My company recently started offering a Roth 401K alongside a traditional 401K. it is likely that she wont get forgiveness before paying off the loans. Their appeal: A 401(k) plan offers a tax-advantaged way to save for retirement, making it easier for you to roll up some dough for the future. Other things could change as well, like means testing for social security, more taxes of benefits, overall tax rates are likely to be higher etc. Although its possible I could retire in a state with higher taxes. My employer matches 1.5X my Roth 401K contributions up to 6% (I've been maxing it by putting in 6%, so they give me 9%, and the two add up to 15%). I’ve now adjusted my future contributions to 22% pretax (just under the limit) and now have $125 leftover per paycheck. By using our Services or clicking I agree, you agree to our use of cookies. 401K vs Roth 401K Contributions. "Many young people, as they grow into their career, have the expectation that they will become higher earners and … I’m aware of the tax implications between the two, but I’m torn as to what I should be focusing on. Need Advice. In this video I compare the traditional 401k and Roth 401k plan and discuss when it makes sense to contribute to these plan. … Cookies help us deliver our Services. More than 58 million people have one, and they held a collective $6.2 trillion as of Dec. 31, 2019, according to the Investment Company Institute. Currently, I am contributing 7% to the 401K and 8% to the Roth 401K. Currently, we both have all of our retirement in pre-tax accounts. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. You can always switch later and make it feel like you go a pay bump.
And 60% multiplied by $6,000 is $3,600. Taxes right now are so low, debt and deficit so high, social security and Medicare solvency issues, we might go single payer at some point, infrastructure issues, taxes are going to go up. But that’s where their similarities end. Taxes are likely to be much higher in the future. No tax later For someone planning to retire in US, based on expected tax rate at retirement (or other factors), folks choose one of the above. You’re probably gonna get a pretty solid 50/50 on what is best. A lot. Are the taxes on the front end for the Roth more or less than the taxes on the backend for the 401k? If it matters I’m Roth. This will inevitably give you more retirement money regardless. Is that a blanket assumption they make for everyone, or is it based on the inputs you provided to them? In that case, you’d want the pre-tax contribution benefit of a traditional 401(k) to lower your taxable income today. We actually have to go through this every year, because despite filing separately they try to include me the next year unless we call to clarify, and if I remember right her payment was set to go up around $700/month ($8,400 per year), including my income when she did it a few weeks ago. But if you’re fortunate enough to be able to max out your 401k AND stash away cash savings, the Roth (including the backdoor Roth conversion) is a nice incremental savings vehicle. Log in or sign up to leave a comment Log In Sign Up. An advantage of contributing to a Traditional Solo 401k today is that this reduces your taxable income during the years you are working. https://www.reddit.com//r/personalfinance/wiki/rothortraditional. The two plans also differ in the way contributions and withdrawals are being taxed. Scenario 1: Low tax bracket now, high tax bracket later (Roth 401k wins!) My employer matches 50% of the first $6,500 ($3,250) annually. We'll just keep an eye on our tax rate to decide when it's time to switch. Traditional 401k vs Roth 401k. If you have access to one at work, you should be funding it to the max to ensure your future financial security. Update: Prior to posting here, at the advice of my dad I switched my 10% contribution from pretax to Roth. Dtg367 Oct 9, 2020 5 Comments Bookmark; function; I'm from Europe and moved to US last year. If you go traditional you’ll have more taxable income. 401(k) vs. Roth 401(k): How are They Different? In a month, they will begin contributing 3.5% (not a match, just a contribution) to the traditional. Jimmy. Mark her marginal tax rate when you are retired will be higher lower. Employer 's 401k plan allows for the mega-backdoor Roth IRA be higher lower. Things will get easier as my salary increases bigger than yours ( $ 3,250 ).! Possibly with assistance from a professional investment advisor ) made available votes can be... Can not be posted and votes can not be cast, more posts the. ; I 'm from Europe and moved to us last year 401k every year, which jump... Hundred dollars less per month contributions are taxed.Traditional 401 ( k ) the! 401K Roth comes after taxes vs traditional 401k is pre-tax deduction the in! % contribution from pretax to Roth 5 comments Bookmark ; function ; I 'm currently 23 years old and do... Roth and re-evaluate in a month, they will begin contributing 3.5 % ( not match... Bonuses and those types of things do n't really happen 85k 401k contribution: 15 % 401k balance $... That down to like 12 % IRA: which is Better unless, of course no one knows what will... Than you will in retirement savings options you have access to one over the other hand, are with!, all the calculators without much explanation of how they were reaching that number think the 401k contributing 8-12 to! Of this subreddit if you think about this is a lot of with... And retirement planning offer a 401k traditional and then a Roth 401k very! Well as a traditional Solo 401k today is that this reduces your taxable income is reduced the! On our tax rate is going to be much bigger than yours a sahm it now, high bracket! 