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401k or a Roth 401k?
Posted on 6/20/21 at 8:51 pm
Posted on 6/20/21 at 8:51 pm
I firmly believe that taxes will only have to go up over time and will be higher when I retire in 26 years. With the money this country is spending today I just don’t think it’s going to be feasible to keep taxes where they are today. I have the option to choose a Roth 401k with work over a regular 401k but doing the math it appears to be a significant difference each month.
Am I dumb for choosing the Roth option? I’m still funding my Roth IRA to the max and if I ever want to roll the 401k over to the Roth IRA (because I like to have everything in one place), I’d pay a ton of taxes if it’s not a Roth 401k.
I know a bunch of you are a hell of a lot smarter with this stuff than I am so please chime in and don’t hold back. Am I dumb or will I be happy later that I chose a Roth 401k?
Am I dumb for choosing the Roth option? I’m still funding my Roth IRA to the max and if I ever want to roll the 401k over to the Roth IRA (because I like to have everything in one place), I’d pay a ton of taxes if it’s not a Roth 401k.
I know a bunch of you are a hell of a lot smarter with this stuff than I am so please chime in and don’t hold back. Am I dumb or will I be happy later that I chose a Roth 401k?
This post was edited on 6/20/21 at 8:58 pm
4
Posted on 6/20/21 at 8:55 pm to TDsngumbo
If you think taxes will only go up, what’s to say Roths won’t be raided?
Posted on 6/20/21 at 9:03 pm to jimbeam
Yep, that's my worry. Put after tax money in a roth on the promise it doesn't get taxed again, but what if they change that law before you retire? With the spending our government is doing, it wouldn't suprise me if they eventually start double dipping on the roth tax.
Posted on 6/20/21 at 9:48 pm to jimbeam
quote:
what’s to say Roths won’t be raided?
This is a trillion dollar question.
Posted on 6/20/21 at 9:57 pm to TDsngumbo
I think Traditional 401K makes sense when your marginal rate is around 30%+ and Roth makes sense as your marginal rate gets lower.
Tax strategy is a key piece of financial planning. Recommend having assets in a variety of tax vehicles to give utmost flexibility.
With that in mind, you can always go half traditional and half Roth and that gets you optionality.
Tax strategy is a key piece of financial planning. Recommend having assets in a variety of tax vehicles to give utmost flexibility.
With that in mind, you can always go half traditional and half Roth and that gets you optionality.
This post was edited on 6/20/21 at 9:58 pm
Posted on 6/21/21 at 8:10 am to lynxcat
quote:
With that in mind, you can always go half traditional and half Roth and that gets you optionality
That’s what I do because why not?
Posted on 6/21/21 at 8:15 am to TDsngumbo
I personally don't use a Roth. I max out the traditional and then look at more aggressive options with my other cash. I cant say you are crazy for using a roth. I will say you are missing out on the tax advantages of the traditional, but that is for you to quantify.
Posted on 6/21/21 at 9:05 am to jimbeam
quote:
If you think taxes will only go up, what’s to say Roths won’t be raided?
In a series of future 'liklihoods', I'm betting it's more likely that the federal government will change the tax structure on traditional 401k payouts
"you now have to wait until age 72", or "you must pay your withdrawal rate plus an additional 15% for muh progrums"
BEFORE they go into taxing money that has already been taxed. I'm going with the ROTH option, it based on my philisophy of Nature of Man. Their nature is to get to the easy stuff first.
Posted on 6/21/21 at 9:20 am to lynxcat
quote:
I think Traditional 401K makes sense when your marginal rate is around 30%+ and Roth makes sense as your marginal rate gets lower.
This. If you're in that 22-24% tax bracket (or lower) I'd do roth personally (And thats what I do). I dont personally buy into the fear-mongery but what if they raid your roths stuff because the likely scenario is they are going after traditional because thats the easy target with RMDs, tax increases, etc. Even if the government somehow went after roth in some capacity, highly unlikely they make it retroactive in some way. Not to mention the shear backlash any politician would face trying to change the way in a major way Roths are done (especially in retroactive manner).
I do all my 401k contributions roth, and have a roth ira. Employer match is pre-tax obviously so I still have a pre-tax portion building up. Just feel like there's no real advantage to me doing traditional ira/401k contributions right now. I did traditional 401k contributions for several years though leading up to this year.
Splitting some contributions up isnt a bad idea though and something I've thought of, but really only if my wife/I eeek into those higher 30 something tax brackets. Which at that point we'd have to do backdoor roth anyways.
This post was edited on 6/21/21 at 9:22 am
Posted on 6/21/21 at 10:18 am to thunderbird1100
quote:
f you're in that 22-24% tax bracket (or lower) I'd do roth personally (And thats what I do).
I would instead suggest comparing estimated retirement spending vs your income today. The 24% bracket for MFJ goes up to 330k. So, if I make 330k today, but I'm only planning on spending 100k per year in retirement, back-dooring into a Roth probably doesn't make the most sense from a tax perspective.
Posted on 6/21/21 at 10:54 am to FinleyStreet
quote:
I would instead suggest comparing estimated retirement spending vs your income today. The 24% bracket for MFJ goes up to 330k. So, if I make 330k today, but I'm only planning on spending 100k per year in retirement, back-dooring into a Roth probably doesn't make the most sense from a tax perspective.
For roth 401k you arent backdooring, just roth ira, but thread is about 401k specifically.
But there's certainly a lot of factors here. How far away from retirement you are, tax brackets now vs. what you expect later, what you envision your nest egg being (and the specific buckets) and how you may be spending (easy for someone 5-10 years away from retirement, probably harder for someone 20-40 years away from retirement)...just a lot to consider and what kind of makes no perfect answer really.
Posted on 6/21/21 at 3:25 pm to TDsngumbo
I do a 80% Roth 20% 401k split. I have another 30 years before retirement. If I see things going one way or the other I will adjust later on down the road.
Posted on 6/21/21 at 4:39 pm to makersmark1
quote:
what’s to say Roths won’t be raided?
This is a trillion dollar question.
Taxing Roths is kind of the boogeyman that doesn’t really make sense. Whatever scenario you dream up, Roths would still likely be the most efficient tax wise.
Posted on 6/21/21 at 6:49 pm to slackster
quote:taxes twice?
Whatever scenario you dream up, Roths would still likely be the most efficient tax wise.
Posted on 6/21/21 at 7:10 pm to jimbeam
quote:
taxes twice?
I’d they’re taxing Roths twice imagine what they’re doing to traditional IRAs. That’s my point.
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