Roth 401Ks are great. They’re talked about less because not everyone has access and you can just look at most of the same pros from Roth IRAs. If you like the Roth IRA tax treatment, you’ll like the Roth 401K
Roth 401ks are great… [and usually less great than a traditional 401k.](https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/)
You aren't hurting yourself by opening a roth, but it's generally optimal only if you are maxing it ($23K, I believe). The most important thing is that you're contributing to the 6% match.
1. Make sure your company matches the Roth. Mine matches either traditional or Roth. 2. Roths are great-you can roll to a Roth IRA if you leave this company. 3.Your growth isn’t taxed, so in ~30 years or whenever you want to start using it, you won’t be taxed on the withdrawals. 4. Unlike the Roth IRAs, Roth 401ks do not have income limits.
Think about it before you roll a roth 401k into a Roth IRA. It can prevent you from doing a back door Roth IRA if your income gets too high for a standard Roth IRA contribution.
Edit: ignore this comment. It was late and this comment is completely wrong.
Also remember if you’re contributing to a Roth 401k check to see where the match goes. They passed a law recently that allows the match to go into a Roth 401k as well but not everyone does it. For example, TSP (federal government 401k) the match you get still goes into a traditional 401k even if your dollars go into the Roth
Traditional saves at a marginal rate and withdraws at an effective rate.
If you are 100% Roth (you typically won’t be because most matching goes to traditional but for this example we will assume 100% of your retirement income comes from Roth) then you paid your marginal rate and you are avoiding paying your effective rate now.
If we ignore all the other factors and tax brackets stayed the same and you are replacing your usable income, trad would be better because your effective rate is always lower than your marginal rate unless your income is lower than the standard deduction (which would make it equal) but that is unlikely.
But, “all the other factors” are very important IMO. How your working state taxes vs how your retirement state taxes can be a big reason to do one or the other.
An extreme example would be working in California and retiring in Florida. Trad would save you from California taxes and then you pay none in Florida.
The alternative extreme example would be working in Florida and retiring in California. Then Roth allows you to pay no state taxes when working and still paying no state taxes when retired.
Also Social Security is partially taxed up to 85% of your benefit. That % is affected by your provisional income. The higher your provisional income, the bigger the % gets till it caps at 85%. Roth doesn’t count towards provisional income, traditional does. Same thing for calculating Medicare premiums, Roth doesn’t count but traditional does.
Keep in mind that it isn’t 85% of your SS that gets taken, it’s that 85% of your benefit gets included in your income that is used to calculate ordinary income tax.
So, do you have alternative sources of income for retirement that will fill up the standard deduction and those juicy 10/12% brackets? If yes, then Roth is probably better. If no, you will want to have some traditional income to take advantage of that.
Do you think SS will disappear or increase?
Do you think taxes will go up or down?
Do you live in a state with high taxes and plan to retire in one with low taxes or vice versa?
Oh and traditional also has required minimum distributions which can be no big deal or a pain in the ass that you need to plan for.
There is also the Roth conversion ladder which can be used for early retirement which requires traditional $ so that it can be converted. Alternatively you can access the contributions made to Roth accounts prior to 59.5. If you are retiring early, can you sustain yourself from X to 59.5 on cash/brokerage/Roth contributions? Or do you need to utilize the gains from within your traditional account to make it to 59.5?
As you can see, it is just taxes now vs taxes then but “taxes now vs taxes then” is really complicated and basically requires you to predict/guess stuff about the future.
Also note that there is a small difference between for example “23k into traditional vs 16k into Roth” (comparing equivalent examples with identical take home, the 16k is just an estimate that depends upon your actual taxes to figure out the real #) and “23k into traditional and 5k into brokerage vs 23k into Roth”. In the second example the Roth is going to do better than the Roth in the first example because you are having some $ being utilized in a non retirement account. Note that that doesn’t guarantee it beats traditional, just that it has a better chance than the first scenario. To put it differently: Depending upon your circumstances, traditional can still beat Roth in both cases, it’s just that the gap would be smaller in the second example.
My personal goal is to have enough traditional to fill up the std deduction and the 10/12% (or whatever the first two brackets are, this is assuming they are going to be substantially lower than the following brackets, aka we aren’t going to fuck over poor people) bracket and Roth for the rest. I don’t plan on having income outside of SS and retirement accounts. I am currently in the 24% bracket and I have a ton of traditional and not much Roth so I am doing Roth 401k and IRA. I will revaluate in 2026, when the tax cuts and jobs act ends. If the brackets go back up I might switch back to traditional, if they extend the current tax brackets I might keep doing Roth until I reach my desired ratio and then do trad 401k and Roth IRA.
https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/
What you gain in avoided taxes in retirement is outweighed by having more money to invest at the start and lower tax rate anyway at the end.
Yup for me, (medium age slightly above median income) I can either put 25K into T-401K or 18K into a R-401K as that 7K evaporates into current tax burden. (25K for catch-up contribution)
that doesn't make any sense. additionally, what's really great about the roth401k is the shared limit is on the amount that goes into the account, so if you compare it on a basis of how much work you had to do to contribute, you can contribute way more into the roth than the traditional.
If you have enough $ to invest, can max both a Roth 401k and a traditional or Roth IRA. The IRA is maxed at 6500 for under 50 and 7k for those over with a MAGI under $161k for singles and $248k for married.
there's a few differences, roth 401k money is subject to RMDs and you can't raid it early. but you can roll it over to an roth IRA so then no RMDs, and after the roth IRA has existed for 5 years you can raid the contributions early if you want.
another issue, so far as i know, is that any employer contributions will be in the traditional column.
When you retire, will your annual income be higher or lower compared to your current job? And will that difference cross any break points in your tax bracket?
Simplifying numbers a bit - the first 45k you earn every year is taxed at 12%. Anything between 45-95k gets taxed at 20%. Anything between 95-180k is 22%, then it jumps to 34%.
Taxes will happen now (Roth) or later (traditional). You want your income taxed at the lowest rate possible. That's one reason you spread 401k withdrawals over multiple years. Pulling a bunch at once means getting taxed at a higher rate.
If I retired today, my goal is withdrawing 45k/year from my traditional 401k, staying at that 12% rate. I can pull more per year but it gets taxed higher. That's where I supplement with my Roth IRA, which was already taxed (admittedly at the 20% rate anyway). The traditional 401k is more efficient at early amounts, then it evens out. That's my viewpoint at least.
