Should I lower 401(k) contributions to do a Roth IRA?


Q. With the new year, I want to get my retirement savings in order. I save the max 8% to my 401(k) with a 4% match. I have a Roth available but I always wanted the tax deduction so I never did the Roth. I haven’t had enough money to save in a separate Roth IRA. Should I save less to the 401(k) and instead do the Roth IRA? I’m 49.
— Planning

A. The choice between a tax-deferred account that can help with your tax return now, and one that’s tax-free for retirement can be a tough decision to balance.

Your needs — and your eligibility — are important parts of the puzzle.

For a Roth IRA, because you are 49 and have earned income, you may be eligible to contribute $7,000 a year for 2024, compared to $8,000 if you were 50 or older, said Gregory Cannillo, a financial paraplanner with Baron Financial Group in Fair Lawn.

Keep in mind that Roth IRA contribution eligibility phases out at $161,000 of income if you file as single and $240,000 if you file as married filing jointly in 2024, he said.

If you needed to access the funds within the next 10 years from the Roth IRA account, you would be taxed at 10% rate if you withdraw the account’s earnings before 59 ½ years of age, he said.

Qualified distributions from the Roth IRA need to happen at least five years after the account was created in order to avoid the 10%, although there are some specific exceptions, he said.

“You cannot borrow from the Roth IRA, whereas you would be able to borrow a limited amount of money against a 401(k) account if you remain employed by the company,” he said. “Additionally, if you are older than 55 and lose your job you are able to take distributions early from your 401(k) as long as the 401(k) is kept with your prior employer.”

Cannillo said something else to consider are your marginal taxes.

“If you feel you will be taxed at a higher rate past 59 ½ than you are currently taxed, a Roth might be a good option because the funds can be drawn tax-free compared to a 401(k), which would be taxed at your future tax rate,” he said.

Finally, Roth IRA’s do not require required minimum distributions (RMD) whereas 401(k)s do, he said.

All in all, he said, the option of a Roth IRA requires a reflection on your specific financial scenario, and your expected need for financial resources in the short-term and long-term future.

“For example, you will want to be sure to have enough funds set aside for easy access in case of a `rainy day’ emergency prior to setting up a Roth IRA,” he said. “Reviewing your question with a financial planner and tax accountant can help you determine how to save for retirement optimally.”

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This story was originally published in February 2024. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.

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