I don't think there is a "correct" response per se. If a higher rate, then Roth 401k. Press question mark to learn the rest of the keyboard shortcuts, 32/34 SI1K | SR: lol nanny | GI.GO% BroFI. Another perspective I like to add when making this decision. Roth Vs. SOCIAL SECURITY. But there’s no perfect answer because no one has any idea what taxes will be in 12 years. This is a place for people who are or want to become Financially Independent (FI), which means not having to work for money. Generally the higher your income and savings rate the more sense a traditional 401k makes. With a Roth 401 (k), you can start withdrawing money without penalty at the same age, but you also must have held the account for … Please try there. Over the past six years, an increasing number of companies have begun to roll out Roth 401(k) options for their employees. The Roth IRA gives Sam 2 advantages over the other 2 investors: First, the Roth IRA captured all of Sam's tax savings—so unlike Brian, he's safe from the temptation to spend it before retirement. Moderators remove posts from feeds for a variety of reasons, including keeping communities safe, civil, and true to their purpose. A Roth 401k will likely make you richer than a traditional 401k and is one of the best investment decisions you can make as a younger investor in your 20’s or 30’s because of the tax-free withdrawal advantages given an uncertain future. Thus, all my retirement has been in Roth. Cookies help us deliver our Services. Extra $200 bi-weekly goes into taxable investment account or savings. So I’m pretty sure there are no income limits to contributing to a Roth 401k like there are to a Roth IRA. I’d just prefer to pay taxes now, get it over with, and see the balance grow knowing none of it will be taxed. However, I recently found out that all employer matches go into a traditional 401K by law, and I'm wondering if its financially worth it to be putting money into a Roth 401K instead of a traditional. Depending on how much room is in your budget for retirement saving after you have maxed out the employer match on your 401k, you should max out the $5000 annual Roth IRA contribution. First, I would focus on maximizing your contributions. By choosing a Roth 401(k) and paying your taxes upfront, the savings in your account grow tax-free, and once you have held the account for at least five years and are past age 59-½, your withdrawals are also tax-free. I read the traditional vs roth wiki and had decided on contributing to a Roth 401K. Currently I'm contributing 10% of my post-tax income into my Roth 401k. If your employer offers both traditional and Roth options, ... 401K. If you still don’t know who this ‘Roth’ guy is, or what he does, choosing between the two can be a matter of random guess. Join our community, read the PF Wiki, and get on top of your finances! I am 30 and my income is 160K + ~30-40K bonus annually. Since all company contributions are pre-tax, I am planning 50% Roth on my own contributions which would lead to a ~75/25 split between traditional/Roth as a hedge. Currently am putting in the 6% which is in a traditional 401k and also contributing to a Roth IRA. Also, Traditional IRAs can be converted to Roth IRAs at strategic times (for instance, right after a big market decline) that can result in lower conversion taxes. Some deets: Age: 27 Income: $85k 401k contribution: 15% 401k balance: $20k. Thanks! Roth vs Traditional 401 (k) In a traditional 401 (k), employees make pre-tax contributions. “If you don’t do a Roth 401(k) at work, then you’re just putting in pre-tax dollars and everything your plan builds to over the years is all subject to tax down the road.” So I originally thought it was a slam dunk to go Roth over Traditional but now I'm not so sure. My company contributes 13% of my income to my retirement account (50% match on 6% of income + 10% profit sharing on all income). Roth vs Traditional 401(k) Calculator. 6% of your income doesn’t hit the 401k limit of $19,500/yr employee contribution. Can anyone help clarify the advantages of a 401k vs a Roth 401k? If you anticipate a lower rate in the future, then Traditional 401k is better. Makes sense. Sorry if I didn't make it clear, my company's match is 50% on 6% of my income but I have been putting in the max every year albeit in Roth. For quick trivia: The Roth accounts are named for this guy, the Delaware Senator who created the Roth IRA in 1997.. Roth 401(k)s vs. Roth IRAs. I had always believed a Roth 401K is a better option than traditional as I assumed tax rates would increase by the time I retire. Hi there. Contributing pretax can help lower your bracket though. Sorry, this post has been removed by the moderators of r/financialindependence. Any money you put in a traditional 401(k) goes straight from your paycheck before taxes are applied, so it reduces your taxable income. employer match and $19.5K 401k) Dec 2, 2020 0 2 Nutanix How much do you make and what’s your savings rate? Is a Traditional (pre-tax) or a Roth (after-tax) retirement account right for you? A growing number of employers are beginning to offer not only a Traditional 401K, but now a Roth 401K as well. Roth 401(k) contributions are a relatively new type of 401(k) that allows you to invest money after taxes, and pay no taxes when funds are withdrawn later — for many investors, this is a more appealing option than a traditional 401(k). It's certainly one question I've struggled with myself and one that I've seen the gamut of responses citing pros/cons for either side. Even if tax rates go up, they would have to reach levels without recent precedent in order to give you a higher tax rate in retirement than you’re paying now. I'm married and 27. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Another slight difference between a Roth 401 (k) and a traditional 401 (k) is your access to the money. I'm at $60k/year pre tax, and I need $24k a year to live on. A Roth IRA should also be part of your plan. Both the traditional 401k and Roth 401k has pros and cons. Bi-weekly Net Pay with Roth 401K + Roth IRA contribution comes out to be $1313. This tool compares the hypothetical results of investing in a Traditional (pre-tax) and a Roth (after-tax) retirement plan. https://www.schwab.com/.../roth-vs-traditional-401-k-which-is-better Must-Know Rules for Converting Your 401(k) to a Roth IRA. If you anticipate that your income will grow over time, then a Roth 401k offers more benefits. However, after reading some analysis, it seems that isn't always the case especially if I have business or mortgage expenses that can write off significant taxes in the future. I recently became eligible for my company's 401k and I'm able to invest in traditional or Roth. Since you already have so much going into Traditional though, you could consider doing some Roth per your plan, just maybe not the majority. If you're in the US and move from a state with high taxes to one with low taxes or none at all, then the savings from avoiding state taxes on that income would be pretty significant even if taxes went up overall, More posts from the personalfinance community. Go with your gut, you may be wrong, but don’t stress over it. If you aren’t able to increase, I’d suggest switching to traditional 401k so you’re saving more absolute dollars and still bringing home the same amount. Press question mark to learn the rest of the keyboard shortcuts. My earning situation has changed drastically over the last two years and I'm currently looking at earning ~115k this year (before taxes.) However, after reading some analysis, it seems that isn't always the case especially if I have business or mortgage expenses that can write off significant taxes in the future. Converting your 401 ( k ) and the traditional is when the money taxed... 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