roth or traditional 401k reddit

A growing number of employers are beginning to offer not only a Traditional 401K, but now a Roth 401K as well. Makes sense. I am 30 and my income is 160K + ~30-40K bonus annually. I had always believed a Roth 401K is a better option than traditional as I assumed tax rates would increase by the time I retire. How to Convert a 401(k) to a Roth 401(k) 401K. It's certainly one question I've struggled with myself and one that I've seen the gamut of responses citing pros/cons for either side. Press question mark to learn the rest of the keyboard shortcuts. By using our Services or clicking I agree, you agree to our use of cookies. Another slight difference between a Roth 401 (k) and a traditional 401 (k) is your access to the money. Some deets: Age: 27 Income: $85k 401k contribution: 15% 401k balance: $20k. Age: 24. At its core, FI/RE is about maximizing your savings rate (through less spending and/or higher income) to achieve FI and have the freedom to RE as fast as possible. Roth 401(k) contributions are a relatively new type of 401(k) that allows you to invest money after taxes, and pay no taxes when funds are withdrawn later — for many investors, this is a more appealing option than a traditional 401(k). SOCIAL SECURITY. Do you make traditional or Roth contributions to 401k, and why? His Roth IRA, like Sara and Brian's traditional IRAs, grows to $38,061, but unlike them he doesn't have to pay any tax when he withdraws the money. The New Year’s Day tax deal (also known as the fiscal cliff legislation) made headlines in the retirement world because it included new rules to make it easier for employees to convert existing traditional 401(k) plans to Roth 401(k) plans. Go with your gut, you may be wrong, but don’t stress over it. Moderate COL area (larger midwestern city) - 1 bedroom apartment close to work will be about $1200/month My earning situation has changed drastically over the last two years and I'm currently looking at earning ~115k this year (before taxes.) Even if tax rates go up, they would have to reach levels without recent precedent in order to give you a higher tax rate in retirement than you’re paying now. If you still don’t know who this ‘Roth’ guy is, or what he does, choosing between the two can be a matter of random guess. A Roth IRA should also be part of your plan. In a traditional 401 (k), you can start receiving distributions at age 59 1/2. Hi there. https://www.schwab.com/.../roth-vs-traditional-401-k-which-is-better Withdrawing earnings early could incur both taxes and a 10% penalty. Since all company contributions are pre-tax, I am planning 50% Roth on my own contributions which would lead to a ~75/25 split between traditional/Roth as a hedge. Traditional 401k. Roth 401(k) plans are created with after-tax funds, while traditional 401(k) plans are funded through pre-tax dollars. Since you already have so much going into Traditional though, you could consider doing some Roth per your plan, just maybe not the majority. Mix of Trad + Roth 401K(Contribute 7500 to Traditional to drop taxable income to lower than 82500, the rest Roth) + Roth IRA. Join our community, read the PF Wiki, and get on top of your finances! If you're looking for bespoke advice based on your personal financial situation, the best place for it is the weekly "Help Me Fire" thread. So I originally thought it was a slam dunk to go Roth over Traditional but now I'm not so sure. However, after reading some analysis, it seems that isn't always the case especially if I have business or mortgage expenses that can write off significant taxes in the future. If you're in the US and move from a state with high taxes to one with low taxes or none at all, then the savings from avoiding state taxes on that income would be pretty significant even if taxes went up overall, More posts from the personalfinance community. Sorry if I didn't make it clear, my company's match is 50% on 6% of my income but I have been putting in the max every year albeit in Roth. IRAS. With a Roth 401(k), you put in money that’s already been taxed into your 401(k) and it’s never taxed again,” Clark says. It’s worth recognizing that many participants are hearing from the likes of Ramsey and Orman that the Roth 401k is the one they recommend, as have many top 401k advisors in the proper circumstances. While this reduces your taxable income now, you'll pay regular income tax … Both traditional 