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12-06-2012 at 11:32 PM
hereonceag...
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hereonceagain is not online. Last active: 05-15-2013, 10:04 PMSilver

401k vs Roth (come in sisugal!)

I saw in the below post to contribute to 401k until matching maxed, then go to Roth next.  

 Does this hold true for 40 yr olds and up?  I thought I read somewhere the Roths are better for youngers.  

 Also what if company offers 401k Roths?  Is that better than Roth iras? 

 
12-07-2012 at 5:28 AM
jtmh2012
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jtmh2012 is not online. Last active: 05-18-2013, 9:21 PMBronze

The reasoning on contributing to the 401k first is so that you don't leave any of that free money from your employer on the table.

As for the Roth, you need to look at your personal tax situation and may sit down with an advisor.  Roths are generally recommended as you tax a smaller amount of money on the way in (yes, at a generally higher tax rate but on a smaller amount of principal) and then take out all the proceeds (what should be a nice sized amount) tax free.

As for a 401k Roth vs a Roth.  From what I can tell, the differences are in annual contribution limits and income limits to participate and when you must start taking distributions from the plan.

 
12-07-2012 at 6:56 AM
another KT
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another KT is not online. Last active: 05-14-2013, 2:52 PMNewbie
With the recent politics many people are thinking taxes are currently at the lowest rate they are going to be for a long time and are therefore strongly suggesting Roths.
 
12-07-2012 at 7:32 AM
Jan8
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Jan8 is not online. Last active: 02-25-2013, 7:45 PMSilver

I don't think age has much to do with it. We are able to max out all of the account but if we couldn't we would do what was suggested. When we talked about switching to a Roth TSP (gov't 401k), we decided against it because we need the tax benefits now to keep some deductions.  We also like having a mix of pre and post tax accounts as a way to diversify even more. Roths give us more investment options as well compared to our work choices. 

I would look at your current tax situation and try to determine your future tax situation to determine what might be best for you.  



 
12-07-2012 at 8:31 AM
Sisugal
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Sisugal is not online. Last active: 05-12-2013, 8:53 AMPlatinum

Yes, the advice holds for all ages.  A ROTH is funded with after tax dollars and you pay no taxes on that money upon withdrawal at retirement.  You will pay taxes on withdrawals from your 401K.  That ROTH money will come in hand to balance withdrawals and your tax obligations in the future.

 I do not know much about 401K Roths as my employer does not offer them.

So my plan is  - fund 401K to match

Fully fund ROTH IRA

Go back a max out 401K if possible or add to your funding ability.

 
12-07-2012 at 6:13 PM
Jdunk2008
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Jdunk2008 is not online. Last active: 04-19-2013, 11:23 PMNewbie
I have always undertsood that you should put your max in your 401k if you company matches it then yes go to the Roth next. The roth is taxed prior to the money going in. So in 20 years when you want to pull it, say you are in a higher tax bracket than now, you wont get hit with the high taxes
 
12-08-2012 at 8:27 PM
Wulfgar
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Wulfgar is not online. Last active: 05-18-2013, 10:01 PMNewbie

It holds true for all, first max out the 401(k) then put into Roth IRA next if you don't earn more then the maximum allowed.

Even Dave Ramsey and other experts say this.

 
12-10-2012 at 4:02 PM
polooo26
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polooo26 is not online. Last active: 05-16-2013, 2:57 PMBronze
Yes. contribute enough to your 401K to get the company match and then contribute to the Roth. The reasoning isn't so much because of taxes, but when your money is in a Roth you can pull out the principle without penalty if you need it. You also have more control over where your money is invested. 401ks traditionally don't have great investment options. Once you max out a Roth IRA you can go back to your 401K if you want to. As for 401K vs Roth 401K it depends on your tax situation. You pay taxes now on what you put in a Roth. I generally stick to Roth so I can pay the lower taxes but if I made more I would pay into a 401K to avoid a higher tax bracket.

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