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Anyone looking to sell hertz points? I need 2750
Mentor
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Visual Storyteller
Coach
Additional Posts in FIRE Financial Independence Retire Early
Coach
Anyone looking to sell hertz points? I need 2750
Mentor
Visual Storyteller
Coach
Coach
You can use both. More tax free money is always better.
Mentor
I think I misread your intent. I thought you meant it’s always better to use Roth, which I wouldn’t say because inherently makes unknowable assumptions about the future.
If you meant more that it’s better to use tax-preferred accounts than not, I would much more likely agree, with the appropriate caveats about intended time horizon and use of the funds. So even here I wouldn’t say “always” because I’m a stickler for this stuff.
Mentor
Why *wouldn’t* you seek preferential tax treatment on another $6k ($7k next year), every year? That adds up to a lot of savings over time.
Also, no need to shout, it’s just “Roth.”
Tax arbitrage is the safest answer
I max my 401k accounts and then do a backdoor roth ira.
Coach
No not really.
Paying taxes on your contribution is much better than paying taxes on your distribution amount in later years. It’s a myth that people are in a lower tax bracket as they get older older, we claim no more dependents, extra income may allow our Social Security to be taxed and we need a privately held asset independent of the IRS, a shelter.
A Roth is very limited and gains and loses with the market as well.
And also, why the opinion about life insurance companies?
The primary benefit of having any IRA type is that you have more investment options than the average 401(k) offers, which typically consists of about 20 mutual fund offerings; of those, a good percentage have high expense ratios.
I use my Roth IRA to help with asset diversification, primarily small-cap value tilt; my 401(k) doesn't offer that fund type with a reasonable expense ratio. In the future, I plan on using my IRAs for further diversification with REITs, large-cap value, emerging markets, and other bond types.
If you have a great 401(k) and want to keep it simple, then I see no problem with your plan. I like more control over my investments so that I can tweak them for a longer amount of time. I believe that'll give me a small boost in my return and it doesn't require all that much effort on my part, so for me, it's worth using.
I’d like to offer a point of view I don’t often see voiced about 401k vs IRA -
If you’re someone who may not have come from an affluent* background - getting ahead fast is a necessity. And to me that means keeping every dollar now and increasing net worth. Sure, IRA will be nice in retirement, but that’s a long ways away and the need to up level your life today is critical for these individuals. In this scenario, I’d argue tax advantages today makes more sense.
That said, if you’re not over the income limit - you can max 401k, and contribute to an IRA.
Mentor
S1, can you say more? I don’t get what you mean. Are you talking about Roth vs. traditional? A dollar in an IRA increases my net worth the same as a dollar in my 401(k).