I have maxed pretax 401k contributions, should I ... - Roth IRA News

Basically I see 3 options here. And one is the standout.

Here?s why I say that.

Since you?ve maxed out your contributions to the 401, you have basically these 3 options.
1. Put taxable money into the 401 at work
2. Put the money into a conventional IRA (But, at your income, you probably wouldn?t get the tax deductions.)
3. Put the money in a Roth IRA and pay taxes on it once.

Personally, for this situation, the 401 at work would be my last choice, simply because it limits what you can invest the $$ into to what?s offered in your company?s plan. There are simply a LOT more options elsewhere that can get you some pretty serious returns. And, overall, putting the money somewhere other than the 401 gives you more diversification.

Plus, if you put over contributions into the 401, that?s all got to be tracked and accounted for somewhat differently than your normal contributions, etc. So, if you ever leave that employeer (which you?re likely to do) and rollover that 401, then there?s more paperwork to consider, ?..That?s just a headache, not a mojor consideration. But, when taken in light of what?s next.

So, that leaves the two IRA choices.

Optimally, I would say the Roth.
1. With that Roth you pay taxes this year on the money you put in, but never pay taxes again on any of the gains or withdrawals. That can add up to a really big tax savings over a couple decades.
Case in point. Say you have 5K to drop into the Roth this year. If you have 20 years to go until retirement and that money gets 10% a year, it will grow to 33+K. I?d rather pay the taxes on it when it?s 5K. (With a conventional IRA you don?t pay the taxes on the 5K , but do later on the 33K. You do the math. And like I said, you probably would not be able to deduct the conventional IRA contributions anyhow.)

2. With a Roth, once it?s been around more than 5 years, you can actually take out your contributions ( not the gains?.) without paying any taxes or penalties on them, since you already paid the taxes the year you contributed them. Which gives you a little more flexibility if you want it. And you can?t do this with a conventional IRA.

Kick it around. Just some food for thought.

Source: http://rothira.solve-up.com/roth-ira/i-have-maxed-pretax-401k-contributions-should-i-now-add-post-tax-contributions/

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