so if you have access to a 401(k) and you plan to roll a non-deductible IRA into a Roth in 2010, you could say that you'll have 2 streams of income at retirement - taxable and non taxable.

If you're going to hold a diverse set of investments, then, does it make sense to hold your investments with a lower expected rate of return in your 401k, and your investments with high expected return in the roth? Obviously, varying account sizes may not allow you to do this 100%, depending on your allocation of investments - but is this commonly done? Or is there something I'm missing?

 

no it doesnt make sense to do it like you suggested. your tax rate is based on what you are making when you are taking withdrawals out of your 401k, not the historical gains on your 401k.

correct me if i am wrong...

 

I think what you mean is that when you start taking distributions on your 401k, you'll be in a lower tax bracket than when you are still working...?

But the point remains - the money in the roth is non-taxable, so if you're going to put money into a roth, you're best off filling it w/ hi yield investments.

?

 

you are always better off with hi yield investments in either, it just means your risk level is higher. you could easily lose money in your roth with higher risk investments.

to me its not what investments you buy, but how much you allocate to either roth or 401k. in a roth you have more control/options over your assets vs 401k.

imo it is good to have some safe bets in the roth because you can withdraw it at anytime penalty free. you dont want to be in the situation where one of your high risk investments is doing poorly and you are forced to liquadate.

if i was good at math i would see which ends up returning more post tax at certain intervals during the withdrawal period. 401k has the advantage that you can contribute more because its tax free going in, so over time it should grow faster with a bigger base. but gets taxed more at the end, versus, tax upfront.