Roth 401(k) or Roth IRA – which is better?

Question: Stacy in Glendale: Is there any real difference between a Roth 401(k) and a Roth IRA? Should I use one over the other?

A: There are a few important differences to note. For one, the Roth 401(k) has a much higher contribution limit: In 2021, you can contribute up to $19,500 ($26,000 if you’re 50 or older). Meanwhile, you can only contribute up to $6,000 in a Roth IRA ($7,000 if you’re 50 or older). There are also income thresholds that limit how much you can contribute to a Roth IRA, but no such limitations exist for a Roth 401(k). So, if you’re a high earner, a Roth 401(k) can be more useful.

On the other hand, Roth IRAs don’t force you to take Required Minimum Distributions (RMDs) starting at age 72 (Roth 401(k)s do). This gives you much more flexibility since you’re not forced to draw down the account, and it especially makes a Roth IRA a handy tool for transferring wealth.

The Allworth Advice is that both are powerful retirement savings options due to their tax-free growth, so you really can’t go wrong with either. In fact, you could contribute to both then, down the line, roll over the Roth 401(k) into a Roth IRA to avoid RMDs.

Amy Wagner and Steve Sprovach, Allworth Advice

Q: Sandy in Harrison: Do you ever recommend requesting a credit card credit line increase?

A: It depends on the reason. If you’re constantly hitting your current limit and already have credit card debt, it is absolutely not recommended. In this case, there’s a good chance you’ll dig yourself deeper into a hole – especially since a 2019 study by the Federal Reserve Bank of Boston found that credit card debt typically increases proportionally to a credit limit increase.

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2021-10-14 02:02:21

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