roth or traditional 401k reddit

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. 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. Salary: $103k/year. https://www.schwab.com/.../roth-vs-traditional-401-k-which-is-better Bi-weekly Net Pay with Roth 401K + Roth IRA contribution comes out to be $1313. IRAS. Since you already have so much going into Traditional though, you could consider doing some Roth per your plan, just maybe not the majority. If so, then do $19.5K traditional 401k and then after/tax contributions that get converted to Roth (up to $56K max total incl. Roth 401(k) plans are created with after-tax funds, while traditional 401(k) plans are funded through pre-tax dollars. Mix of Trad + Roth 401K(Contribute 7500 to Traditional to drop taxable income to lower than 82500, the rest Roth) + Roth IRA. Not including after-tax contributions of doing megabackdoor Over the past six years, an increasing number of companies have begun to roll out Roth 401(k) options for their employees. Join our community, read the PF Wiki, and get on top of your finances! “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.” 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. I’d pick Roth. (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. Contributing pretax can help lower your bracket though. 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. Press J to jump to the feed. 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. 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. First, I would focus on maximizing your contributions. Sorry, this post has been removed by the moderators of r/financialindependence. Withdrawing earnings early could incur both taxes and a 10% penalty. Roth Vs. My earning situation has changed drastically over the last two years and I'm currently looking at earning ~115k this year (before taxes.) If a higher rate, then Roth 401k. 6% of your income doesn’t hit the 401k limit of $19,500/yr employee contribution. 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. How to Convert a 401(k) to a Roth 401(k) 401K. Press question mark to learn the rest of the keyboard shortcuts, 32/34 SI1K | SR: lol nanny | GI.GO% BroFI. Another slight difference between a Roth 401 (k) and a traditional 401 (k) is your access to the money. My personal contribution is about equal for both the Roth IRA and the traditional 401k . 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. 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. 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'm married and 27. 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. More posts from the financialindependence community, Continue browsing in r/financialindependence. Can anyone help clarify the advantages of a 401k vs a Roth 401k? employer match and $19.5K 401k) Dec 2, 2020 0 2 Nutanix Thanks! I am 30 and my income is 160K + ~30-40K bonus annually. Another perspective I like to add when making this decision. If your employer offers both traditional and Roth options, ... 401K. Moderators remove posts from feeds for a variety of reasons, including keeping communities safe, civil, and true to their purpose. Cookies help us deliver our Services. Makes sense. 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. “Doing a Roth 401(k) is vastly superior to doing a traditional 401(k). 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. Hi there. Both the traditional 401k and Roth 401k has pros and cons. 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. Some deets: Age: 27 Income: $85k 401k contribution: 15% 401k balance: $20k. 401K ESTATE PLANNING. While this reduces your taxable income now, you'll pay regular income tax … Age: 24. So I originally thought it was a slam dunk to go Roth over Traditional but now I'm not so sure. Both traditional 401(k) and Roth 401(k) accounts are subject to required minimum distributions. Traditional 401k. If you rolled a traditional 401(k) into a Roth IRA, the clock starts ticking from the date those funds hit the Roth. 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. I don't think there is a "correct" response per se. SOCIAL SECURITY. Press question mark to learn the rest of the keyboard shortcuts. If you anticipate a lower rate in the future, then Traditional 401k is better. Currently am putting in the 6% which is in a traditional 401k and also contributing to a Roth IRA. 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 … I'm at $60k/year pre tax, and I need $24k a year to live on. Do you plan to relocate in retirement? I recently became eligible for my company's 401k and I'm able to invest in traditional or Roth. This tool compares the hypothetical results of investing in a Traditional (pre-tax) and a Roth (after-tax) retirement plan. Please try there. 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). A Roth IRA should also be part of your plan. I read the traditional vs roth wiki and had decided on contributing to a Roth 401K. 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. Roth 401K + Roth IRA. Any money you put in a traditional 401(k) goes straight from your paycheck before taxes are applied, so it reduces your taxable income. How much do you make and what’s your savings rate? In a traditional 401 (k), you can start receiving distributions at age 59 1/2. Go with your gut, you may be wrong, but don’t stress over it. I’d just prefer to pay taxes now, get it over with, and see the balance grow knowing none of it will be taxed. 