I currently have around 70K money in a company-sponsored 401K account. Our joint salary is 190K. However, dumb me, recently realized that money grows tax free in Roth IRA and you don't pay taxes when you withdraw in on eligibility. Additionally, that you can pass it tax free to your kids and they can withdraw tax free as well.

What would be the best strategy to move the current and future contributions from 401K over to Roth IRA?

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Stock-Freedom t1_jac4ffm wrote on February 28, 2023 at 10:56 AM

You should Follow the flowchart. Use a traditional 401(k) and a Roth IRA to take advantage of both.

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.

AutoModerator t1_jac4fl4 wrote on February 28, 2023 at 10:56 AM

I love the flowchart! Here's the wiki page with more context and information.

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AutoModerator t1_jac4flk wrote on February 28, 2023 at 10:56 AM

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silversurfie t1_jabsqvr wrote on February 28, 2023 at 8:08 AM

At your current tax bracket traditional is the way to go if you will be at a lower tax bracket at retirement. Roth only benefits if you are paying low taxes now or if will be a higher tax bracket in retirement. If it’s the same the math has it as a wash/equal.

Cocainefanatic t1_jabw0m0 wrote on February 28, 2023 at 8:54 AM

Don’t touch the current contributions in 401k or you’ll get hit with penalties. Just lower your future contributions a bit if need be to contribute to roth ira. Contribute at least enough to the 401k to get their full match.

sch8209 t1_jac8vle wrote on February 28, 2023 at 11:52 AM

If you plan to contribute to a Roth IRA please lookup the backdoor contribution method given your salary level.

TyrconnellFL t1_jacizf8 wrote on February 28, 2023 at 1:32 PM

Money grows tax free in a Roth, but you don’t pay taxes to begin with on a traditional IRA or 401k. One isn’t definitely better, and traditional is better for most people as long as you take the money you save on taxes and invest that too.

The government will get taxes on one end or the other. You just pick whether it’s at the beginning or the end.