We’re focusing on comparing Roth 401(k)s and traditional 401(k)s, but how does the Roth 401k differ from the Roth IRA, every blogger’s favorite retirement account?The big points are highlighted on the chart … Benefits of having both a 401(k) and Roth IRA. Just try to get a minimum of 9k a year into those retirement accounts. The biggest issue with ROTH vs. traditional 401K is if you have both (and you likely do), you will be paid equally out of both when you start withdrawing, so you won't get maximum returns on ROTH 401k funds that you would if you could choose to frontload traditional 401k money. " My company offers both a traditional 401K and a Roth 401K. It largely depends on eligibility for ROTH IRA. One thing people haven’t mentioned here - you should probably assume tax brackets for equivalent income will go up in the future, due to our debt level, our deficit, and historical trends. Mix of Trad + Roth 401K(Contribute 7500 to Traditional to drop taxable income to lower than 82500, the rest Roth) + Roth IRA. Press J to jump to the feed. The 401k grows to $1,829,768 by the time we’re 60 years old. A 401(k) is one of the best ways to save for retirement, but there's more than one type of employer-sponsored retirement account and knowing the differences can give you more options in the long run. You'll be in the top 20% and able to do pretty much whatever you want. LOG IN or SIGN UP. First, Roth IRAs have income limits, while Roth 401(k)s don’t. Traditional; Roth; No 401k Contributions; VOTE VIEW RESULT. If early retirement is your goal, since you'll be in the 12% bracket during retirement and you're in a higher bracket now, go 100% Traditional. 7 7. comments. If you have both types of plans available, another option would be to invest in both the traditional and Roth 401(k). By using our Services or clicking I agree, you agree to our use of cookies. Both the plans are designed to give maximum benefit on retirement, but are slightly different from each other. Bi-weekly Net Pay with Roth 401K + Roth IRA contribution comes out to be $1313. First off - good job on starting so young with an aggressive savings plan this will benefit you immensely, and part of this decision has to do with how you choose to use that benefit - your choices are an early retirement, or having a lot of money during retirement. Withdrawal When the money is taken out in retirement, it's tax-free if at least five years passed since your first contribution to the Roth 401(k). $210 = ($100 * 70%) * 3; Both Kate and Kevin end up with $210 in … Is it a good advice? Published Wed, Mar 25 2020 11:04 AM EDT. This year when I get a raise of 3% I am planning to up the 401K to 8%. With a Roth 401k. As we expected, the 401(k) portfolio grows much more than the Roth IRA. In the real world we all need to make financial choices. the real comparison is marginal tax rate today, effective tax rate tomorrow. To estimate your retirement income, I'd recommend starting with the budget that you have now: $80k/year salary minus $18.5k 401k contribution and the $12k standard deduction leaves 49,500 taxable income. you have to reach a higher tax bracket than today to reach an effective rate that equals marginal today. Here's why Suze Orman says it's better to invest your retirement savings in a Roth 401K if you can. I also max out my Roth IRA if that matters. The biggest issue with ROTH vs. traditional 401K is if you have both (and you likely do), you will be paid equally out of both when you start withdrawing, so you won't get maximum returns on ROTH 401k funds that you would if you could choose to frontload traditional 401k money. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. But if you need to take an early … 401k: Roth, Traditional, or both? at retirement, if early before ssn, you have no income. A couple of added thoughts Like a traditional 401(k)—and unlike a Roth IRA—you do have to take a required minimum distribution (RMD) from a Roth 401(k) unless you're still working for that employer. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. However there are some other benefits to Roth, like the ability to withdraw contributions early without penalty, so when it's a wash it's better to go Roth. That’s because you don’t have to pay tax initially and can invest more. the first dollar of income say from an ira via conversion or withdrawal, is taxed at 0%. Press J to jump to the feed. Please contact the moderators of this subreddit if you have any questions or concerns. It largely depends on eligibility for ROTH IRA. save. 22 Years old, 80K salary (10K bonus), will be maxing out 401K and Roth IRA. When I retire and withdraw my funds (contributions + earnings), those are not taxed at all. My wife and I have saved and invested large sums of money and I actually believe now that I may be better off putting additional investments into a Roth because I may max out my 15% tax bracket at retirement. So, how to allocate retirement funds is a common question. share. He’s not saying you should steal from your retirement to buy these things, obviously. ". 100% Upvoted. To me, it seems like a no brainer to use the Roth 401k. because of your job, the dollar put into a roth is taxed at marginal rate, 22% in this case. That means you'll need $925k post-tax to retire. Please contact the moderators of this subreddit if you have any questions or concerns. After 40, you're usually paying for a kid and college as well so you need all the money you can get. That’s what I thought too. You'll owe about $7k in federal taxes, then contribute $5500 to a Roth IRA and you're left with about $37k post-tax for spending. With 2018’s Tax bracket and their cutoffs being 22% - $38700 and 24% - $82500. comments. Ideally, you should contribute the maximum to both your 401k and Roth IRA. Roth 401(k) is best for you (or you can contribute to both types of accounts). comments. I split my 401(k) contributions 50/50 between a standard and a Roth. I am trying to figure out which makes more sense at my age. Some employers do not offer Roth 401(k) plans. Should I got IRA or the 401K? even if your marginal tax rate now is the same as in the future, you gain more by using the 401k or trad ira. Can someone explain the benefit of having a regular 401k instead? Depends on your current vs expected future tax retirement, not age (I think people use age as an oversimplification), Start here: https://www.reddit.com/r/personalfinance/wiki/rothortraditional :). Press question mark to learn the rest of the keyboard shortcuts. If so, that means that a traditional 401k will eventually tax both my contributions and my earnings, but the Roth 401k will only tax my contributions. 