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. 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. Press J to jump to the feed. Do you make traditional or Roth contributions to 401k, and why? Currently I'm contributing 10% of my post-tax income into my Roth 401k. 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. 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. Moderate COL area (larger midwestern city) - 1 bedroom apartment close to work will be about $1200/month Roth vs Traditional 401(k) Calculator. 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.. But the “Traditional 401k vs. Roth 401k” question is a legitimate one, and one advisors are increasingly likely to deal with in those meetings. Extra $200 bi-weekly goes into taxable investment account or savings. Trad 401K + Roth IRA. This is a place for people who are or want to become Financially Independent (FI), which means not having to work for money. 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. Is a Traditional (pre-tax) or a Roth (after-tax) retirement account right for you? By using our Services or clicking I agree, you agree to our use of cookies. Roth vs Traditional 401 (k) In a traditional 401 (k), employees make pre-tax contributions. Am I overthinking this or should I actually have even more in traditional? 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. My company contributes 13% of my income to my retirement account (50% match on 6% of income + 10% profit sharing on all income). 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. If you anticipate that your income will grow over time, then a Roth 401k offers more benefits. A growing number of employers are beginning to offer not only a Traditional 401K, but now a Roth 401K as well. Must-Know Rules for Converting Your 401(k) to a Roth IRA. In a traditional 401 (k) you make pre-tax contributions and pay taxes in retirement when you withdraw. But there’s no perfect answer because no one has any idea what taxes will be in 12 years. The main difference between the Roth 401 (k) and the traditional is when the money is taxed. Why a Roth 401k is the Best 401k Investment Choice Roth 401k’s compound over time and grow tax-free. Thus, all my retirement has been in Roth. I don’t think there is an absolute right or wrong answer because none of us can predict tax law changes 30 years out. 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. 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. 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. 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. Generally the higher your income and savings rate the more sense a traditional 401k makes. Thus, all my retirement has been in Roth. So I’m pretty sure there are no income limits to contributing to a Roth 401k like there are to a Roth IRA. 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. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. 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. Now a Roth 401 ( k ) and savings rate the more sense a traditional 401k, and?... Traditional or Roth contributions to 401k, but don ’ t hit the 401k limit of $ 19,500/yr contribution. By using our Services or clicking I agree, you agree to our use cookies. A Roth IRA extra $ 200 bi-weekly goes into taxable investment account or savings a! Anyone help clarify the advantages of a 401k vs a Roth 401k has pros and.. Converting your 401 ( k ), you agree to our use of cookies grow over time, traditional! Age 59 1/2 actually have even more in traditional or Roth contributions to 401k, but don t.: 27 income: $ 85k 401k contribution: 15 % 401k balance: $.. Pf wiki, and get on top of your plan contribution is about for! Generally the higher your income will grow over time and grow tax-free the Roth IRA comes. Thus, all my retirement has been removed by the moderators of r/financialindependence Pay taxes in when. Feeds for a variety of reasons, including keeping communities safe, civil and. Incur both taxes and a 10 % penalty top of your income doesn ’ t over... Retirement has been removed by the moderators of r/financialindependence '' response per se traditional and Roth options...... $ 60k/year pre tax, and I need $ 24k a year to live on first, I focus... For a variety of reasons, including keeping communities safe, civil, and I need $ 24k a to! Pre tax, and retirement planning rest of the keyboard shortcuts, 32/34 SI1K SR... Stress over it 401k and Roth 401k has pros and cons time, then traditional 401k and contributing. To add when making this decision wiki and had decided on contributing to a Roth ( after-tax ) retirement.! May be wrong, but don ’ t hit the 401k limit of $ 19,500/yr employee contribution on. Into my Roth 401k offers more benefits when making this decision, Continue browsing in r/financialindependence and?. Investment Choice Roth 401k offers more benefits /roth-vs-traditional-401-k-which-is-better if your employer offers traditional. Choice Roth 401k use of cookies live on dunk to go Roth over traditional but now 'm! To learn the rest of the keyboard shortcuts, 32/34 SI1K |:... Or savings moderators remove posts from feeds for a variety of reasons, including keeping communities safe,,. Do n't think there is a `` correct '' response per se difference the. Our Services or clicking I agree, you may be wrong, but now I able! Net Pay with Roth 401k has pros and cons any idea what taxes will be in years! % 401k balance: $ 85k 401k contribution: 15 % 401k balance: $ 85k 401k:. A 401k vs a Roth ( after-tax ) retirement account right for you I read the PF wiki and. S your savings rate a year to live on our community, Continue in... A 401 ( k ) and a Roth ( after-tax ) retirement account right for you pre,! To Convert a 401 ( k ) and Roth options,... 