Roth 401k vs 401k vs Roth IRA (WHICH ONE MAKES THE MOST MONEY?)

Is it better to max out your Roth 401k or your 401k? I talk about the pros and cons of each, plus how to prioritize!

***ATTENTION: I have a new Instagram and TikTok handle @itsrosehan ***
That's my official account, and I will NEVER message you about investment schemes, so please be careful and block & report any scammers posing as me.

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***BOOKS I RECOMMEND 📚***

I Will Teach You to Be Rich (hilarious how-to book on personal finance for millennials)

The Little Book of Common Sense Investing (Jack Bogle's classic advice on index funds)

InvestED (step-by-step, millennial-friendly advice on how to pick stocks like Warren Buffett)

Unshakeable (this book = courage. blast ALL the fears & misconceptions you have about investing)

Rich Dad Poor Dad (#1 selling personal finance book of all time... need I say more?)

Think and Grow Rich (the ultimate book on money mindset and wealth consciousness)

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***MY FAVORITE MONEY TOOLS 🖤***

YNAB (I literally can't live without this budgeting app, so obsessed)

Wise (like Venmo but for international currencies - I use this app a LOT for my life in Mexico)

Ledger Nano S (crypto storage hardware wallet, because "Not Your Keys, Not Your Crypto"!):

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DISCLAIMERS & DISCLOSURES ❤

This content is for education and entertainment purposes only. Rose does not provide tax or investment advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal.

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SAY HI ON SOCIAL! 👋🏼

[MaximilianFischer]

I just switched up my Roth IRA to 50% SCHD, 25% SCHX, 25% SCHG, and my Roth 401k is 70% vanguard S&P 500 index, 20% vanguard growth index, and 10% vanguard international index. Seeking best possible ways to grow $350k into $1m+ before retirement in 3 years.

[florianmadison]

I am 53 and retired at 50. 1 thing I did do to retire early was to get out of the 401K and IRA programs. Bought rental real-estate and I am now a Limited Partner in about 1500+ units from collaborative efforts in the fund my estate planner has me invested in. I do not work.

[ImageO]

You are the only person who explains everything well for beginners and also get to the point without a lot of fluff to make your video "exciting or fun" ... I appreciate your videos so much and I'm so glad I found you!

[DougVandegrift]

Not sure why every financial person says to always prioritize Roth vs traditional. It all depends on situation. I'm a young single guy who makes over six fig salary. I'm in a very high tax bracket and putting more toward my 401K reduces my taxable earnings from my very high tax bracket. When I retire I'll probably be married with many deductions. It all depends on someone's situation. Never one size fits all.

[vaderwashere]

Thank you for the great info Rose. Make sure to check if your company allows a Roth IRA conversion to your Roth 401K. This can be a great way to funnel more money into your company's plan and are tax free upon withdrawal. You also have to consider your overall portfolio and what your goals and desired percentages are. Putting the max towards both of our Traditional and Roth 401K's (hedging), plus maxing out ESPP in both of our companies, makes us very invested in the stock market. So we don't do a backdoor Roth IRA/401K. It is a great option, but we like having more in local Real Estate in our portfolio. So we payoff our primary mortgage and will use the equity to buy another investment property in the near future.

In your 401K, I don't really recommend those target date funds. They usually have some of the highest expense ratios in your 401K plan (compared to index funds). I prefer index funds and maybe the best performing mutual fund. You can shift to lower risk bonds and such as you get closer to retirement. This way your expense ratio is far less than a target date fund and you are doing the same thing they do. For example, the Fidelity 500 index fund has a 0.015% expense ratio, Small Cap index 0.025%, international index 0.035%, the target date funds are all 0.220%-0.270% (7-10x higher), mutual funds are usually double that around .44% (15-30x higher). These differences seem small, but Warren Buffett proved pegging an index returns over 10 years beat hedge funds/managed funds. Buffett's index returns were 85% and the best hedge fund was 63% with the average being 22%. So you are paying more for people to likely do worse than an index fund.

Rose's video is an introduction video, but make sure you read up on your specific 401K plans, talk to a financial advisor about your own situation and goals, and then make large decisions about investing. I am a passive investor and have not been disappointed putting my hedged 401K money (both Roth and Traditional) into mostly index funds. When you look back at performance you usually lose to 1-2 mutual funds or 1-2 target fund by a few % points, but you beat the vast majority of your non-index options by % points. Remember that you usually charged fees everytime you move money between mutual/target date funds. Leaving them in index funds is the best way I have found to passively invest. Unless you can pick perfectly, then don't worry about index funds.

[micayahblackman]

You literally put this out at the perfect time. I just made an Roth IRA yesterday now I can choose wisely before putting money in. THANKS

[dess]

I feel like I just grew up a little more watching this video and I am 32 yrs old. Wealth of information and very easy to follow, thank you.

