Traditional IRA, Roth IRA or bump up 401K

[eliza61]

Finally, finally, finally after 5 years of no raise or cost of living adjustment, my job is handing out raises.

Now most of you who know me, know I am a "forced" saver. Meaning I do a lot better at saving if you get the money out of my grubby little hands before I see it. To that end I'm trying to stash it and continue living on my "pre-raise" income.

Here's a bit information.
I contribute to my 401K plan up to the company match (currently dollar for dollar up to 7%)

I have a fully funded pension plan. 20 years vet at my job. but like every one else, what they do now is not guaranteed 10 years down the road.
Dh has the same thing at his job, he contributes to his 401K to company max and has a company pension plan.

No big cc debt, we have one visa that we use for honorable #1 sons college tuition but it's usually paid off within 5-6 months after the term begins.
We have a mortgage but not remotely thinking about paying that off.

So I was thinking about opening a Roth IRA or maybe a traditional one. But then I was thinking if I bump up my 401K it would lower my taxable income.

Ok gurus,
help a gal out.
We have no outside IRA's

 

[dvcgirl]

You're doing the 401K up to the match, next up would be the Roth IRA. I'm guessing that you have a nice family income, and taxes are low by historical measure right now. And so I would bet that we're all going to be paying higher taxes down the road....and so the Roth is the way to go now.

If you are able to fully fund your Roths, then go back to your 401K and max that out.

 

[PatsMom]

First check your eligibility for funding a Roth or traditional IRA. If your family income is too high, since you are covered by a pension plan, the ability to fund a traditional tax deductible IRA may be quite limited. A Roth has much higher income limits to contribute.

If you can do a Roth, that would probably be the best move. If you feel like you need "forced" savings, you can set up a direct deduction from your checking account to a brokerage account. Be aware of minimums for investment and fees for small accounts. Check out your brokerage carefully - an annual fee can pretty much wipe out gains in a really small account.

If the Roth is not feasible, then see if your 401(k) has a Roth option. It is becoming more common. The issue with the Roth option in a 401(k) is that when you terminate employment and roll the assets over to a Roth IRA, you start the "five year clock" on qualified withdrawals unless you roll it over into an existing account instead of a new one.

If the best way for you to save is to have the money taken out of your check before you ever get it, then increasing the 401(k) contributions might be better than the Roth!