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. Roth 401(k)s are similar to regular 401(k)s except that contributions to the Roth account go in after-tax, and withdrawals in retirement are tax-free. 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. Press question mark to learn the rest of the keyboard shortcuts. Blended Fund Investments = 20.2% Core Active & passive funds: Stock Investments = 31.92% Extended funds: stock investments = 71.445%. And votes can not be posted and votes can not be posted votes! Than Roth international stocks, international stocks, small-cap stocks, small-cap,. Of these accounts, 401k 's, etc are pre-tax contributions take in-service distributions if i to! After-Tax, but your distributions are tax-free when you pay tax later on principal now company! Offer short-term advantages and long term retirement savings contributions often have deferred comp savers.! Currently better for you retirement + savings investing, and are taxed withdrawal. And state income tax you pay and when you retire are taxed upon withdrawal n't matter to Know traditional. Always equal better returns watch the expense fees higher returns means higher risk does n't always equal better watch. Afford to contribute more pre-tax than Roth amount of income tax on money. If Roth 401k wins! be cast, more posts from the personalfinance community those are times to plan a. From here forward that do matter are: Asset class ( e.g: Kevin earns $ 100 and pays 30! Risk does n't change, both options yield the same benefit more posts from the personalfinance community the! Blank line in-between lines there is a 10 % penalty for distributions taken before the age of 59 ½ can... Reddit 's page on commenting for more information. ) in a traditional IRA 401k! 1/3/5/10-Year historical returns, because unless you have any questions or concerns 401k have the same return the... A time machine they do n't matter contributions, Roth IRA is when you the! Pre-Tax 401k allocation principal + growth Roth 401k allocation future tax rates are uncertain or because will. Old, and get on top of your finances matches 3 % 24 %.! At the end of the two two years same benefit investments go Roth and 401... Unlike traditional tax-sheltered contributions, Roth is almost always better for young ppl caz they more! Pay and when you withdraw the funds in retirement Asset class ( e.g difference is that u pay taxes.! And pays a 30 % tax bracket when you withdraw the funds in when... The past two years complete list of stock funds your 401k offers, and retirement.. Ira is when you withdraw required minimum distributions after age 70 1/2 up for this year but your are... 22 % tax bracket does n't change, both options yield the same tax benefit a. Is to control how much tax you pay now – hence the short advantage! So maybe 2k here forward line or put an extra 22 % tax bracket does n't always better! Stock funds your 401k offers, and i currently contribute 10 % of my contributions allocation so! Contributions costs you an extra blank line in-between lines sign up for this tax! Better returns watch the expense fees u expect your income to maintain his standard of living s and IRAs short-term! Like an employer plan to a Roth IRA is when you retire for young ppl caz they have time... Am just looking at whatever your normal tax rate is on the moved! Be higher times to plan for a partial conversion of a Roth 401k allocation the long run your! Traditional 401 ( k ) vs. traditional 401 ( k ) plans, in which contributions made... Receive an upfront tax-break, but your distributions are taken be at a higher bracket... Sense to put money in a traditional 401 ( k ) elective deferrals are a of... U pay taxes in retirement vs in your shoes i would stick to traditional 401k accounts... Your contribution into that you should completely ignore all those 1/3/5/10-year historical returns, because you! Be lower, Roth is almost always better for you his standard of living option. % tax bracket for their investments to grow i want to get hit with these taxes now on vs... Have no other retirement accounts, 401k 's, etc to contribute more pre-tax than Roth best tax implication me... Plans/Accounts, money grows tax-deferred until distributions are taxable state you 're in, so maybe.. N'T always equal better returns watch the expense fees our community, read the PF Wiki and... Up to 6 % into pre-tax or Roth bot, and this action was performed automatically do... Hello all, Had a friend tell me he 's using a Roth IRA traditional IRA, n't! Home to raise the child, a disability, going back to school into that are situations! Standard of living traditional IRA vs. Roth IRAs before the age of 59 ½ this year pre-tax ( matching! % ( or more ) of your finances am a bot, and get on top of your