[George_Perez]

Roth IRAs are so underrated.. many years ago I bought some amazon shares and put it into my Roth, lets just say I'm going to be really happy taking those profits out in 30 years without having to pay anything on them 🔥🤑🚀

[poeticprincee]

You are gifted in teaching wow! I just graduated from college and recently started my Career in a much higher tax bracket than I anticipated! I didn’t even know much about tax bracket nor did I know anything about 401k or Roth401k! Thank you so much for this video! I just saved it for Future purposes and I will always return to it!

[tushardesai]

great video indicating the difference. It would be worth adding the 401K after tax contribution factor as well. While the typical pre-tax employee 401K contribution limit for 2020 is 19500, the combined employer and employee contribution limit (including pre-tax and post-tax contribution) is $57, 000. What this means is that one could also choose to max out the pre-tax 401K contribution of 19500 and add the employer contribution to it (let's say 3K). Now you can invest the remaining $34.5K as after tax contribution to your 401K and then immediately rollover the that after tax contribution to roth (also termed as roth in plan conversion). This gives you the best of both worlds. Since a typical Roth IRA has the 6-7K limit, this option allows you to funnel 5 times the money to Roth and grow tax deferred. Having said that, it doesn't prevent you to contribute to the regular 6-7K to the Roth IRA yearly as well. Check out the Roth in plan conversion if you have not already...

[FinancewithArjun]

I prefer to invest in both a Traditional 401K and a Roth IRA. Since I'm uncertain about my tax bracket at retirement, this way I'm covered on both bases.

[MhKara]

ROSE IS GREAT!! She is one of the YouTubers, who inspired me starting my own YouTube channel about investments

[princejulesnyc]

I'd also recommend looking into after-tax 401k (not to be confused with Roth 401k) especially if you have an in plan Roth conversion. With that you can invest beyond the $19, 500, benefit from both pre-tax benefits and Roth benefits in the future.

[sweetescapegrande]

I believe it also depends on the yearly withdrawal amount when you retire. For me personally, I prefer 401k/403b. I will be in a much lower income tax bracket when I retire, and I also like the lower AGI as I max out my 403b (my company offers 403b) every year. At the same time, I invest the saved money in Roth IRA and taxable account. If your yearly retirement withdrawal lands you in a higher tax bracket, then I would recommend you pay your tax now by choosing Roth 401k/Roth 403b. If your yearly retirement income will be the same tier as now, then I would still pick Roth 401k/Roth 403b over 401k/403b, because the tax rate might be higher for the same tier when you retire many years later.

[katieujimori]

Just so you know, I love you. You make finances and money exciting and remove all of my fear. Thank you!

[roggiedale]

Nailed it Rose. We are bless that we are able to max both Roth and Roth-401k. Being over the age 55 it has helping greatly in helping us to catch up to a higher goal amount for retirement. Keep up the great work.

[ntmn]

I agree, Rose! I explained this to my parents about a decade ago when I was researching on Roth IRAs and Traditional IRAs. There definitely is a difference, and now, with Roth 401ks, it's just better. I do actually have a hybrid 401k, where my employer matches my pre-tax contributions, but I can still contribute to a Roth portion. Baby, I'm putting it in! What I feel you didn't explain well enough is regarding the $1, 000, 000 withdrawal scenario. What people need to understand is, you pay taxes ONLY on what you've contributed into a Roth 401k/IRA. Say you only put in $100, 000 into your Roth over the course of time. That money is after tax. But let's say somehow, you put this money in to the Roth and you ended up with $1, 000, 000 when you reach retirement age. Guess what? When you start taking out that money, you don't have to take out any more for taxes. You already paid it...on your principal amount. You're effectively getting all your return TAX FREE. Now, guys, this is just an example. It is make belief. It's not to say that you can't make $1, 000, 000 with just $100k, but I am just trying to show how if you put after tax money into this vehicle, whatever your return is, you get that tax free! Traditional 401k and IRAs don't do that. This is what I think some people didn't understand from what you were explaining, but I hope I cleared it up.

[misskristina]

This really broke down the difference between what I am currently invested in at work. Thank you for a clear explanation.=)

[tommajor]

Great Video! I think you did a great job of pointing out in which account to allocate your retirement contributions. 401K Roth to get the company match, Roth IRA Max, and then 401K Roth Max if you can afford it. The reasoning was simple, better choices in the Roth IRA. The one thing I would have added is that most if not all Company 401K plans charge an Administrative fee. I've seen this fee as large as 1.25%. Since most 401K plans offer both Target and Index funds and that is what you are recommending, then the Administrative fee on the 401K plan would be my number one reason to max out my Roth IRA after the company match. I know you covered those fees later in the video but you never really associated it with the contributions/allocations portion of the video. Not sure if you are interested but I have some other thoughts about future videos if you would like to hear them. Thanks...

[JasonWynn]

In 2018, I joined a company that offered a Roth 401k and this was the first company that I worked for that offered one. I'm maxing it out but there's a bit of planning to do in order to get the maximum company match since they match 5% on each pay period. For example, if I maxed my 401k out in the first 6 months, I would only get half of my company match for the year. I built a spreadsheet that breaks down my contributions pay pay period so I can adjust the percentages and get as close as I can to the maximum amount on the last pay period of the year.


Great video as always, Rose!