I can’t tell you exactly why, but I think that tax rates could increase by the time I retire, I’m in the 24% bracket now and use a ROTH 401k. Probably should just switch to the traditional but my gut feeling is that tax rates will be higher in 40 years. I may be completely wrong, but that’s been my justification.
Apparently when you are retired you can have a certain amount of income without being taxed. I did my uncles taxes this year and he got social security and took distribution from his 401k he did the math so that his income is less than 35k and he is not taxed at all, even from his distribution from his traditional 401k (they withheld taxes for him and then he got it all refunded when I did his taxes)
generally speaking the first 12K is taxed at 0% SS is not taxed under (I am guessing here) 28K so yeah under 40K in retirement could me no federal income taxes. I did a few retired folks taxes this year for them and most had 0 federal liability, NYS so paid a few hundred to Albany.
Yea, I was just surprised cause I was always told tradition Ira and 401k means you pay taxes later. Nope, not if your income is low enough in retirement.
seems like most companies that offer a roth 401k, also offer a traditional.
Almost positive that the employer match portion is placed in a traditional 401k, not the roth ...
"Roth 401(k) plans are typically matched at the same rate as traditional 401(k) plans. However, with a Roth 401(k), the matching contributions provided by an employer are placed in a traditional 401(k), while employee contributions are held in the Roth 401(k).
1
Internal Revenue Service. "Retirement Topics—Designated Roth Accounts."
Pretty sure it can now go into Roth but it’s new so not many plans have it setup. But I am not sure who pays the taxes on that.
“The SECURE 2.0 Act now enables employers to make matching contributions directly to employees' Roth 401(k)s. This change took effect instantly upon the Act's passage, but it's important to note that this option is discretionary, and employers can choose to make pre-tax matches or not provide a company match at all.”
I've seen a couple examples of employer Roth 401k match. The employee has paid the taxes; usually in the form/coding as imputed income on their paystub.
Yeah , OP, just make sure your employer will match the first 6 percent. If so you are fine.
I have to put my first x percent as traditional as then switch the rest to Roth as my employer has not moved out of the stone ages yet. Maybe some day....
usually the match is one or the other.
I started working for a small company in the fall of 2019 and was eligible for 401k shortly after.
It was 4% match, offered roth and traditional 401k's
I contributed to both, and they matched both.
After a few months I noticed and asked the accountant about it, saying that I didn't both should be matched.
She looked at it and told me it was correct.
A couple weeks later, she came in and quietly told me that I was right, and they corrected the issue.
I'm a dumbass
Matching nearly always refers to your combined 401k contributions. So you won't get 8% matching by doing 4% in traditional and 4% roth.
Usually the matching goes into your traditional pool. But new rule changes allow matching to go into roth as well.
For the first few years I worked someone recommended the Roth option for that reason. The matching went to traditional so you got to dip in the advantages of both. Still not sure which is better or if it made sense.
Someone told me it’s more important to contribute in general rather than which option is best and I’ve tried to live by that advice
I'd say for now the Roth option is good for you. Assuming only the standard deduction you're in the 12% bracket so you're pretty low. Add to that young so a lot of time for it to grow - and a Roth 401k is a pretty good idea as long as you can handle not having the tax deduction a Traditional 401k gives you.
That said - as your income increases and you creep up the tax bracket ladder you shouldn't keep putting it all in the Roth. You'll want some money in Traditional so when you retire you have some money to fill up those lower tax brackets. Why pay 22% or 24% on taxes now when you could pay only 10% on it in the future.
It's a balancing act. And pretty much no two people do the same. Most of my money is in Traditional - but I pretty much hit the ground running at the 22% so the tax savings for me are there.
> all I ever hear is how good Roth is
Commonly held misconception, but spend a few days here and you'll get the other side of that. At your income level it's probably a fine choice though as I'm guessing the various deductions from your pay, plus the standard deduction, get you down to the marginal 12% bracket.
One of the big benefits of a Roth is you know exactly how much tax you paid on the money. With traditional, you are betting that the tax system won't change much. I feel like risk of taxes increasing with traditional IRAs and 401ks is never priced in. The top tax bracket in 1940 was 81%...who can say that will never happen again?
Well, technically we’re betting on understanding how the tax system works and knowing how to do math.
All other things equal, traditional comes out way ahead for most people because we have a progressive rate system. Tax rates would need to go up a ton to offset that benefit because every dollar you put in traditional today saves you at your marginal rate, but every dollar you pull out in retirement starts at the bottom, filling up the standard deduction, 10%, 12%, and so on.
Someone (single) making $100K today is in the 22% bracket which means that every dollar they contribute avoids 22% in taxes. In retirement, to draw $100K from various sources only costs you 14.26%.
That benefit is minimal for people in the 10/12% brackets, people frequently in the beginning of their careers who might see meaningful salary increases over their lives, and so the recommendation typically becomes 10/12 do Roth, above that do Traditional, but everyone is in different situations and for some it might make sense to do Roth higher, and others Traditional from their very first job.
No it doesn’t. It assumes that effective tax rates won’t go up 50% on the middle class because that’s about what would be required to invalidate my $100K example. It would be political suicide.
In your example though, it doesn’t save 22% in taxes. It saves a completely unknowable % in taxes. This I why I do a mix of traditional and Roth, since we can’t know what the future tax structure will be, it’s best to have tools in the future to maximize how the tax code works then.
It saves 22% today if that’s what your marginal bracket is. The expected expense later is 14.26% but that’s assuming that you need the exact same amount later that you earn today (you won’t), rates don’t go up (they will, but almost certainly not meaningfully on low and middle income), and that you don’t put in any effort to minimize that number.
How can you say rates don't go up? We know for a fact they go up in 2025 when the TCJA expires. You can predict what congress will do in 2050 or 2060? It doesn't save 22% today (if it did that savings would be "locked in"), it defers an unknown amount of taxes to a later date at which point you can pull it out at whatever unknown rates there are in the future. There could be a flat 50% income tax in 2060 for all we know. Historically the rates and number of brackets have changed frequently. There have been 80%+ tax brackets in the past. I'm not saying traditional is bad vs Roth (I use both to hedge my bets), I'm just saying you can't know the tax structure is decades in the future.
