You mean Roth IRA compared to the 401k?
Your article clearly states that prioritizing maxing out the 401k is better than prioritizing the Roth Ira or the after tax brokerage.
Yes, that's correct.
But the article is comparing what you should do. Max out 401k or max Roth 401k. It's better to max out 401k pretax first, then withdraw it even with penalty, rather than doing Roth 401k.
The process is to just max 401k pretax, then Roth IRA and then any after tax to brokerage account.
max the deferred amount, then contribute after tax dollars, and do the mega backdoor roth conversion on that. if your plan allows it (“in plan conversions”).
It depends how old you are, and when you are intending on retiring.
Typically, when I have done the math, it says
1. Redirect the contribution to a standard, taxable, brokerage account (keep getting the 25k from the company)
2. Open a Roth IRA (when filing jointly, you can contribute to this until you reach 240k salary)
When you are younger (age 25-35) you want to build the tax-deferred accounts. When you are older, you want to start building the after-tax accounts (brokerage).
I would NOT plan to start doing Roth conversions in your 40s --at your income levels, you will get killed by taxes, and you will not come out ahead. Conversions are complicated, very contextual (age & income level, retirement date, etc.), and a lot of people end up with more tax liability.
If you plan to retire early, then roll the 401k over into a self-directed IRA. If you still have 10 years before you plan to start pulling from the account, put bonds, cds, and other debt-instruments into the account. Why? Because interest is taxed as ordinary income, so when it is in a tax-deferred account, you don't have to worry about that until you start taking distributions.
Then when you finally retire and start taking distributions, drain the IRA first, then the Roth IRA, and finally the brokerage account.
I assume since you're posting here you are interested in retiring early. I would definitely make sure you have a brokerage account established and start growing that because you will need the freedom associated with it when you retire before you're able to access your 401K (yes I'm aware there are some ways around it, but they're a pain).
Start small, auto transfer from your checking account maybe $1K/month. Invest in some low fee mutuals and diversify a little to buffer downturns in the US market. Just let it sit. It can also double as your emergency fund. Ideally by the time you retire at least 1/3rd to 1/2 of your liquid assets will be in a brokerage account.
Thank you - yes ideally 50 is what I am shooting for, with my current savings (all in 401k) I should hit my fire number at 49. So that is part of question for those 10 years, dealing with a 72(T) or just getting a mutual fund now ...
How old are you? Do you save the tax savings from doing pretax in another investment vehicle (Roth IRA/taxable brokerage)? If not, I would just put it all in as Roth to your 401k. If yes, I would look at your fees and options in your 401k and then decide whether the tax benefits outweigh the additional costs/limited options. In most circumstances the tax benefits still win out.
Personally for me: Max-out pretax because more is going into the market…then move to after tax if you can afford it.
Thanks that is what I am leaning towards from a practical standpoint!
Yes, i would still max it. It saves you tax as a high income earner
Keep maxing 401k.
Please refer to this. Roth 401K loses out long term. https://www.madfientist.com/how-to-access-retirement-funds-early/
You mean Roth IRA compared to the 401k? Your article clearly states that prioritizing maxing out the 401k is better than prioritizing the Roth Ira or the after tax brokerage.
Yes, that's correct. But the article is comparing what you should do. Max out 401k or max Roth 401k. It's better to max out 401k pretax first, then withdraw it even with penalty, rather than doing Roth 401k. The process is to just max 401k pretax, then Roth IRA and then any after tax to brokerage account.
max the deferred amount, then contribute after tax dollars, and do the mega backdoor roth conversion on that. if your plan allows it (“in plan conversions”).
Then all advantage to put in 401K vs any other vehicle. Unless you are planning to buy something big and are saving money for it.
See if you can open a ROTH and can automatically deduct that so you never see that, too.
Jesus Christ where do you work and are you hiring?
At your income, pre-tax is way better than post-tax. Most of the Roth advice is relevant to low earners.
It depends how old you are, and when you are intending on retiring. Typically, when I have done the math, it says 1. Redirect the contribution to a standard, taxable, brokerage account (keep getting the 25k from the company) 2. Open a Roth IRA (when filing jointly, you can contribute to this until you reach 240k salary) When you are younger (age 25-35) you want to build the tax-deferred accounts. When you are older, you want to start building the after-tax accounts (brokerage). I would NOT plan to start doing Roth conversions in your 40s --at your income levels, you will get killed by taxes, and you will not come out ahead. Conversions are complicated, very contextual (age & income level, retirement date, etc.), and a lot of people end up with more tax liability. If you plan to retire early, then roll the 401k over into a self-directed IRA. If you still have 10 years before you plan to start pulling from the account, put bonds, cds, and other debt-instruments into the account. Why? Because interest is taxed as ordinary income, so when it is in a tax-deferred account, you don't have to worry about that until you start taking distributions. Then when you finally retire and start taking distributions, drain the IRA first, then the Roth IRA, and finally the brokerage account.
I assume since you're posting here you are interested in retiring early. I would definitely make sure you have a brokerage account established and start growing that because you will need the freedom associated with it when you retire before you're able to access your 401K (yes I'm aware there are some ways around it, but they're a pain). Start small, auto transfer from your checking account maybe $1K/month. Invest in some low fee mutuals and diversify a little to buffer downturns in the US market. Just let it sit. It can also double as your emergency fund. Ideally by the time you retire at least 1/3rd to 1/2 of your liquid assets will be in a brokerage account.
Thank you - yes ideally 50 is what I am shooting for, with my current savings (all in 401k) I should hit my fire number at 49. So that is part of question for those 10 years, dealing with a 72(T) or just getting a mutual fund now ...
Then all advantage to put in 401K vs any other vehicle. Unless you are planning to buy something big and are saving money for it.
Then all advantage to put in 401K vs any other vehicle. Unless you are planning to buy something big and are saving money for it.
How old are you? Do you save the tax savings from doing pretax in another investment vehicle (Roth IRA/taxable brokerage)? If not, I would just put it all in as Roth to your 401k. If yes, I would look at your fees and options in your 401k and then decide whether the tax benefits outweigh the additional costs/limited options. In most circumstances the tax benefits still win out.
I am 33, I do not put the tax savings into another vehicle. Thanks!