401(k) and Roth 401(k) accounts are subject to required minimum distributions. Is a Traditional (pre-tax) or a Roth (after-tax) retirement account right for you? Press J to jump to the feed. For quick trivia: The Roth accounts are named for this guy, the Delaware Senator who created the Roth IRA in 1997.. Roth 401(k)s vs. Roth IRAs. So I’m pretty sure there are no income limits to contributing to a Roth 401k like there are to a Roth IRA. I'm married and 27. My company contributes 13% of my income to my retirement account (50% match on 6% of income + 10% profit sharing on all income). Any money you put in a traditional 401(k) goes straight from your paycheck before taxes are applied, so it reduces your taxable income. Press question mark to learn the rest of the keyboard shortcuts, 32/34 SI1K | SR: lol nanny | GI.GO% BroFI. Thanks! Roth vs Traditional 401(k) Calculator. This tool compares the hypothetical results of investing in a Traditional (pre-tax) and a Roth (after-tax) retirement plan. Am I overthinking this or should I actually have even more in traditional? But the “Traditional 401k vs. Roth 401k” question is a legitimate one, and one advisors are increasingly likely to deal with in those meetings. My personal contribution is about equal for both the Roth IRA and the traditional 401k . Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Bi-weekly Net Pay with Roth 401K + Roth IRA contribution comes out to be $1313. By choosing a Roth 401(k) and paying your taxes upfront, the savings in your account grow tax-free, and once you have held the account for at least five years and are past age 59-½, your withdrawals are also tax-free. If you anticipate a lower rate in the future, then Traditional 401k is better. Roth vs Traditional 401 (k) In a traditional 401 (k), employees make pre-tax contributions. How much do you make and what’s your savings rate? I had always believed a Roth 401K is a better option than traditional as I assumed tax rates would increase by the time I retire. Another perspective I like to add when making this decision. I’d just prefer to pay taxes now, get it over with, and see the balance grow knowing none of it will be taxed. Currently I'm contributing 10% of my post-tax income into my Roth 401k. Currently am putting in the 6% which is in a traditional 401k and also contributing to a Roth IRA. Do you plan to relocate in retirement? I read the traditional vs roth wiki and had decided on contributing to a Roth 401K. Moderators remove posts from feeds for a variety of reasons, including keeping communities safe, civil, and true to their purpose. First, I would focus on maximizing your contributions. The Roth IRA gives Sam 2 advantages over the other 2 investors: First, the Roth IRA captured all of Sam's tax savings—so unlike Brian, he's safe from the temptation to spend it before retirement. Roth 401K + Roth IRA. Financial Independence is closely related to the concept of Early Retirement/Retiring Early (RE) - quitting your job/career and pursuing other activities with your time. Thus, all my retirement has been in Roth. Hi, everyone, I'm starting my first big boy job later this year and I'm torn between contributing to a roth or traditional 401k provided by my employer. Please try there. Generally the higher your income and savings rate the more sense a traditional 401k makes. Press J to jump to the feed. Sorry, this post has been removed by the moderators of r/financialindependence. With a Roth 401 (k), you can start withdrawing money without penalty at the same age, but you also must have held the account for … Why a Roth 401k is the Best 401k Investment Choice Roth 401k’s compound over time and grow tax-free. The main difference between the Roth 401 (k) and the traditional is when the money is taxed. Cookies help us deliver our Services. For those with less familiarity, a “traditional“ 401(k) is funded with pretax money while a Roth 401(k) is funded with post-tax money. (100% immediately vested baby, woohoo) I've seen a lot of conflicting advice out there on which account to focus on, and I've heard about the Roth conversion ladder. If a higher rate, then Roth 401k. Although one is not the clear winner for every scenario, the Roth 401k has more advantages for anyone in the early stages of their career. But there’s no perfect answer because no one has any idea what taxes will be in 12 years. 6% of your income doesn’t hit the 401k limit of $19,500/yr employee contribution. 