I’m 35. I have 80K in my 401k and about $15K in a Roth IRA. I put 15% of my salary into my 401k, but contribute nada to my Roth. Should I contribute less to my 401k, take that money and contribute it to my Roth instead?

Name: M F
City: Indianapolis

Answer: There is a technical component to this answer and there is also an opinion-driven component to this answer. Here are the things you need to consider.

  • No matter how much you are putting in your 401k, obviously make sure you are maximizing the match from your employer. You cannot, under any circumstance, leave any money on the table. Given your age and 401k balance, I doubt you are leaving money on the table, but it’s worth noting.
  • A ROTH IRA is a versatile retirement savings tool. It can be used for retirement, the downpayment on a first home purchase, and/or college education. Additionally, the money that comes out of your ROTH IRA will come out tax free (when withdrawn for a qualified reason as listed in the last sentence). Tax free is good. Many planning experts believe we should all have a “diverse” income at retirement. This means some taxable and some tax free.
  • It’s likely, although not definite, that your 401k has lower fees and expenses than your ROTH.
  • Your ROTH IRA can technically be invested in just about anything. Your choices aren’t that limited. Your 401k investment choices are limited to what’s in the plan.
  • The 401k contributions will decrease your taxable income. This is a good thing, especially if it helps drop you a bracket.

You need to take all of these things into consideration when you make your decision. Run through the checklist above, and if any of them become a factor, then your decision is made. If none of them are a factor, it’s a safe bet that either is a good choice.

***And yes, I’m hoping at least one person understands the pic that accompanies this post.

Leave a Reply

Your email address will not be published.