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Money Matters
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Old 08-17-2011, 08:17 AM   #1
BimmerFerret
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Roth 401k or Roth IRA - Which would you choose and Why?

Opinions? Are there any key differences I should know about? I know it is all taxed at my current rate, but just want to make sure I'm optimizing my retirement. I'm looking at keeping it at 10% right now but possibly upping it to 15% later when I get stabilized at my new job.
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Old 08-17-2011, 10:05 AM   #2
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Opinions? Are there any key differences I should know about? I know it is all taxed at my current rate, but just want to make sure I'm optimizing my retirement. I'm looking at keeping it at 10% right now but possibly upping it to 15% later when I get stabilized at my new job.
They both have similiar benefits (after tax contributions, tax free withdrawels) but with the Roth 401K you can make much larger annual contributions. Roth IRA limit is $5K, if I'm remembering correctly, whereas the Roth 401k is $16,500 if you are under 50. If you're over 50, you get the catch-up provision and can put away $22,000.

Another difference is that a Roth 401k is subject to RMD's at 70-1/2 whereas a Roth IRA is not subject to that and can be passed down to future generations with the same benefit as the grantor.
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Old 08-17-2011, 10:08 AM   #3
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RMD's? You mean a required withdrawal schedule?

Thanks for the info!
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Old 08-17-2011, 10:22 AM   #4
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RMD's? You mean a required withdrawal schedule?

Thanks for the info!
Required minimum distributions, but same idea.

No problem!

Is the Roth 401k offered through your new employer? If so, they are eligible for employer contributions above and beyondthe $16,500 limit, as well.
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Old 08-17-2011, 10:28 AM   #5
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Well my old one offered it, but I am planning to get together with an actual broker and get an idea of what I need to do. This new position won't offer any 401k type benefits for awhile. I may have to go to a Roth IRA
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Old 08-19-2011, 01:11 AM   #6
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Roth IRA first.

401k plans you're limited to 8-10 funds that the company offers you, and they usually have pretty expensive expense ratio. You have a wider selection and lower expense options by using your own Roth IRA account.

You can also access your Roth IRA earnings after 5 years for first home, education, or medical expenses. You can't do that with a Roth 401k. So fund the Roth IRA first, then the 401k later.
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Old 08-20-2011, 09:55 PM   #7
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Cool thanks man for the advice!
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Old 08-22-2011, 11:40 PM   #8
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We will be getting the same option under TSP this year too.
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