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Message
re: roth 401k vs regular 401k
Posted on 10/15/19 at 5:07 pm to deeprig9
Posted on 10/15/19 at 5:07 pm to deeprig9
quote:
This is the correct answer to your scenario. And in fact, if you can actually stomach watching the debates, it is exactly what they're talking about now. And this would effect the Roth IRA's. Because that 10% mentioned above, yeah, they're the ones with the money.
Which would affect both Roth and Traditional assets, in fact impacting Traditional assets to a greater degree because of the higher ending value. If you fear a wealth tax, it makes the Roth even more attractive. I know you (UpstairsComputer) know this, just remarking before lsu13lsu comes back with a "yeah, that's what I mean."
quote:
In a Roth 401k can I still take withdrawal from contributions without penalty like a Roth IRA?
If you mean "Can I withdraw my Roth 401(k) contributions at any time without penalty?" No, you cannot. That is one of the reasons for my "Max Match > Roth IRA > Max Contribution" suggestion. In a 401(k) you must meet the 59 1/2 and 5 year rule to avoid penalties that UpstairsComputer referenced.
quote:
And can I max my existing Roth IRA and the Roth 401k at the same time?
Yes.
Edited for clarity.
This post was edited on 10/15/19 at 5:24 pm
1
Posted on 10/15/19 at 5:14 pm to UpstairsComputer
Yeah, you were pretty spot on. I was a bit surprised the Roth percentage was so slow, but I suspect it will increase as more young people enter the work force, and Roth 401(k) options become more prevalent. Still a huge gap. On the other hand, the average balances by age numbers were NOT surprising, but depressing none the less.
BUT, what if I told you you could have a mega Roth, with no contribution limits, regardless of your income, AND have a death benefit that could leave a legacy for your family, you'd want to hear about it right?
/s
BUT, what if I told you you could have a mega Roth, with no contribution limits, regardless of your income, AND have a death benefit that could leave a legacy for your family, you'd want to hear about it right?
/s
This post was edited on 10/15/19 at 5:25 pm
Posted on 10/15/19 at 7:11 pm to DeathAndTaxes
My position is that most people I deal with live off less income than they do during working years so they are in lower bracket.
Posted on 10/15/19 at 7:20 pm to DeathAndTaxes
I agree the gap will close when I retire in over 30 years :-(
More 401ks offer Roths. Plus you don’t have to withdraw right? Roths have only been around since 1997 vs Traditional 1970s. It appears Roths will catch up by time I retire. That is when I fear government will give all t he responsible Roth savers the shaft.
More 401ks offer Roths. Plus you don’t have to withdraw right? Roths have only been around since 1997 vs Traditional 1970s. It appears Roths will catch up by time I retire. That is when I fear government will give all t he responsible Roth savers the shaft.
This post was edited on 10/15/19 at 7:23 pm
Posted on 10/15/19 at 9:15 pm to lsu13lsu
I get ya, but I can't think of a better example than the one I had given above. I mean, that scenario, you literally go into a higher bracket on 25% less income if just the Trump tax cuts were repealed.
It really wouldn't take that much of a tax hike in those middle brackets to screw this line of thinking up for the majority of savers. I'm not talking about the filthy rich, or even just pretty comfortably rich, I mean the ones with $750k-$1,500,000 saved. That's like everybody who is even reasonably serious/partially consistent about planning that made between $100,000-$200,000/yr. during their working careers.
...and I'm assuming we're excluding from this conversation those who neglected to save enough. One would assume, withdrawing a smaller amount bc you don't have any money would, in fact, lead to a significantly lower tax bracket. Those people would not be impacted as severely in the interest of equality.
It really wouldn't take that much of a tax hike in those middle brackets to screw this line of thinking up for the majority of savers. I'm not talking about the filthy rich, or even just pretty comfortably rich, I mean the ones with $750k-$1,500,000 saved. That's like everybody who is even reasonably serious/partially consistent about planning that made between $100,000-$200,000/yr. during their working careers.
...and I'm assuming we're excluding from this conversation those who neglected to save enough. One would assume, withdrawing a smaller amount bc you don't have any money would, in fact, lead to a significantly lower tax bracket. Those people would not be impacted as severely in the interest of equality.
Posted on 10/15/19 at 9:42 pm to lsu13lsu
quote:
I agree the gap will close when I retire in over 30 years :-(
More 401ks offer Roths. Plus you don’t have to withdraw right? Roths have only been around since 1997 vs Traditional 1970s. It appears Roths will catch up by time I retire. That is when I fear government will give all t he responsible Roth savers the shaft.
So, you think that the possibility of higher taxes in retirement is over-blown, and that the government is going to create a tax that targets Roth IRAs (none of which you have suggested would do), but you are contributing enough to Roth assets to have a balance that would be materially impacted?
Sound reasoning.
Posted on 10/15/19 at 10:20 pm to DeathAndTaxes
For me, the main reason for contributing to Roth is that if I want to retire a little early, I can live off contributions without penalty. If the Roth 401k doesn't allow that, it really serves no purpose for me. I'll just go all-in with the traditional 401k and max my Roth IRA on my own, as long as I'm still eligible to do so under IRS law regarding income limits.
Am I thinking clearly here?
Am I thinking clearly here?
