Am I understanding Roth IRAs correctly?

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>Is that all accurate? Yes. >is there any downside to a Roth IRA as compared to additional contributions to a Roth 401(k)? No, apart from possible tax inefficiencies if your marginal tax rate is currently higher than your effective tax rate in retirement. (For traditional vs Roth)


One important detail. Make sure you track your basis (the original contributions). I needed to pull some money out of a Roth and only then realized that my bank didn’t track it. I ended up having to pull my old tax returns up to see how much I had contributed each year and add it up manually.


>is there any downside to a Roth IRA as compared to additional contributions to a Roth 401(k)? Compared to *Roth* 401(k) contributions, not really. Compared to *Traditional* 401(k) contributions, the Roth option may be less tax-efficient if you expect your tax rate in retirement to be lower than your current marginal rate.


There’s two strategies. One where you are not taxed now so you have a larger amount to grow with interest over time, you then pay taxes on it when you take it out. This is a traditional IRA. The second, a Roth has you pay taxes now so you’re collecting less interest because there’s a smaller base amount but there’s no taxes when you take it out when you retire. It’s mostly a wash between the two plans, especially as Roth has smaller amounts you can contribute. The ‘advantage’ to a Roth is that most people make more money as they get older so you may pay 12% taxes now instead of paying 22%+ later. We also have historically low income taxes right now.


I have a question on this too: I am over 50 and company matches 2% in our 401K. I have both Roth and Pre-Tax options available, is the magic max 26K for my 2021 contributions (not employer)? This could be 7K Roth and 19K Pre-Tax?