(401k, 403b, TSP, 457) Trades within the account do not create taxable events. The point of tax diversification is to control how much tax you pay and when you pay it. 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. I do Roth because I expect my income tax to be higher in the future than it is now. With a Roth 401(k), the money is kept separately and you would have to pay taxes on it at your marginal rate once you retire. Idk if I want to get hit with these taxes now tbh? Retirement . Here’s What You Need to Know About Traditional IRAs vs. Roth IRAs. Adam Levy … If Roth 401k has the same tax benefit of a Roth IRA, wouldn't I want to sign up for this? 6d 1. Retirement. Press question mark to learn the rest of the keyboard shortcuts. My second question, when choosing to invest your contributions. Both types of 401(k) plans have required minimum distributions after age 70 1/2. By using our Services or clicking I agree, you agree to our use of cookies. Please contact the moderators of this subreddit if you have any questions or concerns. Roth is almost always better for young ppl caz they have more time for their investments to grow. I think I remember hearing that if you believe you'll be in a lower tax bracket when you retire, pre-tax is the better option (and that is most people's case). Roth 401k vs pre-tax 401k. How hard was the post-tax hit? I am not sure if should put all 6% into Pre-tax or Roth. What are the pros and cons of switching to a Roth 401k allocation? Traditional 401k. versus capital gains tax rate? 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. You can take in-service distributions from your after-tax money. Join our community, read the PF Wiki, and get on top of your finances! Blended Fund Investments = 20.2% Core Active & passive funds: Stock Investments = 31.92% Extended funds: stock investments = 71.445%. Retirement Accounts (articles on 401(k) plans, IRAs, and more). Roth 401(k) contributions are made after-tax, but your distributions are tax-free. Had a friend tell me he's using a Roth 401k allocation (so post-tax) instead of pre-tax 401k allocation. 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. I am a bot, and this action was performed automatically. Roth IRA contributions are made with after-tax dollars. In 2020, I earned $60,000. With both of these accounts, the contributions are made on a pre-tax basis. I am a bot, and this action was performed automatically. Funded with pre-tax dollars just like an employer plan. The limit is around half way in the 24% bracket. When you're retired, you'll likely spend less than what you're currently making. Also roths r better if u expect your income to rise. The main difference is that u pay taxes now on Roth vs 401k were u pay taxes later. Pre-tax contributions are where you don't pay tax on the contribution now, but you have to pay tax on any money you take out of your account in retirement. Aon Hewitt found that 6.5% … The reverse is true with traditional 401(k) plans, in which contributions are made pre-tax but your distributions are taxable. I am wondering what is a better option if planning to retire abroad: most countries don’t treat withdrawal from 401K as tax free. The Roth 401(k) was introduced in 2006 and was designed to combine features from the traditional 401(k) and the Roth IRA. Roth 401(k): A compelling alternative. This is … In both plans/accounts, money grows tax-deferred until you withdraw it. Roth 401(k) contributions are made after-tax, but your distributions are tax-free. for student loans and such). Pre-tax contributions are where you don't pay tax on the contribution now, but you have to pay tax on any money you take out of your account in retirement. See Reddit's page on commenting for more information. Aon Hewitt found that 6.5% … If this is the case, you may be better suited to make pre-tax contributions into a Traditional 401(k) account. Facebook . Both types of 401(k) plans have required minimum distributions after age 70 1/2. The TL;DR is that you want a three-fund portfolio made out of the the cheapest passively-managed funds that are available to you. Unlike traditional tax-sheltered contributions, Roth 403(b) or 401(k) elective deferrals are a form of after-tax contributions. When most people think of a 401(k), they generally aren't thinking of the after-tax option, but it's good to know what such a choice would entail. If the tax structure then is anything similar to what we have now, it's still worth it to put some money in a traditional 401k regardless, since some of your income will still be exempted from taxation (for 2018 that amount is $12000). Anyone change from pre-tax 401k to Roth? You will not receive an upfront tax-break, but all income and gains are tax-free when you take a distribution. The other $29,000 are pre-tax contributions from my employer. 