I need some financial advice. I am a first year associate with no debt and I'm interested to hear what people think is the best mix of contributions 401k, Roth IRA, and investment account

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Contribute to 401k up to employer match, then max out Roth, then either continue to max 401k up to federal limit or contribute to hsa (better yet: do both if you can)

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You make such shit now compared to what you hope to make go as much Roth as you can muster. Don't even bother pre-tax. You make what, 60k? It'll cost more to take it out later compared to this

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Roth is good when you are in lower tax bracket and expect a good return on investment. Traditional is better when you are in higher tax brackets and expect to be in a lower bracket upon retirement.

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D2 hits the important points. Another advantage of Roth is that you can withdraw your contributions w/o penalty (NOT the investment growth, if any - only up the amount of contributions). Hopefully never needed, but better than an extra 10% penalty should an emergency arise and you need the regular IRA.

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Yep, I have both. In retirement, my thinking is that if I need more than the minimum distribution out of my Traditional IRA to live on (no 401k since I'll have rolled it over to a Traditional IRA), I can just get a distribution from the Roth, thereby lowering the tax impact. Don't put all your eggs in one basket. It's good to have options to play with.

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Roth = taxed now on contributions but all distributions (original contribution and earnings) are not taxed. Traditional = contributions are pre-tax now, but you get taxed on all distributions.

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So I have. It even finished my first year yet and so I won't even have a full year of taxable income. Should I transfer my entire 401k into a Roth? Given that I'm young and likely I'm a smaller tax bracket now than in the future

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Tax-wise there are no differences. But a traditional IRA is much better in terms of investment options. In a 401k, you're restricted to the investment options within the plan. In a traditional IRA (or any IRA for that matter), you can investment in virtually any investment. You can, for instance, own shares of AAPL, whereas you won't be able to do that in a 401k unless your employer offers a brokerage account option within the 401k. There are also no plan fees in your own IRA. The IRA is a better deal. However, you usually can't roll your 401k over to an IRA unless you've already left the employer.

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I think from all this I've decided to keep a balance. I'll contribute the matching amount to my 401k and then open a Roth for any higher contribution

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Maxing out 401K and regular IRA reduces taxable income.

Anyone here using a traditional Roth? I rolled over a pre tax 401k from my last job to a traditional ira to avoid getting soaked the taxes by going straight into a Roth. Has anyone converted from traditional to Roth? Not sure if it's worth switching into a Roth now. 22yo if that helps. OP, second what SA1 says

Yes can someone explain the difference Roth vs traditional. I have

From my understanding a Roth is taxed upfront but when it comes time to withdraw from it you are not going to be taxed on the distributions. I think it typically works well for younger people who expected their income to be higher (taxed at higher rate) as they get older. Whereas traditional doesn't tax up front but taxes on withdrawal after a certain age. Assumes youll have a lower tax liability when you're older, but I'm not sure it's as flexible as the roth

I will be leaving the firm next month. Should I ask them to transfer my 401k to traditional or Roth IRA?

@pwc2 transferring to a Roth is a taxable event so you should do it in years when your taxable income is lower. If you are moving to another job with a significant raise it's not going to do you much good in terms of tax savings.

Thank you RSM1. I'm going back to school and will have no income next year. I guess Roth it is then

Watch bracket creep on transferring from traditional to Roth. You could throw yourself into a higher tax bracket, which could cause a larger burden that year and maybe not worth it

Yeah about that, so for kpmgers will they do the same matching if I do a Roth IRA instead of a 401k or do I do the match and the rest Roth

EY 1 - not necessarily true. You could be in a much lower tax bracket in retirement, especially if some of your distributions come from a Roth. I think a good mix of Roth IRA, pre-tax 401k, and traditional IRA are necessary in order to plan accordingly in retirement.

OP, given what I said above, I would recommend rolling your pretax 401k into a Traditional IRA, not a Roth. I'm assuming here, but your 401k balance is probably not large anyway. Just roll it into a traditional IRA, contribute the max into your next employer's 401k to get the match, and then contribute up to the max in a Roth IRA.

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