Comments on: Roth IRA vs. 401k Retirement Plan – Which Is Better?

By: Rick Hope

Rick Hope — Thu, 13 May 2010 22:18:24 +0000

Hank,
I noticed a couple of things left out of your article. Isn’t there a 5 year minimum holding period as well as the age 591/2 rule?
I inserted the language below from ther IRS website.
A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.
It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and
The payment or distribution is:
Made on or after the date you reach age 59½,
Also, don’t fortgot there is now a Roth 401(k) available and 401(k)’s have a loan provision. There i no borrowing out of any IRA. You are covered under ERISA for your 401(k), that means creditor protected.

By: Hank

Hank — Thu, 15 Apr 2010 14:22:25 +0000

@ George – Great question! You may or may not be in a higher tax bracket when you retire. I like to think that I will be earning more money or as much money in retirement and will be in a higher tax bracket or the same one at the very least. If that is the case, then a Roth IRA where your principle, interest, dividends, and capital gains will grow tax free may be a better option than a 401-k (assuming no match).

Your retirement pension, annuity payments, and interest earned on your retirement nest egg will all be taxed. Even Social Security benefits are often taxed at a small rate in some cases. In most cases, you will still have a tax liability in your retirement years. Depending on the size of your nest egg and its income stream, you may have a larger or same tax rate (marginal or otherwise) as during your working years.

Another factor that people often overlook is that tax rates may increase in the future. If that is the case, then it may be better to pay taxes now in a lower bracket with the intention being in a higher tax bracket thanks to our wonderful government’s meddling with tax rates in the future.

I am actually reading a very interesting book that I am going to review here on the blog in a few weeks, “Your Money Ratios”, by Charles Farrell who makes the claim that both retirement investment vehicles’ tax benefits wash each other out. It is six in one hand, and half dozen in the other.

Note – Don’t forget that 401-k’s should be used first if there is an employer match to your contribution. It is free money, and a 100% return on that amount of money.

By: George

George — Tue, 13 Apr 2010 16:07:56 +0000

In regards to Roth vs. 401(k) and in your example of putting $1000 into a 401(k) for 2o years, I’m having difficulty understanding why that income will be taxed at 38% in retirement. It seems to me that once I retire I’ll drop into a lower tax bracket (no earned income) and that money will be taxed at my marginal income tax rate then, which should be well below my working years tax bracket of 38% in the example.

Also, during that 20 year period isn’t that money being tax deferred? Isn’t tax deferral in and of itself an oftern overlooked hidden value? If so, how does that affect the calculation?

By: Celebrating One Year of Go To Retirement | Go To Retirement

Celebrating One Year of Go To Retirement | Go To Retirement — Mon, 30 Nov 2009 03:57:08 +0000

[...] at Own the Dollar compares the features and benefits of a 401(k) plan and a Roth IRA. I would add to this analysis the possibility that you can have it both ways if your 401(k) plan [...]

By: Save for Retirement NOW | Making Me a Millionaire

Save for Retirement NOW | Making Me a Millionaire — Sun, 08 Nov 2009 04:12:22 +0000

[...] Own the Dollar – Roth IRA vs. 401k Retirement Plan – Which is Better? [...]

By: Roth is better

Roth is better — Sun, 13 Sep 2009 05:27:25 +0000

Roth is better because there is a good chance that taxes wil increase in future, so better to save your dollars into a tax free account.

By: Britt (Your Roth IRA)

Britt (Your Roth IRA) — Tue, 08 Sep 2009 19:33:45 +0000

Great post on the Roth IRA vs. 401k…

Here’s another difference. Most employer-sponsored 401k plans limit your investment options. For instance, the company might limit your stock market exposure to 2 or 3 mutual fund choices. Oftentimes, these funds have higher expense ratios than you might obtain if you purchased a low-cost index fund on your own.

But a Roth IRA? You direct the investments. It’s your choice. Even if your choice is to have a financial advisor handle things for you.

I think this flexibility is an added benefit with the Roth IRA.

By: VNOHosting » Roth IRA vs. 401k Retirement Plan - Which Is Better? : Own The Dollar

Mon, 27 Jul 2009 16:43:46 +0000

[...] from: Roth IRA vs. 401k Retirement Plan – Which Is Better? : Own The Dollar This entry is filed under Investing. You can follow any responses to this entry through the RSS [...]

By: Latest roth ira news - Roth IRA vs. 401k Retirement Plan - Which Is Better? : Own The Dollar | Roth Ira

Thu, 23 Jul 2009 10:24:50 +0000

[...] Roth IRA vs. 401k Retirement Plan – Which Is Better? : Own The Dollar [...]

By: Carnival of Pecuniary Delights 15 – Epicurean Delights Edition | Suburban Dollar

Thu, 09 Jul 2009 13:01:38 +0000

[...] from Own The Dollar presents Roth IRA vs. 401k Retirement Plan – Which Is Better?. A comparison of 401k plans and Roth IRA Accounts. Personally I think both have their place but you [...]