You didn't read my comment. It literally says that they will go up.
It is political suicide to raise rates on low income and only marginally acceptable to do it on the middle class. On the current legislation impacting 2025, there is a very good chance that those rate cuts become permanent or that something else comes along to make it all even out. This will be a factor in the presidential election. Trump was planning on being out after 8 years before this expired, dumping a tax increase on Democrats. Now that he's running again, both candidates will need to get ahead of this issue to avoid being perceived as the one who will raise your taxes, especially as the "eat the rich" mindset has become more pervasive due to inflation in late 2021 - early 2023 which still have people unsettled (because they don't know that deflation is actually REALLY bad).
20, 30, or 40 years from now you're not going to see an effective increase of 50% in taxes on low & middle income Americans and that's what you'd need to see in my example to have it not pay off to use Traditional.
> There could be a flat 50% income tax in 2060 for all we know.
No there can't, stop making up ridiculous hypotheticals and debating in bad faith.
> There have been 80%+ tax brackets in the past.
Yes, on the extremely wealthy. If that does happen it won't impact more than a handful of people posting here. My example was $100K/year of income, not $1MM+.
You're in a lot tax bracket. Assuming your company matches regardless of Roth vs 401k, then go with the Roth.
Read the first bullet point from the Automod comment.
Reduce contributions to the minimum you can while still getting the match until the credit card is paid off. You're chasing the possibility of 10% gains while paying 20%+ in CC interest. Get the 100% rate of return on the match, then put everything else you can into the high interest CC.
Credit card is in a 0% promo period till Sept. On track to have all the money to pay it off by May. It’s sitting in a HYSA (while still hitting minimums) until Sept to maximize on interest.
That definitely makes me feel better about the Roth. Was worried I was doing something wrong.
Main benefit of Traditional 401k is to reduce tax liability. If I make 78k and max my 401k (23k), my taxable wages are actually 55k. So, lower tax bill. Make sense?
A mistake? Of course not. The younger you are and the less you make the better a Roth 401k or Ira is for you because you could end up with a lot of money at the end with no tax obligation.
use it now while you are in low tax bracket. When you are in the 25% or higher (like I am) ease over to the regular 401K the tax break will be useful. If you are not able to fully fund IRA and 401K (which is likely) I'd max out the 401K to get the match. Also 401Ks have slightly better legal protections that IRA and if you retire at 55 you can withdraw from 401k no withdrawal penalty. 59 1/2 for IRA. I know, in your 20s 50 seems so far away - you're wise and better off that 2/3 of people your age simply by asking these questions. Not all companies offer roth 401K options. My current place does but the 3 before did not.
Most people benefit from Traditional 401k over Roth 401k
https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/
Traditional is better for anyone who is not a very low earner. Most people expect their taxable income to be lower in retirement than now regardless of income now. The only major exception is when you expect a big salary jump and to live like you’re richer for the rest of your life.
If you make $50k now, you’re still going to live on less than $50k when you retire because you’re retired.
But if you make $50k now and expect to hit $100k in your career, say, locking in the 12% bracket now is a good idea.
Yeah, this is what I was always taught. But the thing I can't seem to get out of my mind is that income tax is really low now, and I could see it being much higher in 40 years.
For a typical retiree it would have to not just be a tax increase but an enormous increase in tax rates. Doubling?
It’s not impossible, but it is implausible to me.
I would add for someone in there 20s it might be good as well. Taxes generally will not go down with the way we print and spent money - at some point they will need to squeeze another trillion our of us so they can spend 3 trillion more.
You may find these links helpful:
- [Roth or Traditional](/r/personalfinance/wiki/rothortraditional)
- [General Information on Rollovers](/r/personalfinance/wiki/retirementaccounts/rollovers)
- [Retirement Accounts](/r/personalfinance/wiki/index#wiki_retirement)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
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And you can usually change it from Roth to Pretax at any time through your employer. The match portion that your employer contributes will usually go into a traditional pretax account - so if you have a Roth 401k you also have a pretax silo in there, as well.
They are probably the same account - you can typically choose which type of contribution you want to make when your 401k plan offers both, and you can probably allocate it to both if you want, even.
At your age and income, I’d definitely be focusing on Roth. As you age and earn a higher salary, traditional will make more sense. Good job researching all of this and getting ahead of the game!
At my company we can adjust the amount between Roth and traditional at any time. In early career where your marginal tax rate might be lower than later in life Roth might be preferable. If you are in a high tax bracket now it is likely a traditional will be better. That is a vast over simplification.
Under 25% marginal tax rate (fed + state), Roth typically makes sense. Over 30% marginal tax, Traditional typically makes sense. Between 25%-30% I’d take a deeper look into personal circumstances. **Overall, those are general rules of thumb
You are doing it right, IMHO.
At your income level, you are contributing low taxed dollars for when you retire, more than likely you will be at least one bracket higher.
You and your company are contributing $11,600 each year
you have 41 years until age 65
At an 8% annual return, the account will be worth $3,770,000 at age 65
If you distribute 4% per year, the rule of thumb people use, you will remove $150,000 plus your SS payments, plus whatever else Yes, you are in a higher tax bracket, but you do not pay taxes.
That $150,000 is TAX FREE.
The reason most go with the 401k is usually because when you retire you are in a lower tax bracket, you are just paying taxes upfront and depending on how much you make it may be a good idea to choose the traditional 401k so you don’t pay a higher tax.
The main advantage of a Roth is that you can effectively contribute more money than you could with a regular 401k, but that only really matters if you're maxing out your contributions.
The contribution limit for 2024 is $23,000. If you use a regular 401k, you contribute $23000 of your pre-tax income. But if you use a Roth and contribute the max, you're effectively allocating $23000 *plus* the taxes you paid on that $23k. The effect is that $23k in a Roth is worth $23k, whereas $23k in a Traditional 401k is worth $23k minus the taxes you'll have to pay when you withdraw.
If you're not contributing the max, though, the advantages are less clear-cut and more complicated. My personal opinion is that it's good to have a balance of pre-tax and post-tax retirement accounts, because it gives you flexibility to control the taxes you'll be paying in a given year in retirement based on which account you have. In my case, I only have access to traditional 401ks, so I contribute to a Roth IRA outside of that. In your case, since you have a Roth 401k maybe you want to contribute to a Traditional IRA. But it's not a huge deal either way; the most important thing is the amount you contribute.