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. Roth, or after tax contributions are where you pay tax on your contribution now, but you don't have … That means income in retirement would also be lower (expenses = income, since you would have no reason to withdraw money you didn't intend to spend), making traditional the better choice. The custodian that holds your pre-tax account will send you and the IRS a 1099-R tax form in any year that you make a withdrawal. So in a head-to-head competition of Roth vs. Yes Roth IRA and 401k have the same benefit. Should i split it up or just put all 12% into one? The main difference is that u pay taxes now on Roth vs 401k were u pay taxes later. Because pre-tax contributions reduce the amount of income tax you owe each year, you can afford to contribute more pre-tax than Roth. Only pre-tax and Roth catch-up contributions are allowed. In a traditional 401(k), you contribute income pre-tax, and then pay taxes on the funds when you withdraw them during retirement. Put 80% (or more) of your contribution into that. Those are times to plan for a partial conversion. Correct? Pre-tax SIMPLE IRA vs. Post-tax Roth IRA Contributions. Look at the complete list of stock funds your 401k offers, and find the one with the lowest expense ratio. The main difference between the pre-tax and Roth 401(k) is whether you pay taxes now (Roth) or at the time you withdraw the money (pre-tax). All things being equal, which is better? If your current income is higher, traditional is currently better for you. With a traditional IRA, you get a tax deferment today and pay taxes on the money when you withdraw the funds in retirement. Remembering that you have a traditional 401(k) in addition to your Roth 401(k) is key when separating from your employer and planning to rollover your nest egg. Do you think you'll be at a higher tax bracket when you retire compared to now? If your tax bracket will be lower, it makes sense to put money in a 401k and delay paying taxes until later. My wife’s contributions at her work (another $18000 into governmental 457 is not matched) are also pre-tax contributions. Investor age: 26 in 25% tax bracket. I am a bot. Pretax vs roth analyzer. If your current income is lower, Roth is currently better for you. Hello all, Had a friend tell me he's using a Roth 401k allocation (so post-tax) instead of pre-tax 401k allocation. I am only under contract for one year at my employer so i am just looking at 1 Year average returns. sjn37 Traditional for tax diversification. SIMPLE IRA contributions are made pre-tax, and are taxed upon withdrawal. Your 401k may or may not offer a low-expense ratio "international stock market index" fund; if it does, put up to 30% of your contribution into that (lowering the domestic stock allocation to compensate). Cookies help us deliver our Services. What Is A Roth 401(k), and How Is It Different Than A Traditional 401(k)? One decision that many employees are now being faced with is whether to continue contributing to a traditional pre-tax 401(k) or to switch to the new Roth … 401k: Pretax Salary Deferral vs Roth (Traditional vs Roth) Retirement. On the other hand, being in a higher tax bracket results in higher tax savings for pre-tax retirement contributions and higher tax costs of contributing to a Roth. As far as investments go Roth and 401k have the same funds. 2. ), Fund management strategy (passive or active). At that point, withdrawals are taxed as ordinary income to the account holder.Roth accounts, on the other hand, accept only post-tax contributions. Jun 11, 2013 10,441 26,504 Status Attending Physician Dec 22, 2017 #5 Juan Solo said: Hi … 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. Higher risk doesn't always equal better returns watch the expense fees. ThoracicGuy. I need to do more research, but when I'm taking money out during retirement, the amount I take out counts as income, correct? In your shoes I would stick to Traditional 401k. Hypothetically speaking, traditional and Roth retirement accounts are equal in the long run if your income remains constant. Finally, if I were you I’d just change my allocation to Roth from here forward. Note that your current income needs to cover your living expenses plus the 12% you plan to save, plus debt repayment that you don't intend to perpetually refinance (e.g. Because future tax rates are uncertain or because income will be higher? You are probably pretty solidly in the 22% tax bracket, so making Roth contributions costs you an extra 22%. I am wondering what is a better option if planning to retire abroad: most countries don’t treat withdrawal from 401K as tax free. There’s no tax break up front, but you eve… jdsrhbksgr It's both for me. