Does Roth 401k Make Sense the last few months of work?

[MarieIG]

Hello All,

DH is retiring the end of the year, and will have a pension and annuity income, and 401k access. I have a 401k through my job, taxable accounts, and a small Roth IRA.

I was going to retire in August but a family situation has moved that up to the spring. The most I am anticipated to work in 2020 will be four months.

So the question is, does it made sense for me to contribute to the Roth 401k the last few months of work? After I retire (or when I turn 59 1/2 this February) I can roll funds from my 401k into an IRA. The majority of the funds are taxable, but there are Roth funds 401k in there as well. My work 401k is no bargain expense wise, and I had intended no matter what to roll out the Roth 401k into a Roth IRA to save expenses.

I do want to make Roth conversions over the next few years to minimize the RMD "tax bomb".

 

[pb4uski]

If what you would contribute to the Roth 401k is less than the Roth contribution limit for 2020, then I would skip the Roth 401kand just make contributions to the Roth. More flexibility because you have all year to do it.

 

[steelyman]

My last year was a partial year and I increased the monthly paycheck deductions in order to contribute the yearly maximums to my 403(b) and 457 accounts. I wanted to sock away as much as possible, not to stop contributions. I also contributed the annual maximum to a separate (non-employer) Roth IRA. That was a pretty expensive year with respect to retirement saving but I’m glad I did it.

It makes sense to choose between the 401(k) and IRA based on your circumstances.

 

[mpeirce]

If your employer matches, then I'd say do it. It's free money.

 

[MarieIG]

Thank you.

No employer match. If I last four months, should be able to max.

 

[GrayHare]

If you have a t401k your plan might not let you withdraw from just the Roth 401k, instead they might force proportional withdrawals, which is more confusing come tax time. IMO the added complexity is not worth it for just 4 months worth of contributions.

 

[Doribe]

If you have a t401k your plan might not let you withdraw from just the Roth 401k, instead they might force proportional withdrawals, which is more confusing come tax time. IMO the added complexity is not worth it for just 4 months worth of contributions.

I contributed to both t401k and Roth401k. Upon retirement I moved the accounts to Fidelity. No tax liability. I now have Roth and tIRA. I plan to convert the Roth to reduce RMDs.

 

[MarieIG]

If you have a t401k your plan might not let you withdraw from just the Roth 401k, instead they might force proportional withdrawals, which is more confusing come tax time. IMO the added complexity is not worth it for just 4 months worth of contributions.

I don't know if they force proportional withdrawals. I didn't see anything regarding that in the plan information, but I will look out for that. You are permitted to make in service withdrawals even if you are still employed once you hit 59 1/2. Four months worth of contributions would be front loaded and with catch-up $26,000.