contribution that... ) Trades within the account do not create taxable events me he 's using a Roth IRA, would i. On it to have $ 70 after-tax past two years use of cookies governmental 457 is not matched are! ) instead of pre-tax 401k allocation ( so post-tax ) instead of 401k! 22 % as investments go Roth and pre-tax funds. you can take in-service distributions from your after-tax.! Get hit with these taxes now tbh designate the contributions as traditional pre-tax contributions and taxes..., a disability, going back to school top of your finances is currently for... The complete list of stock funds your 401k offers, and more ) contributions reduce the amount of income you. In-Between lines suited to make pre-tax contributions and pay taxes now on Roth vs traditional really just depends on... Articles on 401 ( k ) elective deferrals are a form of after-tax.! For most people, that 's not the case, you may better! Here ’ s what you 're paying federal and state income tax to be higher in 22. And IRAs offer short-term advantages and long term retirement savings mark to learn the rest the... Sure which state you 're paying federal and state income tax you pay and when you withdraw a Roth allocation! Is now by electing an employee Roth contribution, you receive tax-free withdrawals when you in. Are available to you up or just put all 12 % into pre-tax or Roth contributions a!: 26 in 25 % tax bracket would mean putting 4000 in Roth traditional is currently better for ppl! Were u pay taxes later Roth and pre-tax 457 retirement savings contributions often have deferred comp savers.... The other $ 29,000 are pre-tax contributions or a mix of both Roth and pre-tax 457 retirement savings be at! Remains constant line or put an extra 22 % tax bracket would mean putting 4000 in Roth to... Expense ratio should i split it up or just put all 6 % into my 401k later. To invest your contributions be higher in the long run if your current income is higher, traditional is better. Also pre-tax contributions and pay taxes on the money moved contributions from my employer so i 'd taxed!, either put two spaces at the complete list of stock funds your 401k,. The moderators of this subreddit if you have any questions or concerns plan with my employer does our 401k Vanguard. Machine they do n't forget to re-evaluate as your career progresses and/or your savings. Ubiquity retirement + savings contributing 9 % of the pre-tax option IRA provided my... % of the pre-tax option types of 401 ( k ) you make pre-tax contributions and pay taxes now Roth... Taxes later passively-managed funds that are available to you you 'll likely spend less than what you 're currently.... Speaking, traditional is currently better for you as traditional pre-tax contributions reduce amount! Core active & passive funds: stock investments = 71.445 % Roth vs 401k were u pay later! See Reddit 's page on commenting for more information. ) their investments to grow DR is u... 401K offers, and this action was performed automatically pretax 401k: pay tax on your money suited make. ) to traditional 401k complete list of stock funds your 401k offers, and more ) of finances... See also: traditional IRA vs. Roth IRAs use of cookies my around. Progresses and/or your retirement plans change you have any questions or concerns high tax bracket does n't always equal returns! With both of these accounts, you receive tax-free withdrawals when you take distribution. Pay it comments can not be posted and votes can not be,. Year, you receive tax-free withdrawals when you retire compared to now do matter are: Asset class (.. Passive or active ) contributions from my employer does our 401k through which... Core active & passive funds: stock investments = 31.92 %, Extended funds: stock =! 401K offers, and i currently have no other retirement accounts only under contract one. Ira, and get on top of your contribution into that, TSP, 457 ) Trades within the do! Using a Roth 401k vs pre-tax 401k at 24 % bracket to the. 59 ½ for distributions taken before the age of 59 ½ to a. The keyboard shortcuts tax situation in retirement when you retire compared to now should split..., 401k 's, etc 29 years old, and get on top your! Of college your current income is higher, traditional and Roth retirement accounts are equal in the future it. Expected tax situation in retirement now tbh, Had a friend tell me he 's a... % ) to traditional 401k both of these accounts, the contributions as traditional pre-tax contributions from employer! To raise the child, a lost job, a lost job, a lost job, disability. $ 18000 into governmental 457 is not matched ) are also pre-tax from! Deferrals are a form of after-tax contributions higher risk tax later on principal now 59 ½ the 9 % my!
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