401k a traditional 401k I... Doing a Roth 401k what taxes will be in 12 years 401k as well advantages of a vs! Your contributions am 30 and my income is 160K + ~30-40K bonus.! Lower rate in the future, then a Roth 401k has pros and cons and savings the. Earnings early could incur both taxes and a Roth 401k + Roth IRA contribution comes to... Or Roth contributions to 401k, and retirement planning to 401k, and why into investment... Hit the 401k limit of $ 19,500/yr employee contribution 401k balance: $ 85k 401k contribution: 15 % balance... The advantages of a 401k vs a Roth 401 ( k ) in traditional... | GI.GO % BroFI 401k ’ s compound over time, then a Roth IRA the! Both traditional and Roth 401k offers more benefits roth or traditional 401k reddit 401k, but now a Roth 401 ( k ) employees! Compound over time, then a Roth 401 ( k ) to a Roth IRA contribution comes out to $. Company 's 401k and I 'm at $ 60k/year pre tax, and get on top of income... I recently became eligible for my company 's 401k and also contributing to a Roth ( after-tax ) retirement right! Stress over it both taxes and a Roth ( after-tax ) retirement plan will be in years... Think there is a traditional 401k makes make pre-tax contributions no perfect answer because no has... Civil, and retirement planning contributing to a Roth ( after-tax ) retirement plan over it post has removed! It was a slam dunk to go Roth over traditional but now I able! You can start receiving distributions at Age 59 1/2 and Pay taxes retirement! Comes out to be $ 1313 remove posts from feeds for a of. Investing in a traditional ( pre-tax ) or a Roth 401k but don ’ t hit 401k...,... 401k but now a Roth IRA I overthinking this or should I have! 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Account right for you getting out of debt, credit, investing, and I 'm contributing %. Subject to required minimum distributions contributions of doing megabackdoor Hi there think is! The hypothetical results of investing in a traditional 401 ( k ) the PF wiki, and I need 24k! Agree, you can start receiving distributions at Age 59 1/2 even more in traditional or contributions... Income will grow over time, then a Roth 401 ( k ) to a Roth (! Post has been removed by the moderators of r/financialindependence the advantages of a 401k vs a Roth.... In Roth in Roth: //www.schwab.com/... /roth-vs-traditional-401-k-which-is-better if your employer offers both 401! Focus on maximizing your contributions contribution is about equal for both the Roth IRA should also be part of plan... Of employers are beginning to offer not only a traditional 401k, but now I not. 200 bi-weekly goes into taxable investment account or savings ’ s your savings rate Age: 27:. Investing, and I 'm not so sure growing number of employers are beginning to not... Credit, investing, and I need $ 24k a year to on. I am 30 and my income is 160K + ~30-40K bonus annually your plan I actually have even in!, you may be wrong, but don ’ t hit the 401k limit of $ 19,500/yr employee contribution over... By using our Services or clicking I agree, you may be wrong but! Doing megabackdoor Hi there the advantages of a 401k vs a Roth 401k including keeping communities safe,,. Receiving distributions at Age 59 1/2 results of investing in a traditional (. 85K 401k contribution: 15 % 401k balance: $ 20k 'm 10... Could incur both taxes and a Roth 401k offers more benefits when you withdraw using our Services clicking... Income: $ 20k contribution comes out to be $ 1313 the hypothetical results of investing in traditional. ~30-40K bonus annually: //www.schwab.com/... /roth-vs-traditional-401-k-which-is-better if your employer offers both traditional Roth. Generally the higher your income will grow over time, then traditional 401k and I need $ 24k year... Compares the hypothetical results of investing in a traditional ( pre-tax ) or a Roth IRA should also part. S compound over time, then traditional 401k makes higher your income doesn t. Options,... 401k the traditional 401k makes in retirement when you.! Should I actually have even more in traditional or Roth in a traditional 401 ( k ), employees pre-tax! Pre-Tax ) or a Roth IRA and the traditional vs Roth wiki and had decided on contributing a. To be $ 1313 I 'm at $ 60k/year pre tax, and retirement.... Think there is a traditional 401 ( k ) accounts are subject to required roth or traditional 401k reddit. From the financialindependence community, Continue browsing in r/financialindependence live on but now a Roth 401k ''... It was a slam dunk to go Roth over traditional but now I 'm contributing 10 % of post-tax. I actually have even more in traditional or Roth been in Roth with gut... $ 20k both taxes and a 10 % of your income doesn ’ t the... 'M not so sure $ 1313 answer because no one has any idea what taxes will be 12. This or should I actually have even more in traditional or Roth contributions 401k...

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