Target retirement fund in 401k or Roth IRA?

[atomicrc11]

I'd say a Roth is an important part of a retirement portfolio, but certainly not the largest part. When I had a 401k, I put in up to the match. Now, even maxing out my Roth, I'm still putting a nearly equal amount into my 403b which I rolled my 401k into. Because of that employee match it encouraged me to put into this fund rather than go Roth only. Since the Roth has contribution limits, I'm going to have far more in my 403b than my Roth at retirement. Currently my 403b is four times that of my Roth.

[Broken Arrow]

Ok, I think I get it now. Thanks.

[disneysteve]

I'd say a Roth is an important part of a retirement portfolio, but certainly not the largest part.

Not all of us have a 401k or 403b. My Roth is my only tax-sheltered account for retirement. My wife also has a Roth and is currently working part-time at a place where she does have a 401k. She puts in the maximum they allow - 50% of her income, but she doesn't earn that much. So our Roths are our main retirement accounts. Everything else is in taxable accounts.

[jIM_Ohio]

I'd say a Roth is an important part of a retirement portfolio, but certainly not the largest part. When I had a 401k, I put in up to the match. Now, even maxing out my Roth, I'm still putting a nearly equal amount into my 403b which I rolled my 401k into. Because of that employee match it encouraged me to put into this fund rather than go Roth only. Since the Roth has contribution limits, I'm going to have far more in my 403b than my Roth at retirement. Currently my 403b is four times that of my Roth.

I was not trying to discourage use of 401k with a match- my comment was NOT about contributions.

If contribution limits did not exist, I would expect Roth balances to be higher.
The point was put the most aggressive investments inside the Roth and compliment this with more conservative holdings in the 401k.

[jIM_Ohio]

Not all of us have a 401k or 403b. My Roth is my only tax-sheltered account for retirement. My wife also has a Roth and is currently working part-time at a place where she does have a 401k. She puts in the maximum they allow - 50% of her income, but she doesn't earn that much. So our Roths are our main retirement accounts. Everything else is in taxable accounts.

This presents a challenging situation. Based on the context of my last few replies and using this case as an example, consider

bonds inside wife's 401k if bonds will be held anywhere or more conservative equity funds in 401k if no bonds are held.
if that does not make sense
then muni bonds in a taxable account
and load the Roths up with growth oriented investments like stocks.

[soninokla]

Aggressive target fund in Roth IRA

I have a little already invested and little to invest in an ongoing basis, but here is what I am planning on doing. In my Roth IRA will go a T. Rowe Price Retirement Fund 2055. This is the target-date fund that has the smallest amount of bonds (8%) of any. In my 401(k) I have flexibility on how I allocate, so I will have 36% bonds. My 401(k) is 60% of my portfolio so it averages out to a total of 25% bonds which is what I personally want at age 45. I similarly choose the amount of other assets in my 401(k) so the total portfolio %'s are what I want.

[GREENBACK]

I've heard the argument that the extra money that you put in a 401k(because it isn't currently being taxed) is more money to grow on and can offset a potentially higher tax bracket. What do you guys think of that theory? Some financial planners even seemed confused on this whole debate

[jIM_Ohio]

I've heard the argument that the extra money that you put in a 401k(because it isn't currently being taxed) is more money to grow on and can offset a potentially higher tax bracket. What do you guys think of that theory? Some financial planners even seemed confused on this whole debate

It is only more money to grow if the 401k money will be taxed lower in retirement than you make now.

In general the best tax advice is to take the deduction now because tax laws change too often to count on the deductions being there later.

[GREENBACK]

Congress being congress, I can see them finding a way to tax the roth years down the road. They're all lawyers and can get quite creative in obtaining revenue.

[Aleta]

OUr accountant told us if people are really concerned about what can happen down the road that you can invest 1/2 in a Roth and 1/2 in an IRA. You have to be able to qualify for this though. Our accountant believes that as long as the government is not taxing you that you should take advantage of it.

[GREENBACK]

I have to agree. I don't completely trust this idea that 20 yrs. down the road it will be yours free and clear. Things have a way of changing. Of course, we can only go on what we know now.

[maat55]

One factor I haven't seen mentioned is the 70&half rule forcing you to pull money out. I'm not sure if this applies to 401k's, but if so, I would want my lower balance there. The Roth would get to accumulate longer.

[jIM_Ohio]

One factor I haven't seen mentioned is the 70&half rule forcing you to pull money out. I'm not sure if this applies to 401k's, but if so, I would want my lower balance there. The Roth would get to accumulate longer.

Reality is people have little control over the required minimum distributions (RMD). Especially during early accumulation years.

I would not choose or not choose investments 30 years out because of RMDs. The RMD rules change often, so trying to do long term planning on rules which change is misguided.

What I would do:
1) diversify account types- don't put early contributions in only 1 account, have a 401 (which will have RMDs) and a Roth (which will not have RMDs).
2) as retirement gets closer (less than 12 years) start thinking about if 401k will have enough in it to live on and add a taxable account to the Roth and 401k.
3) if you ever get a rollover, consider converting some of the rollover to a Roth.
4) As retirement gets even closer, increase cash holdings in taxable accounts to gain even more flexibility on RMDs.
5) if you can start withdraws or Roth conversions at age 59.5, the probability withdraws from RMDs hurt you at age 70.5 is low.