If I have a 401k at work and I'm already contributing 10% to it, is there any benefit to open up a roth IRA?

Question

What are the benefits of having both a 401k as well as an IRA? Tax or otherwise?

Answer 1

I agree with the first answer.  However, be cautious in opening a Roth IRA today.  Most people (myself included) have watched their IRA's steadily decrease in value over the last year or so.  But if you are young, this is a definitely a good way to go very soon; you might just want to wait several months.

If your employer offers any matching in your 401K, you should probably put more than 10% in.  Many companies match a certain percentage of what you contribute.  For example, a company might match 1/2 of the first 15% you contribute.  This is tax free until retirement as well.  

I would be putting at least 15-20% into my 401k before I bothered opening a Roth IRA, but that is just me.

Answer 2

I do both, and I think it's best to diversify that way.

Until recently, I've only done my employers 401K and was putting anywhere from 7-15% away.  I did this because I knew if I didn't, I probably wouldn't have the motivation to save myself.  I'm 25 and have a good solid amount in there right now and I'm proud of it.  But my employer doesn't contribute a penny to it, which is the downside.  If you get employer contributions, always best to put at least 5% or so into a company-sponsored plan.  The negative is thatif you look at your balance and it's 10K, you know you really only have 8K in there because of the 20%-range taxes you'll have to pay after you start taking withdrawals at age 59.5.

Recently I opened a roth.  Every penny of that account is mine.  I like knowing exactly what I have in there at all times.  If you can afford pumping some money (even just $20 or $50) into a roth each month, I'd say definitely go for it.  Possibly lower your employer contribution a couple percentages if you're structured enough to put that extra into the roth.

Whatever you do, as long as you're saving for retirement you're making a smart financial decision :)  10% is excellent.

Answer 3

Wayne is correct...no tax benefit for contribution currently...but tax free earnings until you retire..the amount will be taxed when you begin taking distributions at retirement.  be aware that if you need to withdraw the money prior to 591/2 years old you will be taxed your current tax rate plus a penalty of 10% (early withdrawal).

Answer 4

The main benefit of doing the Roth IRA is that the Roth grows tax-free while the 401(k) will be taxable income when you withdraw the money.  The best thing is to maximize your contributions to both if you can. After all, do you ever hear anyone complain that they have too much money for their retirement?   The maximum contribution to a Roth is $5k per year or $416.67 per month. The average growth in the stock market has been about 12% over the past 100 years (including the Great Depression), so if your Roth averages 9% for 35 years and you contribute the maximum, you should have over $1.2 million.  That would be in addition to whatever your 401(k) totals.

Answer 5

I do both.

There are not any current tax benefits to putting money in a Roth.  The tax benefits come on the back end.  You can take the money out tax free when you retire.

The reason to do both:  No one ever gets to retirement and says I saved too much.

Answer 6

benefits are diversity of investments.  You wouldn't want to have 100% of your money into a single stock. Why put 100% of your money into a tax deferred account.  Instead you should have some of your money in pre-tax and some in after-tax.   Which one should have more?  That's a crapshoot...for 90% of Americans they are basically equal in terms of how much you'll have when you retire...however the diversity allows you a choice.  So, it comes down to this...do you believe that a flat tax is in Americas future?  If so, load up on 401k's.  If not, load up on the ROTH.  A flat tax devestates the ROTH's advantage.