Thanks for this video regarding Roth 401K. Most if not all of the co-workers that I know here in Silicon Valley make more than the maximum income requirements for a Roth IRA.
Thanks for the comment! Hopefully you and your co-workers have access to a Roth 401(k). If not, there are some other ways high income earners can get money into a Roth IRA. Here's an article I wrote about Roth IRA conversions that goes into more detail. www.theastuteadvisor.com/roth-ira-conversion/
Backdoor Roth IRA: contribute to a traditional IRA and then convert that t-IRA to a Roth IRA.
@@alrocky Thanks Al. Proceed with caution. I wrote in more detail about potential tax issues regard to backdoor Roth IRAs. See my reply to avader5 for the link.
@@davidn.waldropcfp2260 Yes, assuming this is their only ($6,000) traditional IRA, the tax consequences are the same as if they could directly contribute (if there were no upper salary limit) to a Roth IRA, so their tax rate for $6,000. Those with a sizable sum in their traditional IRA might consider rolling that traditional IRA into their 401(k).
avader5 I suggest you research mitt Romney. He has over $100 million in a standard Roth IRA. It’s hard to explain, but gave himself preferred shares in private equity... the “co-workers” in Silicon Valley might be smart software coders but lacking wisdom in other areas.
Amazing. Exactly what I needed. I have traditional 401k and Roth 401k under the same employer / work umbrella. Just started Roth because of you. Ill have several questions soon. #1: An Ira isn’t through my company, right? I have to start that on my own or separately right?
Hi Travis and thank you. I'm glad you found it helpful. Yes, IRAs are separate from your employer. But be careful. If you are participating in a company 401(k) plan, you may not be able to make tax deductible contributions to an IRA. You could set up a Roth IRA separate from your employer, but your contributions are limited depending on you income.
Thanks much David still awesome advice in Jan 2022!!!
Love the idea of splitting contributions between Roth and Traditional 401k's. Tax diversification!!!
Thank you for contributing to the conversation Rich!
That's usually not tax efficient if both done the same year.
David, my employer offers Roth 401K. Can I max out on that as well as do a backdoor ROTH as well?
Hi Nate, I'm not aware of any prohibition on doing a back door Roth while maxing out Roth 401(k). Make sure you access my 2022 Financial Planning Cheat Sheet located via this link: www.theastuteadvisor.com/2022cheatsheet
I personally benefit from the traditional 401k because I expect to be in a 10 percent lower tax bracket when I retire. And a state that does not tax as well
Thanks for adding to the conversation. Please let me know if there are other personal finance topics you're interested in.
David N. Waldrop, CFP® weighing doing a catch up fund in 401k or 401k Roth being over 50 or just keeping investing in a taxable growth mutual fund. 10 year retirement horizon, my mutual fund outside the 401k has better returns but of course costs more to maintain.
@@kckuc310 Catching up within the traditional or Roth 401(k) will likely be a better bet than the taxable account. Don't take this as specific advice because I don't know your complete situation.
WHether a traditional or Roth 401(k), doesn't it all boil down to will you be in a higher or lower income tax bracket when retired? My earnings rate will be the same (how I invest won't change rather it is a Roth or standrad 401(k). I can either pay today's tax rate by contributing to a Roth, or pay the tax rate 30-40 years later when retired. What the latter is depends on whether the federal government lowers (LOL) or raises income tax rates.
Thanks for contributing to the conversation. I appreciate your comment. From a general standpoint, yes. However, there are other considerations and variables. Income can and will fluctuate which can effect tax rates from year to year. For example, there might be a period of of years where income is higher than the norm which can bump a person's tax rate into the next bracket. Also, People can go from two income households to one. I could go on but will stop there. Also, not out of the relm of possibility that tax rates go down. They were lowered in 2018. Point being, predicting tax rates years into the future is nearly impossible. During a person's financial journey, there may be periods where funding a tradional make more sense vs Roth and vice versa. Rather than deciding between the two, it's best to evaluate and adjust according to your financial situation. Then upon retirement, you will have more flexibility and plan retirement distributions from Roth and Traditional in a manner that suits your individual financial situation best.
I understand that federal govt doesn’t tax Roth 401k when you withdraw from it in retirement. Are there any states that put state tax on it? Or is it a rule that no states can tax it either?
Hi and thank you for that question. I am not aware of any states that tax Roth 401(k) or Roth IRA withdrawals.
Please vote for the right people who are not going to govern of off your and our expenses.
Very informative video, thank you. So would you recommend someone putting in a traditional 401k and a Roth 401k to diversify there retirement funds? My company matches at 4% and requires you to put in the maximum match prior to putting $ in the Roth 401k they provide. So I put in the 4% to get the match and then I am putting in a 1% increase every yr into my Roth 401k, what would you say about that strategy?
