re: Employer 401k vs Roth 401K

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transferring a Roth to children after death is tax free

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I never knew this Thanks for this information

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The image is about a 12% effective ta

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Effective rate is a garbage stat when it comes to tax planning

Marginal rate is what matters

The tax rate you paid on dollars already earned has nothing to do with the tax rate on the next dollar earned

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Effective rate is a garbage stat when it comes to tax planning

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It matters a lot when running the numbers for evaluation.

Isn't effective rate useful to capture result of "If I go an additional X, what is my Y cost?"

Unless you assume the entire withdrawal falls in owners top marginal rate. Seems relevant to me when comparing withdrawal rate to tax rate on next dollar contributed at today's tax rate. Same for Roth conversion analysis.

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Isn't effective rate useful to capture result of "If I go an additional X, what is my Y cost?"

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Absolutely not.

Let’s say you - without additional X - are at a 17% effective rate and a 24% marginal rate. Let’s also say you are $40,000 below the top of the 24% bracket.

You want to convert $25,000.

Are you paying a 17% rate or a 24% rate on that $25,000?

Also, if you have income taxed at the qualified rate, such as qualified dividends or long term gains, your effective rate is going to be different than if all the income was ordinary.

Let’s say instead of a $25.000 conversion, you are looking at $25,000 of additional long term capital gains.

Is your additional tax going to be the 17% effective… or at the 15% long term gains rate for that total income level? (Setting aside the issue of net investment income tax)

Effective rate might be a decent historical discussion at parties or message boards, but it’s garbage for tax planning,

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No when you are running simulations or case studies.

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If you are running total base calcs… but that’s not really tax planning as no decisions are being made.

No one uses - or should use - effective rate when determining impacts of additional income or deductions.

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Everyone should be using it when they want to know what their tax burden will be at a specific income level regardless of working or retired.

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People care what they will owe in taxes And how to make it smaller.

They care about the impact of additional income or deduction

They don’t care that their effective rate is 17.38 percent or whatever

I do this every day.

And their burden at a specific income level varies greatly based on the type if income, not just the amount of it.

weird comment but

I can and do both in my employer plan, along with funding individual Roth, individual IRA, and taxable brokerage thru my personal brokerage service. All without fidelity brokerage link .