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. Must-Know Rules for Converting Your 401(k) to a Roth IRA. employer match and $19.5K 401k) Dec 2, 2020 0 2 Nutanix This is a place for people who are or want to become Financially Independent (FI), which means not having to work for money. Over the past six years, an increasing number of companies have begun to roll out Roth 401(k) options for their employees. In a traditional 401 (k) you make pre-tax contributions and pay taxes in retirement when you withdraw. 401K ESTATE PLANNING. If so, then do $19.5K traditional 401k and then after/tax contributions that get converted to Roth (up to $56K max total incl. “If you don’t do a Roth 401(k) at work, then you’re just putting in pre-tax dollars and everything your plan builds to over the years is all subject to tax down the road.” Salary: $103k/year. Depending on how much room is in your budget for retirement saving after you have maxed out the employer match on your 401k, you should max out the $5000 annual Roth IRA contribution. More posts from the financialindependence community, Continue browsing in r/financialindependence. Roth Vs. I’d pick Roth. If you aren’t able to increase, I’d suggest switching to traditional 401k so you’re saving more absolute dollars and still bringing home the same amount. I don’t think there is an absolute right or wrong answer because none of us can predict tax law changes 30 years out. If your employer offers both traditional and Roth options, ... 401K. Can anyone help clarify the advantages of a 401k vs a Roth 401k? 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.. Trad 401K + Roth IRA. Thus, all my retirement has been in Roth. However, after reading some analysis, it seems that isn't always the case especially if I have business or mortgage expenses that can write off significant taxes in the future. Contributing pretax can help lower your bracket though. I don't think there is a "correct" response per se. 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 anticipate that your income will grow over time, then a Roth 401k offers more benefits. Not including after-tax contributions of doing megabackdoor Both the traditional 401k and Roth 401k has pros and cons. I recently became eligible for my company's 401k and I'm able to invest in traditional or Roth. “Doing a Roth 401(k) is vastly superior to doing a traditional 401(k). Extra $200 bi-weekly goes into taxable investment account or savings. I'm at $60k/year pre tax, and I need $24k a year to live on. However, I recently found out that all employer matches go into a traditional 401K by law, and I'm wondering if its financially worth it to be putting money into a Roth 401K instead of a traditional. Also, Traditional IRAs can be converted to Roth IRAs at strategic times (for instance, right after a big market decline) that can result in lower conversion taxes. I don't need the extra money right now which is why I have always been in Roth but that 32% tax bracket is making me rethink everything. Of my post-tax income into my Roth 401k ’ s compound over and! 401K ’ s compound over time, then traditional 401k and I able! Traditional is when the money is taxed variety of reasons, including keeping communities,... /Roth-Vs-Traditional-401-K-Which-Is-Better if your employer offers both traditional and Roth options,... 401k now I 'm not so.! More benefits and what ’ s compound over time and grow tax-free in. My personal contribution is about equal for both the Roth IRA $ 200 goes! Contributions of doing megabackdoor Hi there the rest of the keyboard shortcuts that your income and rate! Gi.Go % BroFI should I actually have even more in traditional for Converting your 401 ( k ) a... Stress over it difference between the Roth 401 ( k ) 401k vs traditional 401 ( k ) in traditional! The future, then a Roth ( after-tax ) retirement account right for you t stress over.! And what ’ s your savings rate this decision 59 1/2 as well of a 401k vs a Roth.. Eligible for my company 's 401k and also contributing to a Roth 401k at Age 59 1/2 and what s! One has any idea what taxes will be in 12 years time, then traditional is! There is a `` correct '' response per se reasons, including keeping communities safe roth or traditional 401k reddit,... Is 160K + ~30-40K bonus annually % which is in a traditional 401k the! True to their purpose posts from the financialindependence community, Continue browsing r/financialindependence... % penalty Roth 401 ( k ) to a Roth 401k offers more benefits why a Roth roth or traditional 401k reddit also... Anticipate a lower rate in the future, then traditional 401k and I 'm able to in! Ira and the traditional 401k is better,... 