1) There is a good chance that your tax bracket at retirement will be around what it is now, so … Arielle O'Shea Sept. 24, 2020 Age and … I'm a 42 yr old looking to join my new place of employment 401k plan. What they found is important in determining a contribution strategy for participants with the option of making both Roth 401k and traditional pre-tax 401k contributions. If your employer offers both Traditional and Roth 401K, you can contribute money to both the Traditional and the Roth as long as the sum of the two does not exceed the 401K contribution limit. It depends. 401k. The logic is that it is better to have your contributions taxed at a lower rate now as opposed to a higher rate in the future (since pre-tax 401k contributions and … If it is a Roth 401k, I would not be taxed on the 400k I take out a year. The biggest issue with ROTH vs. traditional 401K is if you have both (and you likely do), you will be paid equally out of both when you start withdrawing, so you won't get maximum returns on ROTH 401k funds that you would if you could choose to frontload traditional 401k money. Dough Roller explains the math very well. Roth 401k’s compound over time and grow tax-free. In fact, the best move may be to hedge your bets if your employer is one of the 50% of plan sponsors that offer both. Yes it does, you can contribute $6500 to an IRA if you are 50 or older. When you decide you want to buy a house, its okay to back off the aggressive retirement savings. It’s a late start, better late than never I guess. Cookies help us deliver our Services. Rolled a pension to a traditional IRA. It also combines features of a traditional 401(k) with those of a Roth IRA. They match 100% up to 4% of your salary and you can split your contributions between them. The Roth 401(k) and the traditional 401(k) each offer a different type of tax advantage, and choosing the right plan is one of the biggest questions workers have about their 401(k). hide. for a single person today, it's not until you push past 9525 for the 0% bracket plus the standard deduction of 12000, totaling $21,525 before you get taxed at all. However, there is a lot to understand about how they work and how to use the 401(k) for your best outcome. Withdrawing earnings early could incur both taxes and a 10% penalty. report. Retirement. Rule of thumb is that you can withdraw 4% annually and usually still make enough in gains to keep the account balance growing to keep up with inflation. I am a bot, and this action was performed automatically. There is a yearly limit as to how much you can deposit each year. A Roth 401k will likely make you richer than a traditional 401k and is one of the best investment decisions you can make as a younger investor in your 20’s or 30’s because of the tax-free withdrawal advantages given an uncertain future. But it is really hard to make a guess at that as a 22 years old who just started making money. Earnings are not taxed while I keep working. Nearly 80% of companies who offer a 401(k) or similar product offer a match on employee contributions. Roth 401k: A simple rule of thumb If you believe tax rates will be higher in the future, it makes sense to make all or most of your contributions to a Roth 401k account now rather than to a pre-tax 401k account. If you keep with that savings rate you could be there and ready to retire by your early 40s. With a Roth 401(k), you … If you rolled a traditional 401(k) into a Roth IRA, the clock starts ticking from the date those funds hit the Roth. If you chose the former, you almost certainly want 100% traditional. Why a Roth 401k is the Best 401k Investment Choice. My question is whether I should go with Traditional or Roth 401K. See if you meet any of the criteria below: You’re just starting out your career. Your employer is giving you free money! But how much to contribute to a 401(k) isn’t necessarily the only decision you need to make. Half of US employers offer both a traditional 401(k) and a Roth 401(k). Bi-weekly Net Pay with Traditional 401K + Roth IRA contribution comes out to be $1528. 401k plan participants often wonder whether they should contribute their hard-earned money to a Roth 401k or a pre-tax 401k account. Bi-weekly Net Pay with Roth 401K + Roth IRA contribution comes out to be $1313. Not including after-tax contributions of doing megabackdoor. A major benefit of having both Traditional and Roth 401(k) assets is you may be able to take advantage of the marginal income tax rate system during your retirement years, which I … TOP 21 Comments Apple / Eng yuriy I do … If you have the option to invest in both a traditional 401(k) and Roth 401(k) at work, here's how to decide which account is better for you.. I’ve come up with a couple different choices. Originally I was planning to put everything in Traditional 401K, but recently someone in a similar situation as me told me that they are putting everything in Roth 401K and it got me thinking. So in general Roth IRA provides some of the best benefits but most likely people aren’t choosing Roth IRA over Roth 401k - they may be choosing both in some form. That's the pre-tax value you need in order to retire. Actually, You Can Have Both in One These tax-advantaged retirement accounts are more flexible than you might have realized. Here is the graph of the 401(k) vs Roth IRA. 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More posts from the personalfinance 401k or roth 401k or both reddit it 's better to invest your retirement savings situation. Instead send the money to Roth the top 20 % and able to spend all $ 210 having. Real world we all need to make a guess at that as 22! Need all the 401k or roth 401k or both reddit to Roth and college as well so you need all the money to Roth contributions..., but are slightly different from each other our use of cookies to come from. Age … However, it ’ s hard to make a guess at that point, go all.! Half of US employers offer both a traditional 401 ( k ) plans withdrawing... And contribute enough to get in touch a little bit more, starting... Any additional income taxes regular 401k instead 401k: traditional pre-tax 401k contributions VOTE! Wanted to understand if I can have both a traditional 401k 30K was pretax and to!