@mitchrad Main reason, maybe less so now that HSA is a thing, is that a 401(k) is usually not enough to save for your retirement due to the IRS maximum allowed. Unless you're lucky enough to have a place that allows you to put in over $30,000 a year. 10% of your salary is not enough. 15% is recommended and often that is not enough.
@mitchrad If you are already maxing out your 401(k) and do not qualify for a deductible IRA, there may be limited benefits to having a traditional IRA. Directly investing in stocks can provide more liquidity and flexibility. However, it's worth considering a Roth IRA, which allows for tax-free growth and tax-free withdrawals in retirement. Roth IRAs have income limits, but there are backdoor Roth IRA conversion strategies available. Consult with a financial advisor to explore your options and determine the best approach based on your specific circumstances and long-term financial goals.
@mitchrad I opened my first IRA when I changed employment and wanted to roll my 401K into it. Over the years I’ve done the same a few times and added to it when I could. I was able to self direct it and the money in it grew tax free.
@mitchrad your last two questions are very ill-formed.
disregarding those, if your 401k contributions reduce your income below the Roth IRA threshold, then there's no reason not to put money in it if you can afford to
@mitchrad Someone please correct me if I am wrong.
I think when you make enough you cannot deduct the contributions from your current years taxes in a traditional ira. These are called non deductible contributions. I believe the earnings on these contributions are still taxed on the way out. (Does this mean instead of capital gains your are essentially paying your income tax on the gains?) So if I am right you are taxed income tax when it goes in and then income tax on the gains which is probably higher than capital gains. In this case you would not want to do a traditional ira if you make enough you can’t deduct. Instead you can do the Roth IRA back door rollover from the non deductible contributions.
@mitchrad I also want to add that ROTHs don't have RMDs, so you can draw from them last in retirement, use for long-term care, or pass down by which heirs will pay no taxes.
@mitchrad I have a traditional 401k and Roth IRA. I just started investing but my plan is to max my Roth IRA every year.
When I reach retirement, I'll pull from my traditional 401k as needed, leaving my Roth IRA to continue growing tax free and compounding like crazy after 30+ years of investing. By the time I need to touch my Roth IRA, I'll be in my 70's and will have over 40 years of tax free compounding.. it will be worth millions and I won't pay any taxes on that.
That's my thought process and plan. I'm sure everyone is different.
If you currently make more than the income limit for a Roth IRA, do a back door Roth IRA.
