Author Topic: 401K+ROTH? Or Just 401K?  (Read 652 times)

Candyland33

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401K+ROTH? Or Just 401K?
« on: May 28, 2019, 02:44:47 PM »
Currently, I have 401K, which iím maxing out. My employer offers a Roth as well but no after-tax contribution option, which i was really hoping for to follow the Mega Backdoor Roth strategy.
So, should invest in 401k and Roth at the same time? Or should I just keep 401K plan or try to move the money from 401K to Roth, if in-service is offered by my employer?
Thank you for your help

the_gastropod

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Re: 401K+ROTH? Or Just 401K?
« Reply #1 on: May 28, 2019, 03:04:30 PM »
Let's get some terminology straight to start out with. Colloquially, a 401k is a retirement account sponsored by your employer. They can come in two flavors: Traditional (tax deferred) and Roth (taxed upfront). Which is better depends on your current income and your expected living expenses in retirement. For most MMM readers, a traditional account is superior because you get to skip paying your top marginal taxes today (this is extra beneficial for high earners), and since we tend to have low expenses, our taxes in retirement will be low (or non-existent). For a more traditional retiree, where income may be a bit lower, and expenses in retirement higher, a Roth account makes a lot of sense.

The Mad Fientist has a pretty thorough blog post about the math involved here: https://www.madfientist.com/traditional-ira-vs-roth-ira

Candyland33

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Re: 401K+ROTH? Or Just 401K?
« Reply #2 on: May 29, 2019, 01:00:41 PM »
Thanks for the feedback.  I know I plan to retire early and probably will have low expenses.  Since I don't have an option for "After-tax contribution" offered by my employer like Mega Backdoor Roth post by Mad Fientist, i was thinking Roth offered by my employer might a good option to consider.

A traditional 401K with employer match and "after-tax contributions" would have been ideal.
« Last Edit: May 29, 2019, 01:06:21 PM by Candyland33 »