Hi, Mark, Kohler here with another tax and legal tip let's talk about comparing the ROTH 401k with the ROTH IRA
[I] get a lot of phone calls with clients asking Mark. Which one's best for me now. This is a complex topic
Let's see what we could do and break down the basics, okay?
[let's] go to the whiteboard and put them in two different columns. See if that will help make more sense of it
Let's start with the roth IRa first
More people are familiar with the Ira or roth, Ira
But around a little longer and then we'll put the roth 401k over on this side now
There's pros and cons to [both], but let's start with the roth, Ira
Maybe we'll contrast what's good and bad because again everybody's a little different, but you can only put fifty five hundred
into a roth Ira or
[sixty-five] hundred it would catch up if you're over age 50 now. There's also some income limitations
So if you make too much money, you can't even do this which is probably one of the cons, right?
limitations
you cannot borrow against your
Ira so that's another problem when you start comparing them with the [roth] 401k?
But the roth ira is simple. It's easy, and it's cheap to set up so that's easy and affordable
So you've got these different options, and if some of you want to get into a roth ira watch my video on the roth
Conversion because there's no income limits on a roth conversion
but when I have a client looking to put away a lot more money and even
Self-Direct and get a little more creative with some lending we might want to go to the roth 401k all right now
Let's compare the roth 401k and go over here now the first benefit
We like is you can put away a lot more money eighteen thousand dollars
Twenty four thousand that's a six thousand dollar makeup of you're over age 50
So you can see here kind of a big deal
Now the next benefit is there's no
limitations here when it comes to your income level you make a million dollars and still put money in a roth 401k, so
Like that no limitations on income also
[with] a 401 k you can borrow against it borrowing provisions are pretty cool
We I love the borrowing provisions if you want to suck some money out of the 401k and use for personal reasons
Now the con here in this situation is in order to take advantage of this you've gotta have a small business
you got to have some small business income, so
I typically see our clients with s corporations with ordinary income really funding the roth 401k
The other con is you've got your set-up cost. We charge around twelve hundred bucks
You're going to see that or more out there if you have multiple employees it could get a little more expensive
But [I] would say I'd budget around twelve hundred dollars per set up
And we charge around four hundred dollars a year and you get to be your own trustee and maintain the checkbook
No
[stockbrokers] are taking a percentage of this this is for you to self-direct your own 401k
Which I'd like to summarize with that with both of these plans you can self direct
And you can invest in what you know best watch them right other videos on this strategy
But with A [401k] you can borrow inside your 401k to do
Investments with no you [DFI] that's unrelated debt financed income another deep concept
But you [haveyou] [dFI] when you borrow money inside a roth ira [and] yourself directly bottom line
This is a complex topic as you can see and something you should debate with your accountant or financial advisor
We open to self-directed don't let an advisor tell you you can't do this
It's usually that they can't do it
But you can look at your options even if you have employees as to what you can do with [the] roth 401k again
Talk to your advisor big topic
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