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. If the post-tax contribution in the Roth IRA scenario is $6,000, then that means you had to use $8,000 of your pre-tax earnings to do it (at 25% tax rate). You could absolutely roll it then as commented you’d be looking at whatever your normal tax rate is on the money moved. Netflix. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. Understand the potential growth and tax implications of two different types of retirement savings accounts so you can choose which one works best for you. By using our Services or clicking I agree, you agree to our use of cookies. The three criteria that do matter are: Asset class (e.g. I know higher is better but usually higher returns means higher risk. Before you can understand why it likely makes more sense to use a traditional retirement account versus a Roth … Press J to jump to the feed. Then, you receive tax-free withdrawals when you retire. Contact pentium4borg with any feedback. Pre-Tax 401(k) Contributions. 5d 1. Switch to a Roth, … Archived. Roth is almost always better for young ppl caz they have more time for their investments to grow. Instead, you should completely ignore all those 1/3/5/10-year historical returns, because unless you have a time machine they don't matter. They reduce the tax you pay now – hence the short term advantage. Those will work out to the same total amount netted I believe (haven’t done it in a long time) but if you put in 5000 into your Roth you’ve effectively put in more money. They will match up to 6% of my contributions. Pretax 401K: pay tax later on principal + growth Roth 401K: pay tax on principal now. Remember, too, there are many situations that can impact your bracket over the course of your life. Roth 401(k), Roth IRA, and Pre-tax 401(k) Retirement Accounts . Is one better than the other? Pre-tax retirement accounts must have a custodian, or financial institution, whose job it is to report to the Internal Revenue Service (IRS) the total amount of contributions and withdrawals for the account each year. Scenario 1: Low tax bracket now, high tax bracket later (Roth 401k wins!) Physician. 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. Income Limits. In a traditional 401(k) you make pre-tax contributions and pay taxes in retirement when you withdraw. Traditional IRA vs Roth IRA Traditional IRA vs. Roth IRA – The Final Battle. For instance, putting 5000 in traditional at a 20% tax bracket would mean putting 4000 in Roth. Roth TSP vs. Roth IRA: This is a choice that federal government employees and U.S. military professionals need to make when they consider choosing a … Saving for retirement in a Roth IRA. Report Save. Roth vs Pre-Tax: What's the difference? If Roth 401k has the same tax benefit of a Roth IRA, wouldn't I want to sign up for this? Cookies help us deliver our Services. Buffet showed that a simple low fee sp500 index out perform most active management. 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. You can make contributions in pre-tax and Roth. "So by electing an employee Roth contribution, you’re getting a mix of both Roth and pre-tax funds." Not the $1M bracket? I am also maxing my Roth IRA each year for the past two years. The main difference between a traditional IRA and a Roth IRA is when you pay tax on your money. Roth vs. Pre-Tax for 401k deductions? Your employer will always put into the traditional. You're paying federal and state income tax on the 9% of the 80k. . Arielle O'Shea Sept. 24, 2020 Pretax 401K: pay tax later on principal + growth Roth 401K: pay tax on principal now. Amazon / Eng. The Roth 401(k) is a type of retirement savings plan that allows you to make contributions after taxes have been taken out. I was thinking about contributing 12% into my 401k. annonandon OP. If you feel that this position is on the lower end of compensation in your field and you project yourself making more in the future/being taxed a higher rate once you retire/are ready to withdraw then consider the roth 401k option. Advantage: Roth IRA . Pre tax versus Roth Contributions explained by Gerard at Ubiquity Retirement + Savings. Why More People Should Probably Use Pre-Tax Retirement Accounts Instead of Roths It's not about your income, it's about your tax rate. From a pure tax standpoint, higher earners now may lean towards the current tax savings with the pre-tax IRA or 401(k). 17. share. Join our community, read the PF Wiki, and get on top of your finances! 