Most of my retirement money is in 401ks. However, both my wife and I have some money in ROTH IRAs. I am 58 and thinking about retirement in 6 years, give or take. My wife is 53 and not thinking about retirement for at least 12 years. Is there a strategy for what types of investments you should keep in a ROTH vs. a 401k? For instance, should one or the other be focused on income/dividend/interest generating vehicles while the other should be focused on capital gain generating vehicles? If so, should we change anything based on our current retirement status? Currently, I have both types accounts diversified similarly.

ebaines

There really isn't much advantage to differentiating between capital gain oriented versus income oriented investments between the Roth IRA and the 401(k). The entire amount of your 401(k) is ultimately going to be taxed at ordinary income rates as you make withdrawals, so you want to invest in whatever gives the greatest total return, regardless of whether it's dividend/interest or capital gains. And in your Roth IRA al gains are tax free, so again you want to strive for maximum total return. This is different than what happens in your taxable investment accounts, where capital gains are typically taxed at a lower rate than income from interest or dividends. Hence the rule of thumb is to weight your taxable investment accounts to things that are expected to have capital gains (small cap stocks, growth stocks), and weight your tax-free or tax-deferred investment accounts toward income producing investments (bonds, dividend-paying stocks). Do this with an eye toward keeping your total investment mix properly allocated across all asset types.

setexenv

Great...thanks...