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Do you use a roth or traditional 401(k)?
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Bowl Leader
Either approach is fine but generally people start to contribute to IRA after getting the 401k match as it offers a wider range of investments.
If you don’t have the funds to do both, do the Roth IRA after you meet the match. Roth IRA is far superior to Roth 401k after Match for many reasons.
There are a lot of reasons for it but the biggest ones are:
1) freedom of investment options
2) not that you should but it gives you freedom to pull money out to buy your first house
3) control over investments if you move jobs - you have to convert the 401k to be able to invest in the future. Save the headache and get the Roth
The only reason for the 401k over the Roth is that there are no income limits, however, you can get around this by investing in a traditional Roth and doing an immediate Roth conversion
Pro
If you have debt (credit card) and you make less than 100k: Do match and pay off your debt.
If you don't have debt and make at least 80k: Max 401k
If you don't have debt and make 100k: Max 401k and IRA
If you make above 132k: Max 401k and max backdoor IRA.
That's what I use and tell friends.
Ah! Thanks this makes sense!
Do both?
If you don’t have the funds to max both, why not do a Roth 401k? You get the match, it’s a Roth account, and you can contribute more
Thanks All, I’m in the over 130K bucket and I don’t have any dependents so I feel like I get hit pretty hard with taxes, which is why I thought maxing the 401K first would help. But it sounds like the Roth IRA is more beneficial in the long run.
Pro
Maxing 401k first is good because you reduce your AGI. Since you make over the income limit for IRA there isn't a tax benefit to IRA i.e tax deduction. But maximizing all tax advantage accounts first is smart.
Is there a potential independence issue for doing IRA’s
Bowl Leader
Managers and up (might apply to everyone, didn't when I was a senior) are only allowed to use brokers that allow broker import for automatic review of potential independence violations. Most of them do.
Also before we make an investment that we don't already have we need to check to see if it is restricted. Not a big deal to me and if something becomes restricted then they'll let me know automatically.
This is for KPMG, likely same at other B4.
Tldr: only if you completely disregard the simple steps they have put in place.