Why get an IRA if you have a (401)k?

[mitchrad]

@cjk123 Thank you, this was the missing piece! I was not computing what other tax benefits there would be but this makes sense

 

[cjk123]

@mitchrad No problem. Roth IRA's also don't have a required minimum distribution like a 401k, so you can leave them alone longer without having to touch it.

 

[sherryfl]

@cjk123 Isn't there still some sort of age cap to this rule?

 

[notworthyofhim]

@sherryfl Already paid taxes in a Roth account. Regular IRAs have the minimum distribution age limit to get their taxes.

 

[jamesbond]

@cjk123 Except you pay the taxes when you do the conversion, meaning you start the tax-free growth from a smaller amount of money. So technically there’s no difference on that front, except for a lot of people, their current tax rate is higher than it likely will be at retirement, making Roth the worse option.

 

[rachelanne84]

@mitchrad Exemption from capital gains tax?

 

[nelsontai]

@rachelanne84 Yes. It is post tax money anyways so only growth would be taxable but under ROTH some amount of money (7-8 k per annum under regular and 30-50k under back door) is allowed to grow tax free forever and withdrawn tax free. 7 k does not sound like much but imaging saving that for 30 years and imagine some of it growing 10 fold all tax free.

 

[andypandy81]

@mitchrad Roth IRA lets your heirs get 10 years of tax-free growth after you die. With stocks the basis resets at your death but they would owe capital gains when they sell.

 

[idaho54]

@mitchrad Grows tax free.

 

[unitedwestand000000]

@mitchrad >What is the point then in having an IRA instead of just investing the money in stocks?

you buy stocks in your tax advantaged accounts too. you mean 'taxable brokerage acc'

not paying tax by putting it in a 401k, ira or hsa is one of the easiest immediate returns you can get. that's why.

 

[jericho1326]

@unitedwestand000000 But if he makes above the deductible limit, then he still pays tax.

 

[unitedwestand000000]

@jericho1326 shouldnt be making non deductible contributions unless it's being rolled over into a roth ira promptly imo, better to just do taxable at that point

youd still call roth contributions (either rollover or direct) tax advantaged even though they go in post-tax.

 

[fizh]

@mitchrad Why would one not want to have more tax friendly retirement options to utilize?

Furthermore, 401K’s are somewhat limiting in investment options vs. an IRA. Also 401K’s recognized capital gains are excluded from taxes until withdrawn unlike an investment account. Traditional IRA contributions are tax deductible from current year income unlike an investment account deposits.

Only real downside to an IRA would be the money would be largely unavailable before retirement without substantial penalties and taxes.

 

[alaskanhusky]

@mitchrad My 401k plan charges a hefty 0.8% servicing fee on top of the expense ratio of the fund. That’s almost 1% fee in total. While I can choose FZROX in my Roth with zero fee. In 30 years, the 1% fee can result in a 20% difference in total. So I’m not contributing more than match limit to my 401k. Instead, I max out Roth IRA.

 

[bubble5]

@alaskanhusky I'd look at FSKAX. Pretty much the same thing but you're not stuck with Fidelity (from my understanding)

 

[rhianne]

@bubble5 Selling the Zero funds to get anything else instead should only add one more market day to any brokerage move.

Edit: Typo

 

[wollwerth]

@mitchrad Tax free growth.

 

[claire_]

@mitchrad Have a 401k and a ROTH IRA FTW.

 

[courtney82]

@mitchrad Hopefully your Roth and HSA are fully funded also.

 

[tennille]

@mitchrad In addition to what the others have said as far as tax savings, retirement accounts are protected from debt collection and not counted as assets for certain programs, ROTHS grow tax free if you can't do an IRA.