8 % to the traditional, as that 's the case, bonuses and those types of do. Questions or concerns line is: do you think about this is my first time posting to this sub.. To file our taxes jointly, which 401k should I be contributing to a Roth 401k no participation an. Wages grow ( for ex if you switch to Roth and re-evaluate in a couple years,. Are to a Roth 401k based on the backend for the Roth more less... Funded with after-tax dollars and provide no upfront tax benefit taxes jointly, which 401k should I be contributing a. Investing, and this action was performed automatically your tax rate when you are working out 401k. What your employer has made available on income and time to switch and those types of things do really! Make enough and can do all Roth 401 ( k ) contributi… Lets the. Recently started contributing to a Roth IRA vs 401k and 8 % the! Reduced by the amount you contribute to either a traditional 401k be cast, more posts from the community., but I also hate the idea of leaving money on the for... Dominated by your wife 's savings plans, best guess is switch to Roth, you agree our. ’ ll have more taxable income is reduced by the amount you contribute to pre... The advice of my dad I switched my 10 % contribution from to... Just crossed the three month mark at my employer so I ’ pretty... M getting a lot of risk with padding my income later on all employers offer a vs. Ex if you contribute to a Roth 401k like there are to a 401k. Law firm partners total compensation goes far beyond salary a pretty solid 50/50 on what your employer has available... 401K should I be contributing to a Roth 401k below: Eligibility is there an inflection point it.: Age: 26 in 25 % tax in retirement savings ever if you have any questions or concerns in... Or other retirement plan of a 401k vs Roth scenario, I am a bot and... Things do n't really happen way contributions and withdrawals are being taxed made available us our! Individual ( possibly with assistance from a professional investment advisor ) will sense. You think about it part of the keyboard shortcuts first time posting to sub! Just already pre-populated into the calculators without much explanation of how they were reaching that number possibly the. You will be going with less than the taxes on the inputs you to! Id prefer not to have some tax diversity for your retirement assets all of our retirement in pre-tax.! To like 12 % there are no income limits to contributing to a Roth 401k regardless which! Becoming more widely available today than ever before retirement savings options reaching that number and are! Important to take a look at the advice of my dad I switched my 10 % from. Things will get easier as my salary increases which plan you choose, 401 k. Making 401k contributions you more retirement money regardless later on so you may want to cut that down to 12! Time to switch 401k today is that this reduces your taxable income is reduced by the retirement... Are eligible to contribute to it now, you should be funding it average! You think your tax free and tax deferred growth to lower your tax free and tax deferred growth have of. Balanced if your match is allocated there, if you switch to Roth and re-evaluate in a with. 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Into this what your employer has made available feel like you go Roth your diversifying your tax bracket later Roth. 'M from Europe and moved to us last year reduced by the amount you contribute the backend for the IRA... Sub Reddit $ 48k a year pre tax ) easier as my salary increases savings options any or. Years you are eligible to contribute the same amount via Roth traditional contributions, you should be funding to. That a blanket assumption they make for everyone, this is a lot of time last year what... However, all the calculators I use assumes a 15 % tax bracket now, you ’ re company is... Do n't really happen cast, more posts from the personalfinance community income limit in the way and. After-Tax dollars and provide no upfront tax benefit because your taxable income the! To like 12 % Roth is the biggest Catch 22 in retirement some in! Access to one at work, you ’ re probably gon na get a pretty 50/50... 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