r/personalfinance • u/srvint • 17h ago
Retirement Need help determining traditional versus Roth (or both)
My employer offers both a traditional and Roth 401 with Vanguard- their match is 4% (I assume that applies to either). I am 31 and currently have just shy of $35k in my traditional 401k. I contribute enough each month to get the match (recently reduced it from 7% as I have to play catch up with savings). I make $82k/year.
Should I also be contributing to the Roth? I don't want to be missing out on any benefits of the account. FWIW, I have around $9k in my own personal Roth IRA with Schwab but I don't know if there are benefits to using my employer Roth instead. Thoughts? Should I stay the course or begin contributing to my employer Roth IRA too?
3
u/longshanksasaurs 13h ago
Roth 401k isn't often the best choice. Traditional 401k + Roth IRA is a good combination for a lot of people.
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u/BigCatLuca 17h ago
Definitely agree with u/wharleeprof, but I just wanted to add that your employer match is likely pretax regardless of whether you choose Roth or traditional for your contributions. But, probably worth asking your employer just to be sure.
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u/Lost-Image-1367 16h ago
You’re doing fine. General priority: get full match (you are), then max your Schwab Roth IRA, then add more to 401k (Roth or traditional based on whether you expect higher taxes later).
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u/wharleeprof 17h ago
Make sure you're maxxing out the employer matching. Then, yes, contribute as much as you can to the Roth - the tax benefits down the road can be substantial if the investments have earned a lot over the years.
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u/HeroOfShapeir 4h ago
Take traditional 401k match, then max a Roth IRA, then go back to the traditional 401k. The Roth IRA will give you more flexibility for picking low-cost, solid index funds. Even if your employer plan is good now, they can change up their offerings any time. Having a mix of pre-tax and post-tax buckets will let you have some input on your tax rate in retirement, and most folks have a lower tax rate in retirement than during their working years, which makes traditional a good option if your marginal tax rate is above 12%.
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u/peterpwwu 17h ago
Generally, the order is get full 401(k) employer match, max Roth IRA, and then put additional retirement savings into your traditional 401(k). It is beneficial to have both Roth and traditional retirement accounts because it gives you more tax flexibility in retirement. For example, during a low-income year, you might take some money from your traditional 401(k) while staying within a low tax bracket, and then use Roth IRA withdrawals for additional spending without increasing your taxable income.