Hi I just got a big boy job with a 401k match that I plan to max out. My question is, why do many people suggest maxing out your Roth IRA after hitting your employers contribution match, wouldn't putting those extra 7k in the 401k increase your gains over time a lot more, since the 401k will have a larger amount of money. In 5 years 401k would have 70k from my contributions + employee match, then if I put the money I would out in a Roth IRA it would sit at 105k. Conversely, due to the cap the Roth IRA a would be sitting around 35k. So wouldn't the 401k be earning a lot more? Let me know if I'm missing anything.
Maxing out Roth IRA vs putting that money in a 401k when it comes to compounding interest?
byu/Daddy_nivek inpersonalfinance
Posted by Daddy_nivek
2 Comments
> My question is, why do many people suggest maxing out your Roth IRA after hitting your employers contribution match
Tax free growth on money you are planning to invest for 3-4 decades is incredible tool.
Also, not everyone has a good 401K. Many 401Ks are filled with bad managed funds that have high expense ratios. In a Roth IRA, you control everything.
> . In 5 years 401k would have 70k from my contributions + employee match, then if I put the money I would out in a Roth IRA it would sit at 105
And you’ll be paying taxes on every dollar, including growth, that you eventually take out of it.
> Conversely, due to the cap the Roth IRA a would be sitting around 35k.
Once you hit IRA cap, you just go back to 401K until you max that.
> So wouldn’t the 401k be earning a lot more?
No.
If you take the same amount of money and invest it all the same way, it’ll grow the same regardless of whether it’s all in one bucket or split between two.
Typically the advice to move to an IRA after getting the company match is due to better fund options since you can actually pick your custodian, unlike the 401k where you’re stuck with whatever your employer offers.