No. of Recommendations: 1
Should I be channeling that extra 6% into my Roth IRA instead of the 401K? Is there any tax advantage?

I appear to be getting a variety of answers...

CountNoCount says stick with my original plan: 10% into the 401K, whatever leftover scraps into the Roth IRA.

BretBaughn: I think that's mostly a matter of what your marginal tax rate is now versus what you'd expect it to be when you retire. If it's higher now, you're better off with the 401K. If the tax rate you expect at retirement is higher then you're better off with the Roth and paying the taxes up front.

My marginal tax rate now is 25%. Quite frankly, I have no earthly idea what my marginal tax rate will be in twenty-five years. I'm confident that my expenses will be less than now, because I don't plan to live in mortgaged houses or have much debt. But honestly, who knows what the future will bring?


buzman: Your Roth IRA will have lower administrative costs than a 401K plan. It depends on the investment options available insider your 401k versus a Roth.

My 401K's fund expenses average 0.1%--I love Vanguard's index funds.

In my Roth, the only expenses are the commissions I incur when I make a purchase, currently $7 a pop. The dividends I receive from my stocks sit in a money account (earning zero-point-almost-nothing percent) until the amount reaches a high enough figure that I feel justified to make another purchase. If I buy when I have $700 to invest, then the expense for the commission is 1%, but currently I make maybe one or two purchases per year. Naturally, if I divert more of my take-home pay into the Roth account, then I'll be able to make more purchases.

My back-of-the-envelope calculation tells me that if I divert that extra 6% into the Roth IRA I'll be able to make another one to two trades a year for the foreseeable future. Call it four trades a year, $28 annually for the next three to five years. If I continue to let that 6% flow into the 401K, the 0.1% annual expense would be less than ten bucks. On that basis alone the 401K would be the better choice, except I enjoy a little stock-picking now and then.

HMALETTER: I love the ROTH option. The more it builds, the longer you can take minim distributions from your 401K when you retire.

Could you explain that further please?
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