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Roth or traditional 401k?
Posted on 1/9/20 at 12:57 pm
Posted on 1/9/20 at 12:57 pm
I have been investing in a traditional 401k for 25+ years. I am early 50's and plan on retiring in 6-7 years. My company offers a Roth option, would it be wise to put some of my contributions into the Roth? Too late to start? I understand the difference in pre and post tax contributions, but not the benefits. TIA
2
Posted on 1/9/20 at 1:17 pm to tigerlife00
Will you need to pull money out of your retirement accounts before you hit the eligible age?
What do you expect your income to be now vs when you retire?
What do you expect your income to be now vs when you retire?
Posted on 1/9/20 at 1:29 pm to notsince98
eligible age 59.5? - No
Income now vs retirement- maybe 50% at retirement
Income now vs retirement- maybe 50% at retirement
Posted on 1/9/20 at 1:57 pm to tigerlife00
If your income in retirement will be half what it is now I would not make Roth contributions.
Posted on 1/9/20 at 3:13 pm to Huey Lewis
quote:
If your income in retirement will be half what it is now I would not make Roth contributions.
Yup. This one seems easy.
Posted on 1/10/20 at 1:40 pm to tigerlife00
The benefit of pretax contributions is that your income taxation is deferred until you withdraw from the account at retirement, a time when most people will fall into a lower tax bracket than when they were working.
The benefit of after tax contributions is that, because withdrawals are not taxed, the growth accumulated in excess of your contributions is effectively tax free. Typically over the course of 20 - 30 years, growth will exceed your contributions significantly, so it can be a big advantage.
I agree with the two posters above - if you truly intend on retiring in 6-7 years and anticipate that significant of a drop in income, I would continue to contribute on a traditional/pretax basis.
The benefit of after tax contributions is that, because withdrawals are not taxed, the growth accumulated in excess of your contributions is effectively tax free. Typically over the course of 20 - 30 years, growth will exceed your contributions significantly, so it can be a big advantage.
I agree with the two posters above - if you truly intend on retiring in 6-7 years and anticipate that significant of a drop in income, I would continue to contribute on a traditional/pretax basis.
This post was edited on 1/10/20 at 1:41 pm
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