If you're not sure what your tax rate, income, and expenses will be in retirement, one strategy might be to contribute to both a Roth 401 (k) and a traditional 401 (k) plan. The combination will provide you with taxable and tax-free retirement options. You can have a 401 (k) and a Roth IRA at the same time. Contributing to both is not only allowed, but it can be an effective retirement savings strategy.
Additionally, you can even invest in gold through your IRA, allowing you to diversify your retirement portfolio with Gold in your IRA. However, there are some income and contribution limits that determine your eligibility to contribute to both types of accounts. You may want to make contributions with money after taxes, which you can do with a Roth 401 (k). Many, if not most, retired investors can contribute to a Roth IRA and a 401 (k) at the same time. This type of Roth 401 (k) account is different from Roth IRA contributions that your employer may provide or from Roth IRAs that you can open with a brokerage agency on your own.
Assuming you meet the eligibility requirements, contributing to both a 401 (k) and a Roth IRA can provide you with both short- and long-term tax advantages. If you can commit to investing the tax savings of a traditional 401 (k) contribution, this debate is mainly focused on comparing your current tax bracket with your future one. While not everyone has employer-sponsored Roth offers or even a 401 (k), the opportunity to divide your retirement savings in a similar way can be done on your own with a traditional IRA and a Roth IRA. In that case, it may be advantageous to invest money in a Roth account when you are younger and your tax bracket is lower.
Using both accounts, especially if you're not eligible for a Roth IRA due to income limits, can allow for tax diversification during retirement. For these and other reasons, dividing your retirement savings between a traditional 401 (k) and a Roth 401 (k) or IRA is good planning. An IRA is an account opened by an individual, and a Roth IRA allows you to save funds after taxes to withdraw them tax-free when you retire. Contributing to both a 401 (k) and a Roth IRA allows you to maximize your retirement savings and benefit from tax advantages.
The traditional 401 (k) plan balance would then be reduced according to the tax rate when you retire, while the balance of the Roth 401 (k) plan would remain in full. Meanwhile, contributions to a Roth IRA are always made after paying income taxes, and qualified withdrawals during retirement are always tax-exempt. If your employer matches 401 (k) plan contributions, it's usually wise to make the most of them before contributing to a Roth IRA. Or, you can convert the traditional 401 (k) into a traditional IRA and the Roth 401 (k) into a Roth IRA to maintain some tax diversification.
The money in your 401 (k) plan will be taxed the time you sign it up because you didn't pay taxes on your contributions. Investing your money in a 401 (k) plan and a Roth IRA offers the perfect combination of tax savings, some now and others in the future.