Roth IRA vs 401(K): The Best Investment For You | NerdWallet

Investing for retirement is an integral part of building your financial future. Whether that means saving up or investing through a 401(k) plan and/or Roth IRA account, investment strategies can change over our lifetime. You might find one is the best option to start your investing journey and the other more beneficial for your long-term plan.

NerdWallet investing writer Alana Benson breaks it all down in this video to help you make an informed decision and understand what comes next after deciding which plan best fits your needs.

Suggested Articles:
IRA vs. 401(k): How to Choose:

Chapters:
0:00 - Intro
0:21 - 401(K) Explained
0:44 - 401(K) Contribution Limits
2:54 - Traditional 401(k) vs Roth 401(k)
3:29 - Roth IRA Explained
3:54 - Roth IRA Benefits
4:19 - Roth IRA Pros and Cons

#NerdWallet #401K #RothIRA

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Roth IRA vs 401(K): The Best Investment For You | NerdWallet

[caseybills]

I'm recently retired and uncertain if my 401(k) and IRA will be enough for a stable future. I've set aside $1 million to help secure my financial goals and align with my risk tolerance. Should I consider investing in stocks or buying a rental property?

[NicholasBall]

It is advisable to save at least 15% of your income in a 401(k). Online calculators can help you estimate the appropriate savings amount based on your age and income. By saving at least 15% of your income in a 401(k), you can work towards a comfortable retirement. This strategy allows you to benefit from compound interest, potentially growing your retirement savings significantly over time.

[JacobWalker-jxnf]

I just retired, but I am uncertain that my 401k and IRA will ensure a stable future. I have $900k set aside, I am seeking an approach that matches my risk tolerance and financial objectives. Please I need advice, should I invest in stocks or real estate ?

[Riggsnic_co]

I might have missed this but another big advantage to Roth IRAs is they do not have Required Minimum Distributions (RMDs). This gives you better control over how much money you must withdraw (heavy liquid) and declare as taxable income, after age 72. For anyone with a large traditional IRA, they might end up in a higher tax bracket when RMDs kick in. I've heard it called a Tax Bomb.

[fdl]

You can actually do both and max both out at the same time. As long as you make under $180k single, or $220k joint - you can max out both a 401K and IRA. You can mix and match ROTH and Standard in both 401Ks and IRAs as well. Nothing says you can't do $11, 250 to a ROTH 401k, $11, 250 to a Traditional 401K, $3000 to a ROTH IRA, and $3500 to a Traditional IRA - and $7750 to a HSA.

[ckaarchitect]

How come you don't mention the ability to have more money invested in a 401k to grow and compound? E.g. a 10% return on pre tax $1, 000 for someone in a 20% tax bracket is $100 for a total $1, 100 while the after tax Roth is only $80 for a total of $880. That compounds over the years and is an advantage for the 401k.

[Bako-bj]

I feel investors should be focusing on under-the-radar stocks, and considering the current rollercoaster nature of the stock market, Because 35% of my $270k portfolio comprises of plummeting stocks which were once revered and i don't know where to go here out of devastation.

[alexsteven.m]

It's recommended to save at least 15% of your income in a 401k. You can use online calculators to estimate how much you should save based on your age and income. Saving at least 15% of your income in a 401(k) can help ensure that you have enough money to retire comfortably. By saving this much, you can take advantage of compound interest and potentially grow your retirement savings over time.

[gagnepaingilly]

100% agreed, my so called target retirement fund in 401k had absolutely terrible return compared to sp500. I moved all to sp500 but biggest regret of my life I didn't do it sooner....What else is best way for me to invest 200k in a non-retirement account?

[alisonwalker]

I have worked all my life without thinking about my retirement. Now my kids are growing fast, the way I am spending my savings, it has come to my attention that at my old age, I will have no jobs, no money left and no retirement funds to fall back to. So I am asking what do I need to do and how do I begin investing in my retirement. I just need professional advice. Thanks.

