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Message
New Roth Option at work
Posted on 10/11/24 at 5:19 pm
Posted on 10/11/24 at 5:19 pm
My employer is adding a Roth 403b next year. My first thought, if it is allowed is to split my contributions 50/50 Roth/traditional. My second thought is to go 100% Roth since my wife doesn't have that option.
Thoughts from those who care about this stuff more than I do?
I'd just like to have some Roth to pull from so I am not so tied to the retirement age restrictions and I can pull more income per year and stay in a lower tax bracket in retirement. Other than that, I am pretty clueless and don't care too much. I'm a throw it in a low cost/no cost index fund person and let it ride type of person. The day to day stuff and timing the market just isn't for me.
Thoughts from those who care about this stuff more than I do?
I'd just like to have some Roth to pull from so I am not so tied to the retirement age restrictions and I can pull more income per year and stay in a lower tax bracket in retirement. Other than that, I am pretty clueless and don't care too much. I'm a throw it in a low cost/no cost index fund person and let it ride type of person. The day to day stuff and timing the market just isn't for me.
5
Posted on 10/11/24 at 5:51 pm to armsdealer
IMO this depends on your age, stage of career, current tax bracket. The lower your current tax bracket, compared to where you project to end up, the more you’ll benefit from 100% Roth since it’s taxed upfront.
Even if mid-late in your career, splitting between the two 50/50 is a good idea, IMO. The company I work for just started offering a Roth option in our 401k last year, so I’m working on catching it up to the Traditional fund, and also started an individual Roth IRA through Vanguard to help with that.
Even if mid-late in your career, splitting between the two 50/50 is a good idea, IMO. The company I work for just started offering a Roth option in our 401k last year, so I’m working on catching it up to the Traditional fund, and also started an individual Roth IRA through Vanguard to help with that.
Posted on 10/11/24 at 7:55 pm to armsdealer
Firm believer that tax rates will have to rise eventually.
As bad as it seems now, we are at historical lows.
Go Roth.
As bad as it seems now, we are at historical lows.
Go Roth.
Posted on 10/11/24 at 10:13 pm to Jabstep
I don't care if the traditional and roth match up perfect, I just want to be able to pull X amount of tax deferred to the lowest tax bracket and supplement it with roth money above that. I am sure there will be other considerations, but that's my basic goal.
Posted on 10/12/24 at 12:44 am to armsdealer
https://thefinancebuff.com/case-against-roth-401k.html
If you go traditional 401k, you still have the option to convert to roth later. Ideally you would do this when u can pay at lower tax rate than you would have with the roth 401k.
If you do roth 401k now, then you have locked in taxes and no other option. Roth 401k makes more sense early in career when you expect a major rise of income in the future that puts you into higher tax brackets.
For example, a physician during residency whose income goes up by many multiples when they complete training.
I would take the tax savings from the trad 401k and start (if u haven't already) investing in a taxable account. I think it's good to have a mix of tax free, tax deferred and taxable investments so you have many options for income.
Did you know that long term capital gains in a taxable account can be taxed at 0%? A single person with only capital gain income can have up to $47k in capital gains at 0% tax rate; married filing jointly goes up to $89k. This doesn't even include the cost basis of what you sell or any deductions which would raise total income without taxes.
If you go traditional 401k, you still have the option to convert to roth later. Ideally you would do this when u can pay at lower tax rate than you would have with the roth 401k.
If you do roth 401k now, then you have locked in taxes and no other option. Roth 401k makes more sense early in career when you expect a major rise of income in the future that puts you into higher tax brackets.
For example, a physician during residency whose income goes up by many multiples when they complete training.
I would take the tax savings from the trad 401k and start (if u haven't already) investing in a taxable account. I think it's good to have a mix of tax free, tax deferred and taxable investments so you have many options for income.
Did you know that long term capital gains in a taxable account can be taxed at 0%? A single person with only capital gain income can have up to $47k in capital gains at 0% tax rate; married filing jointly goes up to $89k. This doesn't even include the cost basis of what you sell or any deductions which would raise total income without taxes.
Posted on 10/12/24 at 8:56 am to armsdealer
Keep in mind you shouldnt compare your marginal rate today vs expected marginal rate at withdrawal.
The more accurate comparison is to consider MARGINAL today vs EFFECTIVE tax rate of withdrawals.
Even if in retirement your taxable income goes up and/or tax rates go up, some portion of withdrawals is likely to fall in lowest brackets. Unless you anticipate significant income from other sources (pension, rentals, side gig etc) your withdrawals could be taxed at very low rates.
Also, dont overlook state taxes now vs retirement. It can make a big difference if you relocate.
The more accurate comparison is to consider MARGINAL today vs EFFECTIVE tax rate of withdrawals.
Even if in retirement your taxable income goes up and/or tax rates go up, some portion of withdrawals is likely to fall in lowest brackets. Unless you anticipate significant income from other sources (pension, rentals, side gig etc) your withdrawals could be taxed at very low rates.
Also, dont overlook state taxes now vs retirement. It can make a big difference if you relocate.
This post was edited on 10/12/24 at 9:06 am
Posted on 10/12/24 at 11:04 am to Jabstep
quote:
Firm believer that tax rates will have to rise eventually.
As bad as it seems now, we are at historical lows.
and we have $35 trillion in debt
Posted on 10/12/24 at 12:40 pm to TigerintheNO
I can see long term capital gains rates going up before the lower tax brackets do. Taxing gains at rates similar to income vould get a lot of popular support and makes mote sense than taking unrealized gains which has been proposed.
I fully expect the zero LTCG rate for low brackets to go away. I thought it was scheduled to expire soon anyway. In meantime I'm raking advantage of gains harvesting at zero %
I fully expect the zero LTCG rate for low brackets to go away. I thought it was scheduled to expire soon anyway. In meantime I'm raking advantage of gains harvesting at zero %
Posted on 10/12/24 at 2:56 pm to TorchtheFlyingTiger
Keep in mind that your company match will be pre-tax no matter what. It is substantially less money in company matches over time
Posted on 10/13/24 at 8:51 am to Jabstep
quote:
Firm believer that tax rates will have to rise eventually.
As bad as it seems now, we are at historical lows.
This is what I was always told and went 100% Roth at the first opportunity it was offered. Then based on some comments on this board I realized that at my stage in my career I could defer the entire amount of earnings in my highest bracket by going back to 100% traditional 401k and this also increased my bring home as the taxable base of my income was lower when you apply all of the taxes.
I too believe taxes will be higher in the future. However I’ll probably be withdrawing half of what I’m making now so they’ll have to hammer the lowest brackets to match what I’m paying now in my highest bracket.
Posted on 10/14/24 at 11:49 am to armsdealer
Our company converted to 403b Roth about a year - congratulations
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