Author Topic: New Job - Roth 401K or Trad? Roll into IRA or keep in 401K?  (Read 1138 times)

RookieStache

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Hey guys, need some help with my families current situation.

My wife just got a new job raising her income from a base of $40,000 to $45,000 with an annual 6% bonus at $2,700.

I hadn't really been looking to change my employment but I thought I might as well look around and see if anything is intriguing. I applied to one place and just received an offer that I will be accepting. This will bump my income from $50,000 base to $58,000 base with 10% annual bonus at $5,800.

To summarize, we are going from $90K gross to $111K. We have no debt outside of our mortgage which has 30 years left on a $270,000 loan (worth $350,000) in a LCOLA. We don't have a great deal in retirement but started putting away 25% of our combined income towards retirement this past year.

My questions are as follows:
1) Would you invest in a Roth 401K or a Traditional 401K if you were in this situation?

2) I have $35,000 in my Roth 401K. Should I keep the money in my new employers 401K or roll it into my Roth IRA? My Roth IRA has $6,000 in it and I max each year.

EDIT: I'm 30, wife is 28. We have one kid that's 18 months and another on the way.
« Last Edit: June 05, 2018, 10:37:48 AM by RookieStache »

terran

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Re: New Job - Roth 401K or Trad? Roll into IRA or keep in 401K?
« Reply #1 on: June 05, 2018, 10:25:48 AM »
Roth vs Traditional is all about current vs future marginal tax rates, simple as that. What do you spend now and do you think your standard of living and other expenses (like kids) will be higher or lower in retirement? Will you move to a state with higher or lower income taxes?

My gut reaction would be to say to contribute at least enough to traditional to get down to the 12% bracket.

https://www.bogleheads.org/wiki/Traditional_versus_Roth

Catbert

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Re: New Job - Roth 401K or Trad? Roll into IRA or keep in 401K?
« Reply #2 on: June 05, 2018, 11:23:22 AM »
WRT what to do with existing 401k, it all depends.  I would probably not keep where it is.  As time goes on you don't want your 401k/IRA money spread out too many places just because it's easy to lose track or them to lose track of you if you move.  If you like the 401k options at the new company consider moving there.  If not, roll to an IRA.

Ray1

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Re: New Job - Roth 401K or Trad? Roll into IRA or keep in 401K?
« Reply #3 on: June 05, 2018, 11:36:30 AM »
Some people find it helpful to have a mix of roth and traditional assets when they reach retirement.  It can give you some flexibility as you start to make withdrawals.  I would continue to contribute to both if possible.  Having multiple retirement accounts can make things more complicated, but two isn't an overwhelming challenge.
-Ray

RookieStache

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Re: New Job - Roth 401K or Trad? Roll into IRA or keep in 401K?
« Reply #4 on: June 05, 2018, 11:39:46 AM »
Some people find it helpful to have a mix of roth and traditional assets when they reach retirement.  It can give you some flexibility as you start to make withdrawals.  I would continue to contribute to both if possible.  Having multiple retirement accounts can make things more complicated, but two isn't an overwhelming challenge.
-Ray

Thanks, I was leaning towards this. Since I already have a Roth IRA that I am maxing out, I figured Traditional 401K might be the better 401K option to keep the accounts diverse.

However, i'm still not sure if I should roll my 401K into the new 401K or if I should put that $35,000 into my Roth IRA and start the new 401K from scratch.

PDXTabs

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Re: New Job - Roth 401K or Trad? Roll into IRA or keep in 401K?
« Reply #5 on: June 05, 2018, 11:41:10 AM »
What to do with the old 401k is all about fees and investment options. Specifically, a 401k has more legal protections than an IRA and under some instances can be accessed at 55 years old instead of 59.5 (without resorting to a 72t). So, I left my old 401k with my old employer plan because the fees are low and the choices are good.

boarder42

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Re: New Job - Roth 401K or Trad? Roll into IRA or keep in 401K?
« Reply #6 on: June 05, 2018, 11:47:13 AM »
you need to request investment options from your new job that include expense ratios - thats how i'd determine where to put my existing Roth 401k - if they are better than vanguard just roll it to your new 401k. 

as for trad v roth its based on your marginal tax bracket as stated above.  typically for most Trad is better - you're borderline in the 12% bracket right now already so it likely makes the most sense to put all the money in the 22% bracket into Trad accounts then switch to Roth. 

MDM

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Re: New Job - Roth 401K or Trad? Roll into IRA or keep in 401K?
« Reply #7 on: June 05, 2018, 01:45:27 PM »
...you're borderline in the 12% bracket right now already so it likely makes the most sense to put all the money in the 22% bracket into Trad accounts then switch to Roth.
It's debatable but that seems likely the best strategy.

Paul der Krake

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Re: New Job - Roth 401K or Trad? Roll into IRA or keep in 401K?
« Reply #8 on: June 05, 2018, 01:49:09 PM »
All else equal, 401(k) is better than IRA because it has stronger creditor protections through ERISA.

If your new 401(k) has good choices, move your money there.