This post was edited on 10/15/19 at 10:22 pm
Posted on 10/16/19 at 12:04 am to deeprig9
Roth 401k converts to a Roth IRA when you leave your job so it should work exactly the same.
Your company has no say over what you can and cannot do when you leave and roll over 401k to IRA
Your company has no say over what you can and cannot do when you leave and roll over 401k to IRA
Posted on 10/16/19 at 12:06 am to UpstairsComputer
The last paragraph is most people I see.
Posted on 10/16/19 at 6:59 am to deeprig9
At the risk of confusing things, some 401k’s have a provision you can pull from them at 55 without the penalty. You can also look into 72t/SEPP rules that would get around the 59 1/2 requirements.
You have to be really frugal to do all this successfully though. Age 55 leaves a really long time to be alive and pulling from assets.
You have to be really frugal to do all this successfully though. Age 55 leaves a really long time to be alive and pulling from assets.
Posted on 10/16/19 at 7:31 am to UpstairsComputer
quote:
roth 401k vs regular 401k
At the risk of confusing things, some 401k’s have a provision you can pull from them at 55 without the penalty.
He wouldn't need the in-service provision if he would be retired though right? Which would be the reason for pulling from the account.
Ultimately I agree, you would need to be saving significant taxable assets anyways to be able to retire at 55, so the ability to withdraw your contributions should not be a deciding factor between Roth or Traditional contributions in a 401k. Your current tax rate vs. your assumed tax rate at distribution remain the driving factor, and while I typically end up suggesting the Roth option for most of my clients, in most cases, the differences are not huge.
Posted on 10/16/19 at 8:29 am to EFHogman
One thing I have not seen addressed here is the fact that the income generated in the Roth is not taxed. The only other place you can get this benefit that I am aware of, is some insurance policies. This is very attractive to me. 
Posted on 10/16/19 at 8:32 am to notsince98
quote:and that's then the coup would begin.
you will end up essentially paying income tax twice.
Posted on 10/16/19 at 8:46 am to ihuntsum1
quote:
One thing I have not seen addressed here is the fact that the income generated in the Roth is not taxed. The only other place you can get this benefit that I am aware of, is some insurance policies. This is very attractive to me.
If you actually mean that distributions from the Roth are not taxed...
That is literally what this whole thread has been about.
If you mean that earnings are not taxed inside the Roth as they are generated, there are many vehicles that provide that.
Posted on 10/16/19 at 8:52 am to DeathAndTaxes
If you mean that earnings are not taxed inside the Roth as they are generated, there are many vehicles that provide that.
I am listening.
I am listening.
Posted on 10/16/19 at 9:30 am to ihuntsum1
quote:
If you mean that earnings are not taxed inside the Roth as they are generated, there are many vehicles that provide that.
I am listening.
Traditional IRA, 401(k), 403(b), 457 plan, Annuity, SEP IRA, SIMPLE IRA, Cash Value Life Insurance, Profit Sharing Plan, Money Purchase Plan, HSA
This post was edited on 10/16/19 at 9:34 am
Posted on 10/16/19 at 9:50 am to DeathAndTaxes
quote:
He wouldn't need the in-service provision if he would be retired though right? Which would be the reason for pulling from the account.
Correct. Poorly thought out sentence on my part. The rule is on the IRS side, not the company as the employee would have to separate from service.
To your other point, my logic is the same. There is value in knowing the tax rate today.
What we know:
1. Tax rates are historically low now.
2. We have massive debt and spending problems.
Thinking of that Dave Chapelle homeless coke addict meme: "You got any more of them tax-free vehicles?"
Posted on 10/16/19 at 12:48 pm to ihuntsum1
quote:
One thing I have not seen addressed here is the fact that the income generated in the Roth is not taxed. The only other place you can get this benefit that I am aware of, is some insurance policies. This is very attractive to me.
HSAs are very attractive too for this reason.
Posted on 10/16/19 at 3:06 pm to lsu13lsu
Thanks everyone for the responses. I max out my pretax 401k, seems like a no brainer to take my tax break now and not have the risk out there that I may get taxed on the back in also if laws are changed.
I should have all my debts paid off by retirement so I shouldn't have to draw a large amt of money in retirement to live comfortably.
I work w/ a lot of nurses & advisors ALL push them to put their contributions in the Roth 401k. It seems to me that they are the most highly taxed & the only way to help their tax burden is to contribute to a pretax 401k. Doesn't make sense to me that these advisors don't guide them to get the tax benefit of the pretax 401k
I should have all my debts paid off by retirement so I shouldn't have to draw a large amt of money in retirement to live comfortably.
I work w/ a lot of nurses & advisors ALL push them to put their contributions in the Roth 401k. It seems to me that they are the most highly taxed & the only way to help their tax burden is to contribute to a pretax 401k. Doesn't make sense to me that these advisors don't guide them to get the tax benefit of the pretax 401k
Posted on 10/16/19 at 3:11 pm to lsu13lsu
I know I am in the minority, but I'm now a fan of having more money whether its going to be taxed or not. I used to be a fan of Roth's and absolutely max both if possible, but now I'm a fan of maxing traditional first and then getting to your Roth.
People always say "taxes will always go up" but that is simply not true. Furthermore, why pay now if you can instead pay in 50 years? Or never?
People always say "taxes will always go up" but that is simply not true. Furthermore, why pay now if you can instead pay in 50 years? Or never?
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