Roth IRA vs Roth 401k during residency

[PugsAndHugs]

I was always under the impression that Roth IRA is the way to go during residency since the salary during residency is low and thus the taxes you pay now will be lower than in the future, however, one of my co-resident brought up to me that he is doing the Roth 401k instead of the Roth IRA because it is also post-tax contribution but he is also able to contribute more than the $6k limit per year (limit is $19.5k since it is a 401k.) Does anyone know of any pros/cons to choosing Roth 401k instead of Roth IRA? I did an extensive search online and could not find any clear reasons. Thank you in advance!

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[aafisahar]

Why not both

 

[chessknt]

They are different buckets. If you can fill both up go for it, if you cant it doesnt matter much although there is some questionable benefit to a roth IRA since it triggers the 5 year clock but you are highly unlikely to ever need to use the funds in that period anyways.

One possible benefit to an IRA is if your employer uses a ****ty provider with high fees and bad fund choices the IRA will let you pick fidelity or vanguard and have much more control over it with less fees.

 

[Professional Student]

Here's the general path for almost everyone, with the lower you go on the list depending on your money not running out:

1. 401k contribution until employer match (0-5% or whatever of salary)
2. IRA contributions until maxed out. IRA over 401k at this point because you can set up an IRA with the big 3 companies (Fidelity, Vanguard, Charles Schwab) when your employer's 401k may have high fees associated. Also, IRAs have essentially infinite investment options while 401ks just have the options picked by your employer. These are probably good enough but may not always be high quality.
3. Back to 401k contributions as long as the plan and investment options aren't horribly bad, which most aren't
4. HSA. Basically can function as a traditional IRA with the ability to spend on healthcare. Some people put this above maxing out 401k but there is no Roth option.
5. Taxable accounts.

 

[rhomboid]

I would always do Roth first, as this is after-tax money and you would not have to pay tax later. This is assuming that our income is much lower currently compared to when we're retired. You can do Roth in two different ways
1. Roth IRA - this is where you set up with an investment company like Fidelity or TD Ameritrade. Maximal contribution is $6,000 per year
2. Employee retirement account. This is where you will hear Roth 401k, Roth 403b, or even Roth 457. The maximal contribution is $19,500 per year. Some employers offer two (mine offer 403b+457), so I can contribute up to $37,000 per year.

General recommendations are max out your Roth accounts first, then can consider pre-tax contribution to lower your taxable income.

 

[anonperson]

I was always under the impression that Roth IRA is the way to go during residency since the salary during residency is low and thus the taxes you pay now will be lower than in the future, however, one of my co-resident brought up to me that he is doing the Roth 401k instead of the Roth IRA because it is also post-tax contribution but he is also able to contribute more than the $6k limit per year (limit is $19.5k since it is a 401k.) Does anyone know of any pros/cons to choosing Roth 401k instead of Roth IRA? I did an extensive search online and could not find any clear reasons. Thank you in advance!

401k is limited to what is available in the employers plan. Plus, when you finish residency, if the amount is less than $5000, the employer plan will most likely close the account and send you the check (you can roll it to an IRA or new 401k).

The IRA has more flexibility since you can open that up with anyone and choose any funds/ stocks/ bonds etc.

Other thing to keep in mind is that 401ks have better protection from creditors than IRAs.

It's good you are saving, but to be honest, I wouldn't stress too much. The amount you can reasonably save as a resident is relatively small.

Just to give you an idea, my gross salary as a resident was ~$55k/ year.

As an attending, I am saving $50k to $70k a year in various investment accounts (401K, IRA, taxable etc).