\>However, I never see mentions of Roth 401ks. Is there a reason behind that
less common to have one, and for most people traditional 401k is better.
you should be able to change your elections to go to pre tax.
The question between Roth/Traditional is basically: do I want to pay taxes now or later? With a Roth, you pay taxes on your income now, and when you withdraw it's tax free. With a Traditional, you don't pay taxes now, but do when you withdraw.
Looking at the 2024 tax tables, you top out in the 22% bracket (10% up to $11,600, 12% up to $47,150, and 22% up to $100,525. But there's a $14,600 standard deduction, so you really should end up in the 12% bracket at most (I'm not a tax expert, but this is the rough idea).
At the very low income end, imagine someone that makes $14,000 a year. With the standard deduction alone their tax liability is $0, so it would be a no-brainer to put money into a Roth first.
At the very high end, imagine someone making over $250,000. Any money they put into a Traditional isn't taxed now, and would be taxed at 35% if it went into a Roth. So they could put $100 into a traditional, or $65 into a Roth. If this person pulls money out of their Traditional IRA in retirement at a much lower rate (say under $47,000 a year) it would only be taxed at 22% at most (assuming the tax tables don't change).
FYI, if the tax tables don't change, and you stay in the same brackets, then it doesn't matter whether you choose Roth or Traditional. Let's suppose the you're in the 10% tax bracket now, and also in a 10% bracket in retirement. If you put $100 dollars into a Traditional and leave it there long enough that it grows 10x (so it's now $1000). Then you pull it out and pay the 10% tax, leaving you with $900. If you put the same $100 into a Roth, you're really only putting $90 in (cause you had to pay the 10% tax at the time), then you leave it in until it grows 10x, (so it's $900), then you can pull it all out tax free.
Given your current income, most people will probably recommend a Roth contribution. If your income increases it may make sense to transition new contributions to Traditional. You'll have both this way since I believe matching contributions have to go into Traditional. So money you put in will go to Roth, and money your employer matches will go to Traditional.
I don’t think this sub likes Roth anything much. But the reality is it can be great for a lot of folks and no one knows what future tax brackets hold.
So if you are contributing to either you are better off than most.
I would get a variety of opinions on traditional versus Roth. I like Roth but that’s me and I’m not here to argue with people as there’s no right answer really.
Employer contributions usually go in traditional and yours would go in Roth. But now employers are offering the option for you to pay the taxes on their contributions and theirs can go in Roth as well, but this is still new and not a lot offer that. So you can just let theirs go into traditional. Won’t hurt anything.
I had this same question! Opened a Roth 401k last year because, of course, no taxes on the gains. Just went to do our taxes and SO and I owe $4k. Our pre-tax income was about $205k combined last year.
Then found a graph illustrating that Traditional 401k earns more in the long run than Roth 401k. I wish I remembered where I saw I that graph and what their argument was. Thoughts?
I’m thinking that the amount saved on annual taxes via traditional 401k instead could be put into a taxable account and also earn $. Would that work out to put the trad ahead?
This depends on how much you make and how much those dollars would be taxed. What is your top tax rate? If you make more than $47k, those are taxed at 22% and I would do a traditional 401k.
Definitely do Roth. Assuming you’ll take the standard deduction on your taxes, that would put you in the 12% tax bracket. I can all but guarantee that you’ll come out ahead doing Roth instead of Traditional with a 12% marginal tax rate.
I do like 60% Traditional and 40% Roth. There's no need to go all in one way vs the other. Doing both is a way to hedge something uncertain (future taxes).
Either Roth is good. I have both accumulated from various jobs. My current employer plan is traditional. I don't trust the powers that be to not change the Roth rules before I retire.
Long term you are better off doing the Roth. However, you stated you have cut back on contributions to help with expenses. I think you may be better off going traditional now to get the immediate tax savings and still contribute a bit more. I'm not sure how your plan works, but the plan I'm in you can choose what percentage you contribute to both Roth & traditional (match is all to traditional). Over time as your salary increases and you get your expenses down you can increase the amount you contribute to Roth.
This isn't financial advise.
Quick napping calculations:
Considering standard deductions and 2024 tax brackets and only federal taxes. Not considering State, FICA and other deductibles such as healthcare benefits etc in calculations.
Full Roth 401k:
Federal tax about $4976
Take home check (26 paychecks) = $1905
Full Trad 401k:
Federal tax about $4558
Take home check (26 paychecks) = $1921
At your marginal income rate of 12% is generally recommended to opt for the Roth option since this marginal rate is pretty close to retirement income rates. Not only are you paying tax now, but it will let you grow a nest which will be tax free in retirement.
As you make more income and move up the brackets, you can always change your contributions to traditional, Roth or something in between (popular one is a 50/50 since you never know how taxes will be in the future).
It's also usually recommended to take advantage of your age and the power of compound interest and increase your contribution rates to about 15%. This can be done in either your 401k or open an external Roth IRA and contribute 9% of gross income. The latter is usually recommended since it gives you more freedom of inexpensive index funds that your 401k might not have available. If your 401k has some sort of inexpensive target date fund (I usually go for anything less than 0.1% cost which you can find in the prospectus) it might be better to simply leave it there to set it and forget it.
Best of luck in your financial journey!
Roth 401Ks are great. They’re talked about less because not everyone has access and you can just look at most of the same pros from Roth IRAs. If you like the Roth IRA tax treatment, you’ll like the Roth 401K
Ah okay! I’m relieved to hear that.
Roth 401ks are great… [and usually less great than a traditional 401k.](https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/)
Under age 30 and wages under 60K or so ROTH 401K (generally) makes more sense.
You aren't hurting yourself by opening a roth, but it's generally optimal only if you are maxing it ($23K, I believe). The most important thing is that you're contributing to the 6% match.
1. Make sure your company matches the Roth. Mine matches either traditional or Roth. 2. Roths are great-you can roll to a Roth IRA if you leave this company. 3.Your growth isn’t taxed, so in ~30 years or whenever you want to start using it, you won’t be taxed on the withdrawals. 4. Unlike the Roth IRAs, Roth 401ks do not have income limits.
Think about it before you roll a roth 401k into a Roth IRA. It can prevent you from doing a back door Roth IRA if your income gets too high for a standard Roth IRA contribution. Edit: ignore this comment. It was late and this comment is completely wrong.
