While it’s certainly possible to have a 401(k) and a Roth IRA at the same time, in reality most people don’t have the money required to maximize both accounts. For this reason you need to make sure you choose one or the other and decide whether you should move your 401k to Roth IRA. Here are a few things that you need to think about when trying to decide on which wins out of a Roth IRA vs 401(k). If you are looking for whether a 401k rollover to Roth IRA is right for you, please click the link to read our article regarding that decision as it is slightly different than this post.
The first thing you should need to think about is what kind of tax bracket you’ll be on when you retire. If you think that you’re going to be a higher tax bracket then it is probably best to invest in your IRA because you’ll get a better tax deal when you do want to take out the money. Of course, it is almost impossible to say with any accuracy what kind of tax bracket you’ll be when you retire, especially if you’re starting up your retirement fund at a young age but it is at least something that you should take into account.
In some cases you might find that your employer will match any contributions you make to your 401(k). If this is the case for your employer then it makes sense to try and invest as much you can in your 401(k). However, not all employers will match so if yours doesn’t and you aren’t sure about which to tax bracket you will be when you retire the situation becomes a lot more difficult.
The main factor when deciding which one you should invest in is what kind of quality investments you can get for each option. Make sure you know what investment opportunities you have for your 401(k) before you make your final decision as to whether you should move your 401k to Roth IRA.
The most sensible thing to do is speak to your financial adviser. You need to ask him or what the best Roth IRA for you is, and whether you’ll receive more benefit from trying to max out your 401(k) or your Roth IRA. You should also consider things such as a Roth IRA CD and other variations to see which best suits you and your money. You should ensure you are aware of all the rules and regulations regarding early withdrawals and contributions for both before you make a final decision.