What about a recharacterization of a roth to a traditional?

Once I've maxed my employee match, should I invest more into my Roth 401k or Roth IRA?

  • I've determined that a Roth 401k is better for my situation (young professional) than my traditional 401k to take advantage of employee matching. So now I've maxed my employee match. Should I invest more into a Roth IRA or keep investing into Roth 401k? A lot of articles online talk about Roth IRA as better than traditional 401k, but I can't find anything about Roth IRA vs Roth 401k.

  • Answer:

    We answered this question in detail in our blog post https://blog.wealthfront.com/max-out-401k-company-match/

Andy Rachleff at Quora Visit the source

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The Roth IRA. Shorter term, there are situations where you can pull out contributions and earnings (http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/roth_ira/withdrawal_rules) without paying taxes. Longer term, there are no Required Minimum Distributions (RMDs) during your lifetime with Roth IRAs. This makes them a great way to pass on wealth. With a 401(k) (either Traditional or Roth), you have to do something with the money every year starting at age 70.5 (http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Required-Minimum-Distributions-(RMDs).

Maneesh Sharma

Congratulations on maxing out your employer match - that's the first step in financial success - taking advantage of opportunities presented. There really aren't many differences between a Roth 401(k) and a Roth IRA...both are after-tax investments on your part.  While I know you can withdraw your Roth IRA contributions after 5-years, tax-free, I'm not sure how that works in a 401(k) plan...my guess is the same, but if you think you may need to access these funds in the intermediate term, I'd look into that before deciding. Best of luck.

Brian Murphy

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