So I got a new job at the beginning of the year, and I’m trying to sort through the retirement options available to me now. I know the general rule of thumb has been:
- Contribute to 401k up to the company match
- Max out IRA ($4000/year)
- Max out 401k ($15,500/year)
However, a wrench has been thrown into the mix because a Roth 401k is available to me now, and they will apparently match my contributions towards the Roth 401k with contributions to my normal 401k.
So does it matter how I contribute now? Should I be splitting contributions between Roth and normal 401k, or leaning in one direction over the other? To complicate things further, there seems to be an After-Tax option as well, which may mean that it doesn’t apply against the $15,500 limit, but may also not be tax-sheltered.
I’m getting a little confused.
Are you sure the “After Tax” option is different from the Roth 401K option?
All Roth accounts should be after tax; that (and the tax treatment when you take the money out) is basically the difference between a “normal” and a “Roth” 401K.
The general idea using the traditional IRA and 401k is to lower your taxable income for the filing year, so you will not pay taxes on the contributions.
Any Roth (401k or IRA) will be after-tax contributions, but tax free withdrawals (qualified).
it really depends specifically on your numbers. You should consult a tax advisor on your projected income for the year, your expected deductions, as well as your monetary needs.
For what its worth, my personal approach is to contribute any excess you can spare after deductions to drop into the 15% tax bracket, that is if you can get by on that (Approx 30k/year for filing single) much income for the year.