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To IRA or not to IRA, that is my question.

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  • #1

    To IRA or not to IRA, that is my question.

    My company recently changed from Fidelity to Wells Fargo for our 401k holder, and I switched recently from a t401k to a Roth 401k. I was looking at the funds today and realized they have several vanguard index funds. I'm changing to those from the auto funds they set up in the switch(they tried to match what I had. No index funds in the last option). I didn't swap my balance over when I changed to a Roth, but for my future contributions, I have.

    My question is if I have the choice of index funds in my Roth 401k is there much need in me having my Roth IRA as well until I max the account? Seems kinda redundant at this point. I can't max out my 401k, but I can put more into that instead of an IRA. Any reason I wouldn't want to? Since I have good options for my 401k, anyway.
    Everything happens for a reason. Sometimes that reason is you're stupid and make bad choices.

    Current Occupation: Spending every dollar before I die
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  • #2
    Your company could drop the funds you want to be invested in from your 401k just as quickly as they added them. I'd keep contributing to the IRA for the guaranteed flexibility.

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    • #3
      No need for IRA in your case if your description is totally accurate.

      However, for most people, I'd say "yes". If you ever decide to pick best stocks instead of funds, then IRA offers that flexibility. You can also move it into vanguard if you want.

      I don't get any tax savings putting money into IRA and I still do; why? because there's no immediate tax on the gains, making buy-sell a lot simpler (and cheaper). IRA is great investment vehicle.

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      • #4
        If your 401(k) elections are in bog standard stuff like S&P500 and broad bond funds, then even if the plan administration changes, you'll still have equivalent funds. Only if your heart is set on investing in sector funds could you lose out during another switch of administration.

        And, of course, Roth IRAs are funded from after-tax money...

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        • #5
          One benefit of having money in a Roth IRA vs a Roth 401k is that IRA money will not be subject to RMDs once you're 70+ years old. IRAs also have much more investment flexibility, and may have lower expenses (though 401k's do sometimes have lower expense options available for comparable funds). The IRA also has much greater flexibility in withdrawals -- you can withdraw your principle from a Roth IRA penalty fee at any time if the need were to arise. Most Roth 401k's do not have that option.

          Personally, I maxed my Roth IRA long before I maxed my 401k equivalent (TSP). I prefer the flexibility of the IRA.

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          • #6
            Originally posted by kork13 View Post
            The IRA also has much greater flexibility in withdrawals -- you can withdraw your principle from a Roth IRA penalty fee at any time if the need were to arise.
            Only after 5 years per contribution year.

            What Is The Roth IRA 5-Year Rule? | Bankrate
            http://www.bankrate.com/finance/retirement/roth-ira-5-year-rule.aspx
            The Roth IRA is a retirement saver's dream. The Roth IRA five-year rule mandates a five-year waiting period for tax-free withdrawals of earnings.

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            • #7
              Originally posted by Nutria View Post
              Only after 5 years per contribution year.

              http://www.bankrate.com/finance/reti...year-rule.aspx
              Good point, I always forget about that proviso... But realistically, I've had my IRA since 2006 (college sophomore), and it's been maxed every year since. Even with the last 5 years untouchable, that's alot of ready cash if the need truly arose. Once a person has passed that first 5 years of ownership, that flexibility is a powerful option. .....not that I'd ever want to exercise that ability, but I'm more comfortable knowing that it exists and is available to me.

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              • #8
                I appreciate you guys weighing in on this. I was wanting to keep it simple, but it looks like an IRA is still a better way to go after the match. I hadn't thought about some of this, so thanks. That's why I asked.
                Everything happens for a reason. Sometimes that reason is you're stupid and make bad choices.

                Current Occupation: Spending every dollar before I die

                Comment

                • #9
                  Originally posted by Nutria View Post
                  Only after 5 years per contribution year.

                  http://www.bankrate.com/finance/reti...year-rule.aspx
                  No, read your own link more carefully. That rule is to withdraw earnings. The contributions are available to you at any time for any reason, no tax or penalty.

                  What is the Roth IRA 5-year rule?

                  The 5-year rule for Roth IRA distributions stipulates that 5 years must have passed since the tax year of your first Roth IRA contribution before you can withdraw the earnings in the account tax-free.
                  This feature is unique to Roth IRAs. It does not apply to the Roth 401k.

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