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Message
401k vs roth 401K contributions
Posted on 1/14/19 at 9:40 am
Posted on 1/14/19 at 9:40 am
Given that both of them have the same ~$19K/year limit on contributions, are you in effect contributing more each year if you contribue to a roth 401K (as the pre-tax value of the $19K roth contributions would be 19K *(1+ tax rate)?
7
Posted on 1/14/19 at 9:45 am to GeneralLee
Yes
Posted on 1/14/19 at 11:04 am to LSU2007
Are the rules for withdrawal of contributions the same for a Roth 401k as they are for a Roth IRA?
Posted on 1/14/19 at 11:09 am to GeneralLee
yes but it doesn't necessarily make it the better value.
Posted on 1/14/19 at 11:11 am to PearlJam
quote:
Are the rules for withdrawal of contributions the same for a Roth 401k as they are for a Roth IRA?
You can't pull the contributions out of a Roth 401k penalty free like you can an IRA.
Posted on 1/14/19 at 5:02 pm to GeneralLee
The difference is minimized if you take the tax savings from using a 401k and invested it.
I'm of the camp to take tax deduction now. Who knows what will tax rates, laws will you be in 20+ years.
I'm of the camp to take tax deduction now. Who knows what will tax rates, laws will you be in 20+ years.
Posted on 1/15/19 at 8:47 am to gpburdell
quote:
The difference is minimized if you take the tax savings from using a 401k and invested it.
I'm of the camp to take tax deduction now. Who knows what will tax rates, laws will you be in 20+ years.
Those are good points. There is something to be said for not paying taxes until you have to as you may miss an opportunity to pay less....but there is also a chance you have to pay more. I'm always compelled to hedge my bets.
Posted on 1/16/19 at 5:39 am to notsince98
I'm still in the camp that Roth is "always" the preferred choice. Even if tax rates go down in the future, I would rather pay current rates on only my contribution, and having the growth tax free, vs future rates on every penny I withdraw.
Paying 35%of X is better than paying 20% of 10X.
Paying 35%of X is better than paying 20% of 10X.
Posted on 1/16/19 at 6:34 am to Chris4x4gill2
Or you could look at it like your using the government's money now to generate gains.
Posted on 1/16/19 at 7:31 am to GeneralLee
I'm trying to ensure a mix of both pre-tax and post-tax investment accounts. My company just last year created the option for a Roth 401k and I am now contributing to that 100% for the foreseeable future.
Posted on 1/16/19 at 8:14 am to seawolf06
quote:
My company just last year created the option for a Roth 401k and I am now contributing to that 100% for the foreseeable future
does your company match a % of your contributions?
Posted on 1/16/19 at 11:24 am to GeneralLee
Employers typically don't match roth 401k contributions. I contribute enough to get the match in my 401k and the rest goes to roth 401k
Posted on 1/16/19 at 12:59 pm to wasteland
My employer matches my Roth 401K same as the standard. They are required to put the match into a standard 401K though, rather than inside the ROTH.
Posted on 2/1/19 at 8:03 am to TigerintheNO
Yes, same match for Roth or Non-Roth.
Posted on 2/1/19 at 8:03 am to Chris4x4gill2
quote:
My employer matches my Roth 401K same as the standard. They are required to put the match into a standard 401K though, rather than inside the ROTH.
Mine works the same way.
Posted on 2/1/19 at 8:15 am to Chris4x4gill2
quote:
I'm still in the camp that Roth is "always" the preferred choice. Even if tax rates go down in the future, I would rather pay current rates on only my contribution, and having the growth tax free, vs future rates on every penny I withdraw.
Paying 35%of X is better than paying 20% of 10X.
Except for the fact that you don't pay 20% of 10X at any given time or year, its delayed.
If I told you that you can pay me $20 now or $20 in 50 years, what is the better option?
With a pre-tax retirement account, its very possible you pay $0 in taxes on the money you contribute for 50 years or never. Its very possible your kids pay the taxes on part of it they use way down the line.
Plus, you could take the same amount of money in a roth 401k and contribute to a regular 401k + the tax money paid into a taxable equities account. You simply cant's say you are putting $19k pre-tax or $19k post tax, the better comparison is $19k pre tax + $4,750(25% tax rate) taxable account.
This post was edited on 2/1/19 at 8:17 am
Posted on 2/1/19 at 10:31 am to gpburdell
quote:
The difference is minimized if you take the tax savings from using a 401k and invested it. I'm of the camp to take tax deduction now. Who knows what will tax rates, laws will you be in 20+ years.
My thinking exactly.
Posted on 2/1/19 at 10:35 am to GeneralLee
It’s all about taxes. When do you think they will be higher?
Posted on 2/1/19 at 10:41 am to jimbeam
quote:
It’s all about taxes. When do you think they will be higher?
Its not just that, its a bad bet. There's 3 options here:
1. Taxes are the same in the future
2. Taxes are lower
3. Taxes are higher
So you have a 33% chance of being right if you are hedging them to be higher. So you are paying NOW for a 33% chance.
Even if we have to pay more taxes LATER, its still LATER. Often times its 20+ years later, it may be 50 years later.
I'd rather owe $250k on $1 million in 30 years than pay $10,000 on $40,000 every year between now and then. Why pay the government now, when you can delay it? Because they might go up? Maybe I just don't mind the risk.
ETA: FWIW I contribute roughly 25% to my roth ira, 50% to 401ks, and then I do another 25% or so in savings for rental properties. So I don't hate the idea. I'm just not sold paying now instead of much later is ever better.
This post was edited on 2/1/19 at 10:43 am
Posted on 2/1/19 at 10:42 am to 3morereps
quote:
Or you could look at it like your using the government's money now to generate gains.
It's your money making gains either way, it's whether the government takes from it now or later.
And for all the people saying "who knows where taxes will be in 20 years?" I'll give you a hint. Congress is trying to raise your taxes now.
EDIT:
quote:
So you have a 33% chance of being right if you are hedging them to be higher. So you are paying NOW for a 33% chance.
This is a fallacy. An NFL game can end in Team A winning, Team B winning, or a tie. Does that mean each has a 33% chance of happening?
This post was edited on 2/1/19 at 10:46 am
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