ROTH 401k VS ROTH IRA | Mark J Kohler | Tax & Legal Tip

Updated : Aug 26, 2019 in Articles

ROTH 401k VS ROTH IRA | Mark J Kohler | Tax & Legal Tip


Hi, Mark, Kohler here with another tax and legal tip let’s talk about comparing the ROTH 401k with the ROTH IRA [I] get a lot of phone calls with clients asking Mark. Which one’s best for me now. This is a complex topic Let’s see what we could do and break down the basics, okay? [let’s] go to the whiteboard and put them in two different columns. See if that will help make more sense of it Let’s start with the roth IRa first More people are familiar with the Ira or roth, Ira But around a little longer and then we’ll put the roth 401k over on this side now There’s pros and cons to [both], but let’s start with the roth, Ira Maybe we’ll contrast what’s good and bad because again everybody’s a little different, but you can only put fifty five hundred into a roth Ira or [sixty-five] hundred it would catch up if you’re over age 50 now. There’s also some income limitations So if you make too much money, you can’t even do this which is probably one of the cons, right? limitations you cannot borrow against your Ira so that’s another problem when you start comparing them with the [roth] 401k? But the roth ira is simple. It’s easy, and it’s cheap to set up so that’s easy and affordable So you’ve got these different options, and if some of you want to get into a roth ira watch my video on the roth Conversion because there’s no income limits on a roth conversion but when I have a client looking to put away a lot more money and even Self-Direct and get a little more creative with some lending we might want to go to the roth 401k all right now Let’s compare the roth 401k and go over here now the first benefit We like is you can put away a lot more money eighteen thousand dollars Twenty four thousand that’s a six thousand dollar makeup of you’re over age 50 So you can see here kind of a big deal Now the next benefit is there’s no limitations here when it comes to your income level you make a million dollars and still put money in a roth 401k, so Like that no limitations on income also [with] a 401 k you can borrow against it borrowing provisions are pretty cool We I love the borrowing provisions if you want to suck some money out of the 401k and use for personal reasons Now the con here in this situation is in order to take advantage of this you’ve gotta have a small business you got to have some small business income, so I typically see our clients with s corporations with ordinary income really funding the roth 401k The other con is you’ve got your set-up cost. We charge around twelve hundred bucks You’re going to see that or more out there if you have multiple employees it could get a little more expensive But [I] would say I’d budget around twelve hundred dollars per set up And we charge around four hundred dollars a year and you get to be your own trustee and maintain the checkbook No [stockbrokers] are taking a percentage of this this is for you to self-direct your own 401k Which I’d like to summarize with that with both of these plans you can self direct And you can invest in what you know best watch them right other videos on this strategy But with A [401k] you can borrow inside your 401k to do Investments with no you [DFI] that’s unrelated debt financed income another deep concept But you [haveyou] [dFI] when you borrow money inside a roth ira [and] yourself directly bottom line This is a complex topic as you can see and something you should debate with your accountant or financial advisor We open to self-directed don’t let an advisor tell you you can’t do this It’s usually that they can’t do it But you can look at your options even if you have employees as to what you can do with [the] roth 401k again Talk to your advisor big topic [we’d] love to help you, but catch keep catching these tips and we hope to better help you live your American dream Thanks for listening, [and] I hope that information was helpful, and let me speak from the heart here I’ve been talking about topics like this for 10-15 years. I’m a cPa attorney best-selling author radio show host and I am [passionate] about Helping small business owners say taxes build wealth and protect it please check out the link right here Download my free ebook on 10 Common mistakes small business owners make in the tax and legal arena also check out my social media links here I’ve got daily tips a weekly blog radio show [every] week this information is free And I’d love to help you click below find out more about me and thanks for listening you

25 Comments

  • You don't need to be self employed to invest in a Roth 401k, your employer just needs to sponsor a plan. Video is slightly misleading as to that point. Not sure why you wrote it on the board as a condition.

  • i can do both right? i have roth 401k at my job and i wanted to do a roth ira outside of that as well and im not really a business owner but im 35 with zero in retirement so i feel im behind and i wanna start funding major

  • But isn't a good that you can take original contributions out of a Roth IRA without penalty after 5 years?

  • One question. You are an overseas worker and get the foreign earned income exclusion, and the company you work for offers the Roth 401k. Your salary is below the exclusion amount, meaning you have zero tax liability. Can you still contribute to a Roth 401k?

  • Here is to hoping I am trying to figure out if there is a best way pre or post. I work for the city have a pension and no match plan 401k. I have been putting into both pre and post with pre having more but I can always adjust % down the road to equal them out or not at all. I'm also wondering if creating an IRA in addition would make sense?? my tax bracket will not change while I work or retire due to my pension and passive income. Everyone's goal should be to make more when retired then not through passive income :)! So in my situation which seems different then most what advice could you share and thanks?! I also am not maxing out the 401k yet likely because I cannot afford to at this time and have some cash in bank I wanted to start private brokerage index fund portfolio. Do you advise in combination of my choices I do that or instead invest more into 401ks and start an ira? They will all be purchasing similar mutual funds anyways the diversity will come from the private index funds and liquidy. I'm afraid of putting all my money in places I cannot touch for a long time due to age limits of 59.5 I am only 35 and can retire(if I can afford to) in my 50s.

  • listening to folks talk about every penny taxed as ordinary income in a traditional blows my minds. there are monies you can take out of a traditional that you pay zero taxes on in retirement. Why does no one focus on this truth?

  • If I have a 403b Roth is it pointless to also do a Roth IRA? My employer puts in 9% of what my salary is regardless if I put money in or not. I'm no where near the annual limit

  • A big strike against ROTH in most states is that you have to pay state tax up front for all the years you invest….why would you volunteer to pay state tax when you can not pay ANY state tax by waiting long enough (some plans allow exemptions) or you can move to move to a non tax state and only pay federal tax….I"m in NY and I don't know why anyone would pay 4-6 percent in tax for many years when it totally avoidable!

  • One of the bigger cons to Roth 401(k) is the very limited investment vehicles once you have funds in the account. A Roth IRA has many more investment options.

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