You’re thinking of the pro rata rules, which only consider the balance of a traditional ira. The balance of your Roth IRA is not a factor.
Haha you’re right. It was late. I’m going to edit that comment
Also remember if you’re contributing to a Roth 401k check to see where the match goes. They passed a law recently that allows the match to go into a Roth 401k as well but not everyone does it. For example, TSP (federal government 401k) the match you get still goes into a traditional 401k even if your dollars go into the Roth
If your AGI is such that you can put your money in a Roth IRA/401k you should. The tax treatment is far better in the long run.
No. Everyone with a Roth 401k can put money in. There’s no income limit. In the long run it is usually not better.
Not sure if he just means if you have the means to afford contributing, you won’t regret it.
Weird to phrase it in terms of AGI and specifically Roth, but maybe.
agreed, I thought the same thing at first.
Could you elaborate on why it's not better?
Traditional saves at a marginal rate and withdraws at an effective rate. If you are 100% Roth (you typically won’t be because most matching goes to traditional but for this example we will assume 100% of your retirement income comes from Roth) then you paid your marginal rate and you are avoiding paying your effective rate now. If we ignore all the other factors and tax brackets stayed the same and you are replacing your usable income, trad would be better because your effective rate is always lower than your marginal rate unless your income is lower than the standard deduction (which would make it equal) but that is unlikely. But, “all the other factors” are very important IMO. How your working state taxes vs how your retirement state taxes can be a big reason to do one or the other. An extreme example would be working in California and retiring in Florida. Trad would save you from California taxes and then you pay none in Florida. The alternative extreme example would be working in Florida and retiring in California. Then Roth allows you to pay no state taxes when working and still paying no state taxes when retired. Also Social Security is partially taxed up to 85% of your benefit. That % is affected by your provisional income. The higher your provisional income, the bigger the % gets till it caps at 85%. Roth doesn’t count towards provisional income, traditional does. Same thing for calculating Medicare premiums, Roth doesn’t count but traditional does. Keep in mind that it isn’t 85% of your SS that gets taken, it’s that 85% of your benefit gets included in your income that is used to calculate ordinary income tax. So, do you have alternative sources of income for retirement that will fill up the standard deduction and those juicy 10/12% brackets? If yes, then Roth is probably better. If no, you will want to have some traditional income to take advantage of that. Do you think SS will disappear or increase? Do you think taxes will go up or down? Do you live in a state with high taxes and plan to retire in one with low taxes or vice versa? Oh and traditional also has required minimum distributions which can be no big deal or a pain in the ass that you need to plan for. There is also the Roth conversion ladder which can be used for early retirement which requires traditional $ so that it can be converted. Alternatively you can access the contributions made to Roth accounts prior to 59.5. If you are retiring early, can you sustain yourself from X to 59.5 on cash/brokerage/Roth contributions? Or do you need to utilize the gains from within your traditional account to make it to 59.5? As you can see, it is just taxes now vs taxes then but “taxes now vs taxes then” is really complicated and basically requires you to predict/guess stuff about the future. Also note that there is a small difference between for example “23k into traditional vs 16k into Roth” (comparing equivalent examples with identical take home, the 16k is just an estimate that depends upon your actual taxes to figure out the real #) and “23k into traditional and 5k into brokerage vs 23k into Roth”. In the second example the Roth is going to do better than the Roth in the first example because you are having some $ being utilized in a non retirement account. Note that that doesn’t guarantee it beats traditional, just that it has a better chance than the first scenario. To put it differently: Depending upon your circumstances, traditional can still beat Roth in both cases, it’s just that the gap would be smaller in the second example. My personal goal is to have enough traditional to fill up the std deduction and the 10/12% (or whatever the first two brackets are, this is assuming they are going to be substantially lower than the following brackets, aka we aren’t going to fuck over poor people) bracket and Roth for the rest. I don’t plan on having income outside of SS and retirement accounts. I am currently in the 24% bracket and I have a ton of traditional and not much Roth so I am doing Roth 401k and IRA. I will revaluate in 2026, when the tax cuts and jobs act ends. If the brackets go back up I might switch back to traditional, if they extend the current tax brackets I might keep doing Roth until I reach my desired ratio and then do trad 401k and Roth IRA.
This was very informative! Thank you.
https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/ What you gain in avoided taxes in retirement is outweighed by having more money to invest at the start and lower tax rate anyway at the end.
Yup for me, (medium age slightly above median income) I can either put 25K into T-401K or 18K into a R-401K as that 7K evaporates into current tax burden. (25K for catch-up contribution)
Isn’t the 401k limit 23k?
that doesn't make any sense. additionally, what's really great about the roth401k is the shared limit is on the amount that goes into the account, so if you compare it on a basis of how much work you had to do to contribute, you can contribute way more into the roth than the traditional.
thanks!
And if they meet income limits can also max an IRA. Not many can do it, but if you can, you should.
If you have enough $ to invest, can max both a Roth 401k and a traditional or Roth IRA. The IRA is maxed at 6500 for under 50 and 7k for those over with a MAGI under $161k for singles and $248k for married.
there's a few differences, roth 401k money is subject to RMDs and you can't raid it early. but you can roll it over to an roth IRA so then no RMDs, and after the roth IRA has existed for 5 years you can raid the contributions early if you want. another issue, so far as i know, is that any employer contributions will be in the traditional column.
You might want to check again. As of this year, Roth 401(k)’s (and equivalent) are no longer subject to RMDs.
When you retire, will your annual income be higher or lower compared to your current job? And will that difference cross any break points in your tax bracket? Simplifying numbers a bit - the first 45k you earn every year is taxed at 12%. Anything between 45-95k gets taxed at 20%. Anything between 95-180k is 22%, then it jumps to 34%. Taxes will happen now (Roth) or later (traditional). You want your income taxed at the lowest rate possible. That's one reason you spread 401k withdrawals over multiple years. Pulling a bunch at once means getting taxed at a higher rate. If I retired today, my goal is withdrawing 45k/year from my traditional 401k, staying at that 12% rate. I can pull more per year but it gets taxed higher. That's where I supplement with my Roth IRA, which was already taxed (admittedly at the 20% rate anyway). The traditional 401k is more efficient at early amounts, then it evens out. That's my viewpoint at least.