[eliseduffyfxx]

I recently sold a house in Portland, and I'm considering investing the proceeds in stocks. I know it's a wonderful time to buy, but is this the right moment? When will I fully recover? I'm honestly just perplexed at this point as to how other folks in the same market are making over $450, 000 in gains in a matter of months.

[NancyBetty-x]

I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.

[benjamindavidson]

Becoming a millionaire through a Roth IRA or a 401(k) involves different strategies for maximizing profits. A Roth IRA offers tax-free withdrawals in retirement, which can be advantageous if you expect to be in a higher tax bracket later in life. On the other hand, a 401(k) provides tax-deferred growth and potential employer contributions, boosting your savings. The optimal choice depends on factors like your current and future tax situation, employer match, and investment options. Consulting a financial advisor can help tailor a strategy that aligns with your financial goals and circumstances.

[TheFirstRealChewy]

401K, Roth 401K, IRA, Roth IRA (Backdoor Roth IRA). So many options, which ones to choose. You can choose all of them depending on your situation, but what's the best setup?

The first thing to know is that the decision is much easier when you (1) have low income, (2) don't pay state taxes, and (3) are decades away from retirement age. In that case, contribute to your Roth 401K to get the company match, then max the Roth IRA, then max the Roth 401K. Simple! If you actually pull that off you'll be set for retirement unless your spending gets the best of you.

For everyone else, sadly, it gets more complicated. When comparing Roth vs trandition accounts, you always hear pay tax now vs pay tax later. However, it's more accurate to say total cost now vs total cost later. A lot of people don't factor in the impact when it comes to social security benefits, Medicare premiums, pensions, RMDs, relocating, the widows tax trap, inheritance for children, subsidies, side hustles, widthdrawal rate, big purchases, etc.

What's best for your situation will depend on your specific situation and how it evolves over the years. However, there are a few generalizations that tend to hold true for most people. Most people tend to make less money at the start of their career and that amount increases over the years (not a straight line). Knowing this, it's better to contribute as much as possible to Roth accounts early in your career and switch to traditional accounts the closer you get to retirement. The idea is that you contribute to Roth accounts when the cost is lower and there's more time for the money to grow. Hence most of the money in those accounts in retirement is due to the growth. You contribute to traditional accounts closer to retirement, which is when the cost is higher than if you did Roth contributions, and due to the limited time most of the money in those accounts are your contributions. When to make that switch will depend on all the factors used to determine your break even point.

[matturner]

Becoming a millionaire through a Roth IRA or a 401(k) involves different strategies for maximizing profits. A Roth IRA offers tax-free withdrawals in retirement, which can be advantageous if you expect to be in a higher tax bracket later in life. On the other hand, a 401(k) provides tax-deferred growth and potential employer contributions, boosting your savings. The optimal choice depends on factors like your current and future tax situation, employer match, and investment options. Consulting a financial advisor can help tailor a strategy that aligns with your financial goals and circumstances.

[Muller_Andr]

My growth of 401k is 2.74% in the past year. In this environment does investing under a brokerage with a custodian outperform a 401k? should I seek a pro to grow my funds on brokerage acct or still hold? I have 5 years to retirement. Happy to discuss.

[lisaollie]

Why are IRA contribution limits kept so LOW ($6K/$7K)? They should be made the SAME as 401k limits so that folks without a 401K can be on equal footing! Somehow this video has helped shed light on some things but I'm aiming to create a portfolio worth not less than $1M before I turn 60.

[Jinglemyberries]

In todays living conditions who even has money to invest in both

[black_widow]

My company matches our 401k contributions up to 9.3% . We have Roth too. I wanted to know if I do 1/2 and 1/2 will it affect my 401?

[youshj]

Can you believe I worked for a company for 12 years and only managed to save 19K USD. I realized how much time I was wasting working for others when I had a $ 1.2 million return on a stock I bought 4 years ago. Amazing right?

I am currently living an independent life thanks to my decision to have a passive income stream and invest