Need a little clarity…a bit confused about retirement accounts

Submitted by canyonero__ t3_11dnbvs in personalfinance

I have a 401k through my job and I rolled a previous 401k into a fidelity account. I also recently started a Roth IRA account. All in I have a rollover, traditional, and Roth on fidelity. My question is, is there an advantage to having different types or should I just maintain one type of account? I’m basically just using them to target similar positions such as fskax, fbgrx, fxaix, and fzrox. Would you recommend I set up automatic payments to purchase more positions on all or focus on one? Sorry if this question is lacking any details. Mid 30s, totaling about $80kin all accounts. Planning (hoping) for 20-25 yr retirement.

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TyrconnellFL t1_ja9nwn8 wrote

You usually can’t roll a current job 401k into IRA and combining traditional and Roth IRAs is usually worse for taxes than leaving alone. It’s fine to have them have similar contents but they should still be separate accounts.

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Suspicious-Kiwi123 t1_ja9pgq9 wrote

Most people have both 401k and Roth IRA

  • Invest in 401k to at least get the company match
  • If you have an HSA, invest there up to the limit
  • Then up to $6,500 in Roth IRA each year
  • Still want to invest more? Then dial up the 401k as far as you can up to the limit of $22,500
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canyonero__ OP t1_jaa0jlc wrote

Thank you, I’m trying to get as much as possible. Unfortunately my company doesn’t offer a match yet

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Fenderstratguy t1_ja9z190 wrote

Did you roll a previous 401K into traditional IRA with Fidelity? If you get to the point where you make too much to contribute to a Roth IRA, you don't want any money in a traditional IRA. Otherwise you have to use the PRO RATA rule to do a backdoor Roth, and you would likely have to pay taxes on that.

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canyonero__ OP t1_jaa0gyi wrote

Yes I rolled a previous job 401k into the fidelity account. They sent me a check and I opened the account on fidelity with it. Then it sat without positions for a couple years before a random comment on here helped me realize my mistake. For my purposes though there isn’t anything wrong with having both a traditional and a Roth?

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Fenderstratguy t1_jaa65vi wrote

These are the 2021 limits for contributing directly to a Roth IRA: if you made above 125,000 MAGI filing single, or above 198,000 MAGI filing jointly, then you could not contribute to a Roth IRA anymore. However there is a process called a backdoor Roth that lets you first put your $6000 - $7000 into a traditional Roth, then you transfer it into the Roth IRA. The issue is if you have money in the traditional IRA, then you will have to pay tax on a portion of the conversion (the PRO RATA rule). If you had rolled over your prior 401K into your current 401K then no worries about the pro rata rule.

There is absolutely nothing wrong with having assets in the 401K, the traditional IRA, and in a Roth IRA. You have flexibility there. But it does complicate contributing to a Roth IRA for high earners.

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Stock-Freedom t1_jaa3sbq wrote

Follow the flowchart.

My generic advice:

https://i.imgur.com/lSoUQr2.png

Here is the flowchart from the r/personalfinance subreddit’s Prime Directive. If you follow that, you will be ahead of almost all of your peers.

Stop by the sidebar to see the Common Topics, which include basic money handling and investing.

You don’t need to talk to anyone or buy some random book to do this. You have all the tools right here.

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