Traditional vs. Roth

401ks or IRAs. Which do you use, or both, and why?

I’ll throw my thoughts in later on, but curious to see what others do. Just stirring up conversation again.

(Edit: The intent was whether you go Traditional or Roth moreso than 401ks or IRAs.

And if you’re one of those lucky people with an HSA, I am jealous.)

Across everything (including pension contributions), 25% are in Roth, 75% are in traditional/pre-tax. Removing pension contributions, it’s 35/65.

Any increases I make to my contributions go into Roth since not everything is maxed out even though I am putting away over 40% of my salary across everything.

401k. Easy to set up and manage via employer, employer matching, no need to stress about income limits like you do for a Roth.

I used to contribute some to a Roth IRA as well, but ending up overcontributing one year because of bonuses. It’s a real pain that the contribution limit is calculated based on the calendar year you are contributing to, which is obviously uncertain.

Edit: I am probably around 80% 401k, 20% IRA right now. In abstract, I think it makes sense to have both, to give you flexibility in whether you want to spend pre- or post- tax money in a given year.

I was moreso intending to ask about Traditional vs. Roth in either vehicle. But appreciate the response anyway!

Multiplication is commutative, so the only difference b/t traditional & Roth is that with a Roth you are locking in your tax rate right now. Whereas, with traditional, who knows what it’s going to be - both because you’re going to be uber-wealthy by the time you retire & because tax rates are only going to go up up up.

And the second only-difference is that with a Roth you can actually get a little bit more funded because you pay your taxes before applying your contribution to the limit.

Roth 401k - no income limits
Roth IRA - has income limits

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I fill as much pre-tax as possible and then finish up with Roth. I have my doubts that our (my family specifically) marginal tax rate will be higher in retirement than now, considering our current rate of savings. Hopefully if I’m wrong it’s because we’re rich or the US has bangin’ healthcare.

ETA: I would like to retire/downshift/whatever in my 50s, so the plan would be to convert as much pre-tax to Roth once we’re in a lower tax bracket to reduce the hit due to RMDs in my 70s.

You should have both as others said to be versatile in retirement.

I tell the young folks to fund Roth early in life when still in low tax brackets, then switch to trad when they start hitting the higher marginal rates.

I am personally overloaded on the trad side since I didnt know wtf I was doing when I was young and just let everything default into trad.

I’m young-ish (<40) and putting all of my 401(k) contributions into Roth. I have some smaller IRA’s from prior employment (<$100k) that I just let sit there and move with the market.

One thing I didn’t realize for a long time was that what I contribute to my Roth 401(k) is post-tax, but the employer contribution isn’t. I found this out when leaving my last job and rolling the money into a Roth IRA. The entire balance couldn’t be put in because the employer portion needed to go into a regular rollover IRA. The interest made off of the total balance is tax free though.

I’m currently contributing 10% to the Roth 401(k). Maybe some day I’ll get savvy enough to diversify that, but for now it seems fine to me.

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Yeah, I probably didn’t play the tax game well enough early on, so if anything bites me, it will be on past me. I think today me is doing the right thing.

That’s what you think.

I max out my 401K and do both traditional and Roth, a higher percentage is traditional. For IRA, I only do Roth using backdoor Roth loophole. I would like to do a mega backdoor with the 401K, but my employer’s plan currently doesn’t allow it, so the remaining goes in an after tax account.
I feel even if I’m spending less in retirement, taxes will go up so there is a benefit to have money in a roth.

It really depends on your current tax bracket and your best guess on what it will be in retirement.

When I was in the 15% marginal tax bracket I should’ve been doing more Roth but I didn’t because I didn’t get it.

Ultimately it’s good to have both.

My plan is to use the Roth for major purchases, like a new car, so my tax bracket doesn’t go crazy when I have a major purchase. And the traditional to fund regular day-to-day expenses.

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I save traditional IRAs for reducing my income taxes. So I just set up one this month for 2020 to kick my income taxes from owe to refund. I do not think I’ve ever actually done a traditional IRA in the year it applies, always a in the following March when I do the taxes.

question, are capital gains in a roth account also not taxed in withdrawal? Because that would be super cool

They are not taxed which is why I encourage everyone to maximize roth contributions to retirement accounts

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Exactly correct. Contributions are taxed and withdrawals (including capital gains) are not. It’s essentially the opposite of a Traditional.

I’ve been contributing 100% to a Roth 401k, but once we hit the next marginal tax bracket I plan to scale the distribution to keep my taxable income below that.


Except I can’t wait to find out in 25 years that they decide to tax the withdrawals anyway.

Yeah, if you’re worried about that (and IMO it’s unlikely, but definitely possible) then max out your traditional 401k and get the guaranteed tax savings.

If you’re already doing that and make too much to contribute to a traditional IRA then may as well back-door Roth it and hope for the best. It’s not any worse than a regular old investment account.

I max out the traditional 401k and do a mega backdoor roth IRA.

Well it can’t be too mega, what with the contribution limit & all…

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