My company offers Roth as part of our 401k… that money is part of the 401k yearly limit, right? So that limit (19,500) includes pre and post tax money? Can I contribute to a Roth IRA AND my Roth 401k as independent accounts? And part 2, do you recommend one strategy over another? Thank you!
Yep, you’ve got it exactly right. Your 401k total contribution is $19,500 this year. That is the same whether you choose traditional or Roth or some of each. And that doesn’t keep you from contributing to an IRA whose contribution limit is $6,000 and can also be Roth or Traditional (but IRAs have income limits, so high income earners generally can’t contribute).
Here’s a little chart that hopefully makes that part more clear:
I personally like the Roth version. You can always take out the principal tax free, and insulates you against future tax rate hikes. If you’re young and a low income earner, Roth is generally a way better option. If you’re a high income earner and/or approaching retirement, Traditional may be a better option. But it’s impossible to know for sure which will be better for you (as that depends on future tax bracket and rates) and they’re both good options. So don’t kill yourself over the choice. Pick one and go with it.
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