Hi Matt, Thanks for the kind words. I'd need to know a lot more about your financial situation to weigh in on that. If you'd like to book some consulting time with me, just send an email via my website www.TheAstuteAdvisor.com
Matt: it all depends on your current tax situation. I tell young people to pile up money in an account that will be tax free later in life. With most income resources taxable, including some portion of Social Security, it is great to have a tax favorable bucket ( tax-free). I don’t know too much about your situation by just your questions. Good luck. Keep on investing.
I'm a one person S-corp for sidekick jobs I perform, and give myself a 1099 income at the end of the year. If I set up a solo roth 401k for my S corp, can I do employee contributions being a 1099 employee, or do I need to be a W2 employee?
Thank you for your question. You should confirm this with a tax professional. If you are NOT receiving W-2 compensation, then you will likely be filing a schedule C for self employment income. In this scenario, you will have until your tax filing deadline to fund both employee AND employer solo 401k contributions. Remember that with a Roth Solo 401k, only your employee contribution up to $19,000 is after-tax or Roth. Employer matching or profit sharing contributions are still pre-tax (traditional).
@@davidn.waldropcfp2260 thank you
Good morning thank you so much for
Your information
Would you please explain about
Roth 401 K - qualify distribution ?
My HR told me I have to wait 5 year
For the each conversion
I’m confused
Please help
Thank you
Thanks for the kind words and I appreciate your question. I won't be able to go into much more detail on this via the comment section. If you're interest in a consult session, let me know and we can arrange a time to discuss your situation in more detail.
A couple of times I had to withdraw some of my contributions from my Roth IRA account. I was told that this is okay. Is this true?
Hi Oscar, thanks for the question. There can be tax and penalties resulting from Roth IRA distributions. It depends on many factors...age, length of time the Roth has been open, the reason for the distribution, etc. Not to mention the impact to investment results and future retirement income needs. Be sure to download my latest financial planning cheat sheet located here www.theastuteadvisor.com/2021cheatsheet
Concise answer is yes you may withdraw *_contributions_* to Roth IRA no tax no penalty.
Do I still contribute to Roth if my combined Federal/State income tax is 27.75%? Thanks!
Hi Jordan, your tax rate is not considered when contributing to a Roth. If you're participating in a Roth 401(k), there is no income limitation as there is when contributing to a Roth IRA. Roth IRA contributions are limited based on income (not tax rate). Be sure to get my 2020 Financial Planning Cheat Sheet located here www.theastuteadvisor.com/2020cheatsheet
Are you asking if you _can_ or should contribute to a Roth [IRA or 401(K)]?
This is all good info, except that someone whose income is above the limits of a Roth IRA could still contribute using the "Backdoor Conversion" You pay tax upfront but you will not be taxed in the future for Distribution or Withdrawal.
Thank you for contributing to the conversation. You're absolutely right. And, I have a video about it. In addition, it covers the pro rata rule which can trip some people up. Check it out!
"contribute using the "Backdoor Conversion" You pay tax upfront" To clarify if one contributes say $6,000 to a traditional IRA and then converts that $6,000 to a Roth IRA there is no additional tax that needs to be paid upfront.
Two individuals at full retirement age. They both apply for social security and Medicare benefits. One have 3 million in a traditional 401K and the other have 3 million in a Roth 401k. Will they be taxed the same on their social security and will their Medicare payments be the same? Thanks
Hi James, thanks for the question. I would defer to a tax professional and medicare expert on this one. My clients have found this cheat sheet helpful and it's updated for 2022 www.theastuteadvisor.com/2022cheatsheet
Hi I’m working at this building as a concierge and for past 4 years my employer got us ( the staff) in to regular 401 k. In the begging. I made a contribution of 50$/ week. I receive te statement and look like for those 4 years the money didn’t grow too much . I’m thinking to retire in 13 years(66), My question is , if I’ll contribute with more money coming from my paycheck I’ll be able to withdraw a nice sume of money when I’ll retire? Than you
Thank you for your question Christian. In theory, the more money you put in, the more you should be able to withdraw when you retire. There are no guarantees unless you're putting money into a guaranteed fixed rate investment. How much your money grows depends on what you are investing in and for how long.
What investment options (mutual fund names and 5 letter ticker) did you select within your 401(k)?
Cristian Culetu , This is a problem of many of my coworkers. They don’t know about possibilities to grow money within 401k or they just afraid because of lack of knowledge. You need to schedule an appt with your financial advisor at work just to get started.
I’m 59.5 y/o, $47k/annual.salary ,35% on 401 k(7% matched) just recently adjusted to10%(401k) and%25 to Roth401k to the same and current co. Do you think is a wise moved? By the way max. my Vanguard Roth IRA since 2013,thanks
Hi and thank you for the question. Hard to without knowing more about you and your financial situation. If you're interested in hiring me for a more thorough review, you can contact me via email through my website www.TheAstuteAdvisor.com
hi, could you please explain a bit about rolling over from roth 401k to roth ira?
in a roth ira, i’d be able to take out my contributions at before age 59-1/2 penalty free. but roth 401k does not allow withdrawals like that right? so if i were to rollover my roth 401k to my 5+ year old roth ira, would that be considered a contribution that i can take out? or are the limitations because it used to be a roth 401k?