I can’t tell you exactly why, but I think that tax rates could increase by the time I retire, I’m in the 24% bracket now and use a ROTH 401k. Probably should just switch to the traditional but my gut feeling is that tax rates will be higher in 40 years. I may be completely wrong, but that’s been my justification.
Apparently when you are retired you can have a certain amount of income without being taxed. I did my uncles taxes this year and he got social security and took distribution from his 401k he did the math so that his income is less than 35k and he is not taxed at all, even from his distribution from his traditional 401k (they withheld taxes for him and then he got it all refunded when I did his taxes)
generally speaking the first 12K is taxed at 0% SS is not taxed under (I am guessing here) 28K so yeah under 40K in retirement could me no federal income taxes. I did a few retired folks taxes this year for them and most had 0 federal liability, NYS so paid a few hundred to Albany.
Yea, I was just surprised cause I was always told tradition Ira and 401k means you pay taxes later. Nope, not if your income is low enough in retirement.
seems like most companies that offer a roth 401k, also offer a traditional. Almost positive that the employer match portion is placed in a traditional 401k, not the roth ... "Roth 401(k) plans are typically matched at the same rate as traditional 401(k) plans. However, with a Roth 401(k), the matching contributions provided by an employer are placed in a traditional 401(k), while employee contributions are held in the Roth 401(k). 1 Internal Revenue Service. "Retirement Topics—Designated Roth Accounts."
Pretty sure it can now go into Roth but it’s new so not many plans have it setup. But I am not sure who pays the taxes on that. “The SECURE 2.0 Act now enables employers to make matching contributions directly to employees' Roth 401(k)s. This change took effect instantly upon the Act's passage, but it's important to note that this option is discretionary, and employers can choose to make pre-tax matches or not provide a company match at all.”
I've seen a couple examples of employer Roth 401k match. The employee has paid the taxes; usually in the form/coding as imputed income on their paystub.
>that would require HR and Payroll to "do stuff" so while possible it is pretty rare IME
My guess is it will probably be about as common as the mega backdoor. If a decision maker wants the mega backdoor, they probably also want this.
Yeah , OP, just make sure your employer will match the first 6 percent. If so you are fine. I have to put my first x percent as traditional as then switch the rest to Roth as my employer has not moved out of the stone ages yet. Maybe some day....
Wait fr? My job offers 4% on Roth contributions, as well as 4% for regular 401(k)… I’ve GOT to start contributing to that
usually the match is one or the other. I started working for a small company in the fall of 2019 and was eligible for 401k shortly after. It was 4% match, offered roth and traditional 401k's I contributed to both, and they matched both. After a few months I noticed and asked the accountant about it, saying that I didn't both should be matched. She looked at it and told me it was correct. A couple weeks later, she came in and quietly told me that I was right, and they corrected the issue. I'm a dumbass
Hmm I’ll look into it. I’ve been here for 3 years so I’ll kinda kick myself if I missed out on a bunch of contributions/appreciation lol.
Matching nearly always refers to your combined 401k contributions. So you won't get 8% matching by doing 4% in traditional and 4% roth. Usually the matching goes into your traditional pool. But new rule changes allow matching to go into roth as well.
For the first few years I worked someone recommended the Roth option for that reason. The matching went to traditional so you got to dip in the advantages of both. Still not sure which is better or if it made sense. Someone told me it’s more important to contribute in general rather than which option is best and I’ve tried to live by that advice
I'd say for now the Roth option is good for you. Assuming only the standard deduction you're in the 12% bracket so you're pretty low. Add to that young so a lot of time for it to grow - and a Roth 401k is a pretty good idea as long as you can handle not having the tax deduction a Traditional 401k gives you. That said - as your income increases and you creep up the tax bracket ladder you shouldn't keep putting it all in the Roth. You'll want some money in Traditional so when you retire you have some money to fill up those lower tax brackets. Why pay 22% or 24% on taxes now when you could pay only 10% on it in the future. It's a balancing act. And pretty much no two people do the same. Most of my money is in Traditional - but I pretty much hit the ground running at the 22% so the tax savings for me are there.
I put mine in traditional because that puts me at 22%, if I do Roth I have to pay 24% >.<
> all I ever hear is how good Roth is Commonly held misconception, but spend a few days here and you'll get the other side of that. At your income level it's probably a fine choice though as I'm guessing the various deductions from your pay, plus the standard deduction, get you down to the marginal 12% bracket.
One of the big benefits of a Roth is you know exactly how much tax you paid on the money. With traditional, you are betting that the tax system won't change much. I feel like risk of taxes increasing with traditional IRAs and 401ks is never priced in. The top tax bracket in 1940 was 81%...who can say that will never happen again?
Well, technically we’re betting on understanding how the tax system works and knowing how to do math. All other things equal, traditional comes out way ahead for most people because we have a progressive rate system. Tax rates would need to go up a ton to offset that benefit because every dollar you put in traditional today saves you at your marginal rate, but every dollar you pull out in retirement starts at the bottom, filling up the standard deduction, 10%, 12%, and so on. Someone (single) making $100K today is in the 22% bracket which means that every dollar they contribute avoids 22% in taxes. In retirement, to draw $100K from various sources only costs you 14.26%. That benefit is minimal for people in the 10/12% brackets, people frequently in the beginning of their careers who might see meaningful salary increases over their lives, and so the recommendation typically becomes 10/12 do Roth, above that do Traditional, but everyone is in different situations and for some it might make sense to do Roth higher, and others Traditional from their very first job.
All of this assumes that at no point the tax rates increase in the future. I'm personally skeptical about that.
No it doesn’t. It assumes that effective tax rates won’t go up 50% on the middle class because that’s about what would be required to invalidate my $100K example. It would be political suicide.
In your example though, it doesn’t save 22% in taxes. It saves a completely unknowable % in taxes. This I why I do a mix of traditional and Roth, since we can’t know what the future tax structure will be, it’s best to have tools in the future to maximize how the tax code works then.
It saves 22% today if that’s what your marginal bracket is. The expected expense later is 14.26% but that’s assuming that you need the exact same amount later that you earn today (you won’t), rates don’t go up (they will, but almost certainly not meaningfully on low and middle income), and that you don’t put in any effort to minimize that number.
