Personal Finance Question - Roth 401k and Backdoor Roth
Do people do back door conversions to a Roth IRA if they are already invested in a Roth 401K through their employer? Seems like a Roth IRA is more advantageous than a Roth 401k given more investment options, less complexity with early withdrawals etc... Would it be sound to contribute up to employer match on the Roth 401k than do back door conversion up to 7k to a Roth IRA than go back to Roth 401k to max out to annual contribution limit of 23.5k?
Based on the most helpful WSO content, your strategy aligns with common financial advice for high-income earners. Here's a breakdown:
Employer Match on Roth 401k: Always contribute enough to your Roth 401k to get the full employer match. This is essentially free money and should be prioritized.
Backdoor Roth IRA: If you're above the income limit for direct Roth IRA contributions, a backdoor Roth IRA is a great option. It offers more investment options and flexibility with early withdrawals compared to a Roth 401k. The current limit for 2025 is $7,000 if you're under 50.
Maxing Out Roth 401k: After utilizing the backdoor Roth IRA, you can return to your Roth 401k to contribute up to the annual limit of $23,500 (including the employer match).
This approach balances tax-advantaged growth, investment flexibility, and employer benefits. However, keep in mind that Roth 401k contributions are post-tax, so ensure this strategy aligns with your current and expected future tax brackets.
Sources: How much do you contribute to your 401k?, How much do you put into your 401k?, The Last "what should I do with my money?" Thread (hopefully), 401k cont vs Long term liquidity, I cant save money
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