I am wondering what is a better option if planning to retire abroad: most countries don’t treat withdrawal from 401K as tax free. annonandon OP. He contributes the $70 directly into his Roth 401(k) where, over the next 30 years, it … Q18: Does the new after-tax option allow for in-service distributions? Press J to jump to the feed. So I'd be taxed at an income tax rate? There's something known as the "mega backdoor Roth IRA" where you take post-tax contributions to a 401k and transfer and convert them to a Roth IRA, but this is dependent on if post-tax contributions are allowed in your 401k plan. Press J to jump to the feed. Join our community, read the PF Wiki, and get on top of your finances! The main difference is that u pay taxes now on Roth vs 401k were u pay taxes later. I'm currently 23 years old and am wondering if putting 100% of my contributions in pre-tax is the right choice in the long run. If Roth 401k has the same tax benefit of a Roth IRA, wouldn't I want to sign up for this? The three criteria that do matter are: Asset class (e.g. To create a line break, either put two spaces at the end of the line or put an extra blank line in-between lines. By using our Services or clicking I agree, you agree to our use of cookies. For example, if you're only withdrawing 80% of that $110k you were making during accumulation (a common ratio for non-early retirement types), then your effective tax rate would only be 17.51% and traditional would come out even further ahead. You can take as many after-tax distributions as you’d like. Higher risk doesn't always equal better returns watch the expense fees. In your shoes I would stick to Traditional 401k. I have the optiosn to invest in a "COMPLETE PORTFOLIOS: I am only under contract for one year at my employer so i am just looking at 1 Year average returns. Roth 401(k) vs. traditional 401(k): Which is better? As a general rule: If your current tax bracket is higher than your expected tax bracket in retirement, then consider contributing pre-tax dollars into a Traditional 401(k) account. The Roth 401(k) is a type of retirement savings plan that allows you to make contributions after taxes have been taken out. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Press question mark to learn the rest of the keyboard shortcuts. Solo 401(k) Even though 401(k)s are traditionally offered through employers, you do have the option to open this type of account if you are self-employed. Physician. ThoracicGuy. How hard was the post-tax hit? I am not sure if should put all 6% into Pre-tax or Roth. Contact pentium4borg with any feedback. Different from pre-tax 401k contributions, Roth 401k contributions and earnings are not taxed when withdrawn, provided they have been in a 401k plan for at least five years and are paid out because of a distributable event. Should i split it up or just put all 12% into one? Pre-Tax 401(k) Contributions. You can make contributions in pre-tax and Roth. So the fair comparison to the 401K should be $8,000 pre-tax contribution ($6,000 pre-tax contribution + $2,000 tax defer savings), not the $7,500 used in this 401K example. I was thinking about contributing 12% into my 401k. Then look at the complete list of bond funds your 401k offers, find the one with the lowest expense ratio, and put the other 20% (or less) into that. Archived. Reactions: ThoracicGuy. Designated Roth 401(k) Roth IRA. The main difference between a traditional IRA and a Roth IRA is when you pay tax on your money. At what point does the benefit of the tax-free withdrawal of the Roth outweigh the additional growth of the pre-tax option? 6d 6 2. With a Roth 401(k), you pay taxes upfront, and all of the money in the account is yours, assuming you follow the rest of the withdrawal rules. This is … Is one better than the other? Retirement. 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