Should You Max Out a Roth IRA or a Roth 401(k)?
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When it comes to saving for retirement, there are a variety of options available to individuals, including traditional IRAs, Roth IRAs, and Roth 401(k)s. While all of these accounts offer tax advantages, one common question that arises is whether it’s better to max out a Roth IRA or a Roth 401(k).
Both Roth IRAs and Roth 401(k)s offer tax-free growth on your investments, meaning you won’t have to pay taxes on the money you withdraw in retirement. However, there are some key differences between the two accounts that may influence your decision on where to invest your money.
One key factor to consider is contribution limits. For the year 2021, the contribution limit for a Roth IRA is $6,000 for individuals under the age of 50, and $7,000 for those aged 50 and older. In comparison, the contribution limit for a Roth 401(k) is much higher, with a maximum of $19,500 for individuals under 50, and $26,000 for those over 50. If you have the financial means to do so, maxing out your Roth 401(k) may allow you to save more for retirement compared to a Roth IRA.
Another factor to consider is employer matching contributions. Many employers offer matching contributions for their employees’ 401(k) contributions, which can significantly boost your savings. If your employer offers a match, it may make more sense to prioritize contributions to your Roth 401(k) in order to take advantage of this free money.
On the other hand, Roth IRAs offer more flexibility when it comes to investment choices, as you are not limited to the investment options offered by your employer’s retirement plan. Additionally, Roth IRAs allow for penalty-free withdrawals of contributions at any time, making them a more flexible option in case of emergencies.
Ultimately, the decision of whether to max out a Roth IRA or a Roth 401(k) depends on your individual financial situation and retirement goals. If you have the financial means to do so and your employer offers a match, maxing out your Roth 401(k) may be the best option. However, if you prioritize investment flexibility and the ability to make penalty-free withdrawals, a Roth IRA may be a better choice for you.
In conclusion, both Roth IRAs and Roth 401(k)s offer valuable tax advantages and can help you save for retirement. It’s important to consider your individual circumstances and goals when deciding where to invest your money. Consulting with a financial advisor can also help you make an informed decision based on your specific needs.
Roth IRA is sweet, especially when you live off the income it generates. Nothing better than to take dividend distributions in your retirement years and not have them be subject to taxation.
Can I put max 401k , Roth and Roth 401k at the same time ? Thx!
Are you guys going to take live calls?
Loving the back to the future outfits
Isn’t a 401K subject to higher limits than an IRA?
We do the ROTH 401K as we want to MAX out all we can Max Out!
Side question:
Which way do you save more, ROTH 401K or (old style) 401K?
Answer: They both will let you put the same amount away but, with the ROTH (YOU) pay Taxes so, the ROTH!
Can you have multiple roth iras if you don't exceed the combined $6000 contribution limit of all roth iras?
I’m so glad it’s what you guys recommend. It makes perfect sense.
Thank you for answering my question, I thought it got lost in the live chat.
I have a Roth IRA (over 5 yrs old) as well as a 401K with traditional, roth and post tax (above federal annual limit) contributions in it. I intend to retire between after 55 but before 59.5. Can/should I roll over the Roth and Post tax parts of the 401k to my Roth IRA while leaving the traditional contributions in the 401k so as to make penalty free post 55 distributions from the traditional (not yet taxed) part of 401k? If taxes get too unbearable, I could always take the contribution part from the Roth IRA to supplement my income.
401k has protection from creditors; IRA doesn’t – this is a huge consideration for a lawsuit-happy world. The rules for RMDs is almost certainly going to change in the 10-20 years before many viewers reach that point, so I wouldn’t use that as decision criteria. And… you can always rollover money between the types.
Thanks, I was literally considering this. I definitely like the flexibility and control over my IRA. I currently Max out my IRA and am working up my 401k all Roth as my pay goes up. I'm wondering if you have done or could do, a video on how to calculate the tax savings of using a mixed approach. For example, at my income bracket 22%, it's not worth contributing to a traditional account, but once I hit the higher tax brackets of income does it make sense to put anything above the 22% bracket into traditional for example?
If u have a Roth 401k when should u roll it over to a Roth IRA? And are there any penalties?
Great answer! Short and sweet.
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