Hi Jeffrey, thank you for the question and contributing to the conversation. According to my research, if you roll Roth 401k contributions into the Roth IRA you've had for 5 years, you have met the 5 year requirement.
@@davidn.waldropcfp2260 thank you. so even though the funds that were once in the roth 401k were contributions AND earnings, once it is rolled over into a roth ira, it can all be withdrawn penalty free as it is all now considered contributions?
@@jeffalex I don't know for sure if they are considered "contributions." However, my understanding is that so long as the Roth IRA meets the 5 year rule, rolled over funds from the roth 401k will too.
@@davidn.waldropcfp2260 thank you
I've heard the benefits of Roth 401(k)'s diminish once you start making more money since they are taxed. Can you talk on this? I want to know if at some point in the future when my income increases if I need to look at switching to pre-tax contributions. Another questions that would help with this topic, people talk about making decisions based on the assumed tax bracket I'll be in when I retire. Does this simply mean that I pay taxes in retirement based on my last income? That doesn't seem logical. Thank you!
Hi Ashley, thank you for your question and thoughts on this subject. Before I start, please note that this explanation is limited and would be better explained via phone rather than YT comment section. But here we go...One of the benefits of the Roth 401(k) is the ability to set aside a significant amount of funds that will NOT be taxed when you retire. I do see where you are coming from. The higher your income is now, the more you would benefit in the short term (now) by contributing to a traditional 401(k) because you would get a reduction in your taxable income (now) unlike a Roth 401(k). However, another way to look at it is that you will like have both tax-deferred dollars (taxable) and tax free dollars in retirement. If you steer most or all of your funds toward tax deferred (traditional 401k), you will end up with a much higher amount of taxable money when you retire. This can have the effect of putting you in a higher tax bracket in retirement. It can be very tricky to try and predict where tax rates will be in the future in general and what our personal tax rate will be in 20 to 30 years (much easier to predict when someone is only a few years away from retirement. You are taxed the same way in retirement as you are when you're working. The IRS looks at all of the income and you're taxed based on that. Same goes in retirement but instead of wages, you'll have social security and retirement account withdrawals. Some folks will have rental income or other income from investments. It all get considered to determine your taxes. It's quite possible that I didn't completely answer your question. If I didn't, feel free and contact me via email and we'll schedule a conference call.
@ Ashley Smith: Roth IRAs and Roth 401(k)s are better choices when you are in a relatively low tax brackets and traditional IRAs and traditional 401(k)s are better choices when you are in a relatively high tax bracket.
Al Rocky , If you start to take your MD from your 401k and you are in a higher tax bracket, you have to pay even more in taxes? Or I misunderstood something?
@@rubyus7332 I was referring to when to contribute to either a Roth IRA/401(k) or traditional IRA/401(k).
If a company does offer both 401K and Roth 401k can the employee contribute to both of them?
Hi and thank you for the question. You may need to check with the company to see what they allow. However, I do believe in general it is allowed, as long as you don't exceed the annual limit.
yes, you can. because the match from the company always goes into the regular 401k
Can i contribute to both a roth 401k and a backdoor roth ira
Participating in a Roth 401(k) does not exclude utilization of the back door roth IRA. However, do not act on this comment alone. Be sure to consult your own tax and financial counsel to evaluate your specific situation.
So the major difference between Roth 401k and Roth IRA is that you have to take certain amount when you get to certain age. If you don't have much, and you just have to take out more than that minimum amount... For example, you are only expecting half of a million dollars when you retire, you Will be drawing more. Then it does not make any difference? Or is there a bigger overhead expense on one than the other that can be a determining factor? Is it foolish to invest into the same stock on both sides?
The major difference between a Roth 401(k) and Roth IRA is the contribution limits of $19,000 and $6,000. While Roth 401(k) have RMDs you can simply avoid those RMDs by rolling it to a Roth IRA.
Q3: No
rocknel1000 , Roth 401k has way more freedom to invest, for example in ETFs or other funds.
@@rubyus7332 No, Roth 401(k) has way less freedom to invest as they are limited by the number of investment options, sometimes only a dozen choices. With a Roth IRA you may select from hundreds or thousands of stocks, mutual / index funds and more.
Sorry for the delay in responding. I believe AI Rocky was able to address your question. You should also check out my 2020 Financial Planning Cheat Sheet (linked below). It’s been updated for the new retirement rules taking effect this year. www.theastuteadvisor.com/2020cheatsheet
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