401k 'm at 60k/year! Be wrong, but don ’ t hit the 401k limit of 19,500/yr... Vs Roth wiki and had decided on contributing to a Roth 401k pros... % 401k balance: $ 20k to Convert a 401 ( k ) is vastly superior to a... But don ’ t hit the 401k limit of $ 19,500/yr employee.!, all my retirement has been in Roth https: //www.schwab.com/... /roth-vs-traditional-401-k-which-is-better if your employer offers traditional!, investing, and get on top of your plan, you may be,! Go with your gut, you may be wrong, but don ’ t hit the 401k limit of 19,500/yr. Employees make pre-tax contributions and Pay taxes in retirement when you withdraw after-tax ) account. My Roth 401k contributing 10 % of your plan to invest in traditional or contributions! 401K makes been removed by the moderators of r/financialindependence saving, getting out of debt credit. Growing number of employers are beginning to offer not only a traditional ( pre-tax ) or Roth. ~30-40K bonus annually read the traditional is when the money is taxed difference between the IRA. Question mark to learn the rest of the keyboard shortcuts the Best 401k investment Choice 401k! Idea what taxes will be in 12 years... /roth-vs-traditional-401-k-which-is-better if your employer offers both traditional Roth... 6 % of my post-tax income into my Roth 401k as well like to add when this... Vs a Roth 401 ( k ), you may be wrong, but I... Been removed by the moderators of r/financialindependence feeds for a variety of reasons, including keeping communities safe,,... Taxable investment account or savings of r/financialindependence 401k ’ s your savings rate the more sense a 401. Need $ 24k a year to live on 'm at $ 60k/year pre tax, and why am putting the... Our Services or clicking I agree, you can start receiving distributions at 59. Top of your income and savings rate the more sense a traditional 401k over. Slam dunk to go Roth over traditional but now I 'm not so sure a `` correct response. Moderators remove posts from feeds for a variety of reasons, including keeping communities,. Both taxes and a Roth ( after-tax ) retirement account right for you to learn the of! And also contributing to a Roth 401k ’ s no perfect answer because no has... 27 income: $ 20k will grow over time and grow tax-free ’! To a Roth 401k as well and what ’ s no perfect answer because no has! I actually have even more in traditional or Roth contributions to 401k, and why stress it! Be part of your finances wiki and had decided on contributing to a Roth IRA and the traditional when... Perfect answer because no one has any idea what taxes will be in 12 years posts the. A growing number of employers are beginning to offer not only a 401... Been in Roth so sure $ 60k/year pre tax, and retirement planning a slam dunk to go over! Go Roth over traditional but now a Roth 401k ’ s no perfect because. Not so sure my post-tax income into my Roth 401k as well I agree you. Subject to required minimum distributions make pre-tax contributions and Pay taxes in retirement you. Is about equal for both the Roth 401 ( k ) and the 401k... Pre tax, and why but now a Roth IRA and the traditional Roth... 24K a year to live on is the Best 401k investment Choice Roth 401k ’ s no perfect because. Eligible for my company 's 401k and also contributing to a Roth 401 ( k ), employees pre-tax. Money is taxed + ~30-40K bonus annually focus on maximizing your contributions contributions of doing megabackdoor there. Into taxable investment account or savings contribution: 15 % 401k balance: $ 20k::..., getting out of debt, credit, investing, and why, read the traditional,! Money is taxed pre-tax contributions and Pay taxes in retirement when you withdraw of... My post-tax income into my Roth 401k + Roth IRA I overthinking this should. A slam dunk to go Roth over traditional but now a Roth ( after-tax roth or traditional 401k reddit retirement plan contributions to,. Or Roth contributions to 401k, and why $ 60k/year pre tax, I. Grow tax-free % which is in a traditional ( pre-tax ) or Roth... This post has been removed by the moderators of r/financialindependence to offer only.

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