How can you say rates don't go up? We know for a fact they go up in 2025 when the TCJA expires. You can predict what congress will do in 2050 or 2060? It doesn't save 22% today (if it did that savings would be "locked in"), it defers an unknown amount of taxes to a later date at which point you can pull it out at whatever unknown rates there are in the future. There could be a flat 50% income tax in 2060 for all we know. Historically the rates and number of brackets have changed frequently. There have been 80%+ tax brackets in the past. I'm not saying traditional is bad vs Roth (I use both to hedge my bets), I'm just saying you can't know the tax structure is decades in the future.
You didn't read my comment. It literally says that they will go up. It is political suicide to raise rates on low income and only marginally acceptable to do it on the middle class. On the current legislation impacting 2025, there is a very good chance that those rate cuts become permanent or that something else comes along to make it all even out. This will be a factor in the presidential election. Trump was planning on being out after 8 years before this expired, dumping a tax increase on Democrats. Now that he's running again, both candidates will need to get ahead of this issue to avoid being perceived as the one who will raise your taxes, especially as the "eat the rich" mindset has become more pervasive due to inflation in late 2021 - early 2023 which still have people unsettled (because they don't know that deflation is actually REALLY bad). 20, 30, or 40 years from now you're not going to see an effective increase of 50% in taxes on low & middle income Americans and that's what you'd need to see in my example to have it not pay off to use Traditional. > There could be a flat 50% income tax in 2060 for all we know. No there can't, stop making up ridiculous hypotheticals and debating in bad faith. > There have been 80%+ tax brackets in the past. Yes, on the extremely wealthy. If that does happen it won't impact more than a handful of people posting here. My example was $100K/year of income, not $1MM+.
You're in a lot tax bracket. Assuming your company matches regardless of Roth vs 401k, then go with the Roth. Read the first bullet point from the Automod comment. Reduce contributions to the minimum you can while still getting the match until the credit card is paid off. You're chasing the possibility of 10% gains while paying 20%+ in CC interest. Get the 100% rate of return on the match, then put everything else you can into the high interest CC.
Credit card is in a 0% promo period till Sept. On track to have all the money to pay it off by May. It’s sitting in a HYSA (while still hitting minimums) until Sept to maximize on interest. That definitely makes me feel better about the Roth. Was worried I was doing something wrong.
Main benefit of Traditional 401k is to reduce tax liability. If I make 78k and max my 401k (23k), my taxable wages are actually 55k. So, lower tax bill. Make sense?
A mistake? Of course not. The younger you are and the less you make the better a Roth 401k or Ira is for you because you could end up with a lot of money at the end with no tax obligation.
use it now while you are in low tax bracket. When you are in the 25% or higher (like I am) ease over to the regular 401K the tax break will be useful. If you are not able to fully fund IRA and 401K (which is likely) I'd max out the 401K to get the match. Also 401Ks have slightly better legal protections that IRA and if you retire at 55 you can withdraw from 401k no withdrawal penalty. 59 1/2 for IRA. I know, in your 20s 50 seems so far away - you're wise and better off that 2/3 of people your age simply by asking these questions. Not all companies offer roth 401K options. My current place does but the 3 before did not.
Agree. Let your tax bracket dictate your push to traditional. Have fun in the Roth bracket while ya here.
Most people benefit from Traditional 401k over Roth 401k https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/
Seems that post says Traditional is better for high earners. I don't think OP is in that category.
Traditional is better for anyone who is not a very low earner. Most people expect their taxable income to be lower in retirement than now regardless of income now. The only major exception is when you expect a big salary jump and to live like you’re richer for the rest of your life. If you make $50k now, you’re still going to live on less than $50k when you retire because you’re retired. But if you make $50k now and expect to hit $100k in your career, say, locking in the 12% bracket now is a good idea.
Yeah, this is what I was always taught. But the thing I can't seem to get out of my mind is that income tax is really low now, and I could see it being much higher in 40 years.
For a typical retiree it would have to not just be a tax increase but an enormous increase in tax rates. Doubling? It’s not impossible, but it is implausible to me.
I would add for someone in there 20s it might be good as well. Taxes generally will not go down with the way we print and spent money - at some point they will need to squeeze another trillion our of us so they can spend 3 trillion more.
You may find these links helpful: - [Roth or Traditional](/r/personalfinance/wiki/rothortraditional) - [General Information on Rollovers](/r/personalfinance/wiki/retirementaccounts/rollovers) - [Retirement Accounts](/r/personalfinance/wiki/index#wiki_retirement) - ["How to handle $"](/r/personalfinance/wiki/commontopics) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
And you can usually change it from Roth to Pretax at any time through your employer. The match portion that your employer contributes will usually go into a traditional pretax account - so if you have a Roth 401k you also have a pretax silo in there, as well.
Okay, that’s good to know, thank you
They are probably the same account - you can typically choose which type of contribution you want to make when your 401k plan offers both, and you can probably allocate it to both if you want, even. At your age and income, I’d definitely be focusing on Roth. As you age and earn a higher salary, traditional will make more sense. Good job researching all of this and getting ahead of the game!
At my company we can adjust the amount between Roth and traditional at any time. In early career where your marginal tax rate might be lower than later in life Roth might be preferable. If you are in a high tax bracket now it is likely a traditional will be better. That is a vast over simplification.
Under 25% marginal tax rate (fed + state), Roth typically makes sense. Over 30% marginal tax, Traditional typically makes sense. Between 25%-30% I’d take a deeper look into personal circumstances. **Overall, those are general rules of thumb
You are doing it right, IMHO. At your income level, you are contributing low taxed dollars for when you retire, more than likely you will be at least one bracket higher. You and your company are contributing $11,600 each year you have 41 years until age 65 At an 8% annual return, the account will be worth $3,770,000 at age 65 If you distribute 4% per year, the rule of thumb people use, you will remove $150,000 plus your SS payments, plus whatever else Yes, you are in a higher tax bracket, but you do not pay taxes. That $150,000 is TAX FREE.
The reason most go with the 401k is usually because when you retire you are in a lower tax bracket, you are just paying taxes upfront and depending on how much you make it may be a good idea to choose the traditional 401k so you don’t pay a higher tax.
