Author Topic: Regular 401K or Roth 401K  (Read 937 times)

mydogismyheart

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Regular 401K or Roth 401K
« on: March 26, 2018, 09:33:54 PM »
My employer switched our 401K plans this year and is now offering both a regular 401K and Roth 401K.  I'm just really getting into investing for the 1st time since I paid off all my debts and fully funded my EF. 

I make about $95,000/year which is variable. I work a job where I get a base salary plus commissions.  I expect to have some years where I make more and some years where I make less.  Which is why I want to invest as much as I can in the years I make more. My tax bracket may also vary a bit because of this.

I plan to fully fund a roth IRA which I just set up and started adding to.

I also have a regular IRA with about $12,000 in it but am not contributing towards it currently (this is from a previous employer 401K that I rolled over).

I participate in my company's ESPP, right now I'm doing about 7% but plan to increase that to the full 15% in the next round and eventually put this into Roth IRA and some regular Vanguard investments for other things like paying cash for my next car.

I do currently add to a regular Vanguard investment account regularly so I have some investments I could immediately withdraw from if needed in the future (eventual new car and home improvements like new roof, etc...)

My company does not match 401K, currently I do 5% in a regular 401K because that was the only option previously.  Now my company has the option for the Roth 401K. 

Questions:

Should I be contributing to Roth 401K, Regular 401K or both?  I plan to up  this to 10% possibly and could do 5% in each unless there's a reason why I should be specifically targeting one of them. I'm really not sure with my variable income which one will be more beneficial.

Should I be contributing more to my regular IRA? Or just leave this one alone? I don't have a ton of great options with my 401K so I'm willing to put more money here vs. my 401K if I have to choose.


Thanks!

MDM

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Re: Regular 401K or Roth 401K
« Reply #1 on: March 26, 2018, 09:49:35 PM »
In the absence of a pension, using traditional is the usual best guess.

See Traditional versus Roth - Bogleheads for more.

See also Investment Order for your more general question.  Good luck!

grantmeaname

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Re: Regular 401K or Roth 401K
« Reply #2 on: March 31, 2018, 03:47:26 AM »
Since your income is variable, it might be good to invest more in your 401(k) every month and then if it turns out to be a good year or bad year to make a big Traditional/Roth IRA contribution all at once at the end of the year (or between the year end and the subsequent April 15th) depending on how your income works out during the year.