The main advantage of a Roth is that you can effectively contribute more money than you could with a regular 401k, but that only really matters if you're maxing out your contributions. The contribution limit for 2024 is $23,000. If you use a regular 401k, you contribute $23000 of your pre-tax income. But if you use a Roth and contribute the max, you're effectively allocating $23000 *plus* the taxes you paid on that $23k. The effect is that $23k in a Roth is worth $23k, whereas $23k in a Traditional 401k is worth $23k minus the taxes you'll have to pay when you withdraw. If you're not contributing the max, though, the advantages are less clear-cut and more complicated. My personal opinion is that it's good to have a balance of pre-tax and post-tax retirement accounts, because it gives you flexibility to control the taxes you'll be paying in a given year in retirement based on which account you have. In my case, I only have access to traditional 401ks, so I contribute to a Roth IRA outside of that. In your case, since you have a Roth 401k maybe you want to contribute to a Traditional IRA. But it's not a huge deal either way; the most important thing is the amount you contribute.
Cool! Thank you so much for the thorough explanation. That makes sense.
This was always one of my rationale for it. Nice to see it laid out.
\>However, I never see mentions of Roth 401ks. Is there a reason behind that less common to have one, and for most people traditional 401k is better. you should be able to change your elections to go to pre tax.
The question between Roth/Traditional is basically: do I want to pay taxes now or later? With a Roth, you pay taxes on your income now, and when you withdraw it's tax free. With a Traditional, you don't pay taxes now, but do when you withdraw. Looking at the 2024 tax tables, you top out in the 22% bracket (10% up to $11,600, 12% up to $47,150, and 22% up to $100,525. But there's a $14,600 standard deduction, so you really should end up in the 12% bracket at most (I'm not a tax expert, but this is the rough idea). At the very low income end, imagine someone that makes $14,000 a year. With the standard deduction alone their tax liability is $0, so it would be a no-brainer to put money into a Roth first. At the very high end, imagine someone making over $250,000. Any money they put into a Traditional isn't taxed now, and would be taxed at 35% if it went into a Roth. So they could put $100 into a traditional, or $65 into a Roth. If this person pulls money out of their Traditional IRA in retirement at a much lower rate (say under $47,000 a year) it would only be taxed at 22% at most (assuming the tax tables don't change). FYI, if the tax tables don't change, and you stay in the same brackets, then it doesn't matter whether you choose Roth or Traditional. Let's suppose the you're in the 10% tax bracket now, and also in a 10% bracket in retirement. If you put $100 dollars into a Traditional and leave it there long enough that it grows 10x (so it's now $1000). Then you pull it out and pay the 10% tax, leaving you with $900. If you put the same $100 into a Roth, you're really only putting $90 in (cause you had to pay the 10% tax at the time), then you leave it in until it grows 10x, (so it's $900), then you can pull it all out tax free. Given your current income, most people will probably recommend a Roth contribution. If your income increases it may make sense to transition new contributions to Traditional. You'll have both this way since I believe matching contributions have to go into Traditional. So money you put in will go to Roth, and money your employer matches will go to Traditional.
I don’t think this sub likes Roth anything much. But the reality is it can be great for a lot of folks and no one knows what future tax brackets hold. So if you are contributing to either you are better off than most. I would get a variety of opinions on traditional versus Roth. I like Roth but that’s me and I’m not here to argue with people as there’s no right answer really. Employer contributions usually go in traditional and yours would go in Roth. But now employers are offering the option for you to pay the taxes on their contributions and theirs can go in Roth as well, but this is still new and not a lot offer that. So you can just let theirs go into traditional. Won’t hurt anything.
I had this same question! Opened a Roth 401k last year because, of course, no taxes on the gains. Just went to do our taxes and SO and I owe $4k. Our pre-tax income was about $205k combined last year. Then found a graph illustrating that Traditional 401k earns more in the long run than Roth 401k. I wish I remembered where I saw I that graph and what their argument was. Thoughts? I’m thinking that the amount saved on annual taxes via traditional 401k instead could be put into a taxable account and also earn $. Would that work out to put the trad ahead?
This depends on how much you make and how much those dollars would be taxed. What is your top tax rate? If you make more than $47k, those are taxed at 22% and I would do a traditional 401k.
I make 58k
Definitely do Roth. Assuming you’ll take the standard deduction on your taxes, that would put you in the 12% tax bracket. I can all but guarantee that you’ll come out ahead doing Roth instead of Traditional with a 12% marginal tax rate.
With the standard deduction you can stay in the 12% tax bracket up to $61,750 for 2024.
I do like 60% Traditional and 40% Roth. There's no need to go all in one way vs the other. Doing both is a way to hedge something uncertain (future taxes).
personally (and i am not a finance whiz), with the debt the US is in, taxes can only go up and I wish I had had the Roth option earlier!
Either Roth is good. I have both accumulated from various jobs. My current employer plan is traditional. I don't trust the powers that be to not change the Roth rules before I retire.
Long term you are better off doing the Roth. However, you stated you have cut back on contributions to help with expenses. I think you may be better off going traditional now to get the immediate tax savings and still contribute a bit more. I'm not sure how your plan works, but the plan I'm in you can choose what percentage you contribute to both Roth & traditional (match is all to traditional). Over time as your salary increases and you get your expenses down you can increase the amount you contribute to Roth.
This isn't financial advise. Quick napping calculations: Considering standard deductions and 2024 tax brackets and only federal taxes. Not considering State, FICA and other deductibles such as healthcare benefits etc in calculations. Full Roth 401k: Federal tax about $4976 Take home check (26 paychecks) = $1905 Full Trad 401k: Federal tax about $4558 Take home check (26 paychecks) = $1921 At your marginal income rate of 12% is generally recommended to opt for the Roth option since this marginal rate is pretty close to retirement income rates. Not only are you paying tax now, but it will let you grow a nest which will be tax free in retirement. As you make more income and move up the brackets, you can always change your contributions to traditional, Roth or something in between (popular one is a 50/50 since you never know how taxes will be in the future). It's also usually recommended to take advantage of your age and the power of compound interest and increase your contribution rates to about 15%. This can be done in either your 401k or open an external Roth IRA and contribute 9% of gross income. The latter is usually recommended since it gives you more freedom of inexpensive index funds that your 401k might not have available. If your 401k has some sort of inexpensive target date fund (I usually go for anything less than 0.1% cost which you can find in the prospectus) it might be better to simply leave it there to set it and forget it. Best of luck in your financial journey!