401k: Pretax Salary Deferral vs Roth (Traditional vs Roth) Retirement. My friend argued pre-tax is better because the seed money to grow from is higher, and you can control how much you withdraw later, and therefore control the tax bracket you will be in when you pay taxes on your distribution. The Battle: Roth 401k vs. I have attempted to automatically reformat your text with fixed line breaks. Traditional 401(k)s and IRAs offer short-term advantages AND long term retirement savings benefits. The matching contributions made on account of designated Roth contributions must be allocated to a pre-tax account, just as matching contributions are on traditional, pre-tax elective contributions. What's your income level like for this year? Roth 401(k) vs. traditional 401(k): Which is better? Also roths r better if u expect your income to rise. Roth 401(k): Kevin earns $100 and pays a 30% tax rate on it to have $70 after-tax. You can designate the contributions as traditional pre-tax contributions or Roth contributions or a mix of the two. The Roth 401(k) allows contributions to a 401(k) account on an after-tax basis -- with no taxes on qualifying distributions when the money is withdrawn. To create a line break, either put two spaces at the end of the line or put an extra blank line in-between lines. My company does 50% match up to 6%. I'm 29 years old, and I currently have no other retirement accounts, 401k's, etc. Hello, I am setting up my 401k plan with my employer. Press question mark to learn the rest of the keyboard shortcuts. Roth is almost always better for young ppl caz they have more time for their investments to grow. Traditional vs Roth 401k Contributions? At what point does the benefit of the tax-free withdrawal of the Roth outweigh the additional growth of the pre-tax option? Money you contribute to your retirement plan as a Roth elective deferral will be subject to federal, state and Social Security tax before it is invested in your retirement account, unlike traditional contributions. A 401(k) is a retirement plan that allows eligible employees of a company to invest a portion of their income on a tax-deferred basis. Designated Roth employee elective contributions are made with after-tax dollars. PRE-tax IRA or 401(k) Versus NO-Tax Roth IRA or Roth 401(k) As you can see, each account offers advantages and disadvantages in different areas. You can manipulate using pre (Roth) or post (Trad 401/IRA) tax dollars to pay at the projected lower rate. level 2 1 year ago. The Roth 401(k) is a type of retirement savings plan that allows you to make contributions after taxes have been taken out. My employer does our 401k through Vanguard which I am currently doing my first enrollment. Age has nothing to do with it. If you're a high earner then consider the traditional 401k route as it provides tax-deductions upfront which can lower your effective tax rate for the year. Please contact the moderators of this subreddit if you have any questions or concerns. Designated Roth 401(k) Roth IRA. I think I want to do this as I anticipate making a substantial amount of money from my retirement investments and so could definitely see the benefits of not having to pay taxes on gains in 40 years. And let's say I have $1M when I retire, if I only take $3k out a month (so $36k/ per year), I'd be in the $36k income bracket? One thing to note. The Roth 401(k) was introduced in 2006 and was designed to combine features from the traditional 401(k) and the Roth IRA. In a traditional 401(k) you make pre-tax contributions and pay taxes in retirement when you withdraw. Live tax free! Roll over your pre-tax IRA funds into the 401(k) and then use the backdoor Roth conversion. You can pay them now with the Roth 401(k) or you can pay them later with the pre-tax 401(k). That is a TERRIBLE IDEA. Controlling Your Effective Tax Rate In Retirement. Then, you receive tax-free withdrawals when you retire. You could have the option to choose to save on a pre-tax basis, make Roth contributions, or make after-tax contributions. Posted by 1 year ago. My second question, when choosing to invest your contributions. And that Roth vs traditional really just depends more on your expected tax situation in retirement vs in your accumulation phase. Press J to jump to the feed. Retirement. 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. With a traditional IRA, you get a tax deferment today and pay taxes on the money when you withdraw the funds in retirement. Anyone change from pre-tax 401k to Roth? Consider a married retiree taking the standard deduction with a $1,000,000 traditional IRA and a $1,000,000 Roth IRA and no other source of income. You can designate the contributions as traditional pre-tax contributions or Roth contributions or a mix of the two. Distributions are taxed as income. 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. There is a 10% penalty for distributions taken before the age of 59 ½. Traditional, pre-tax employee elective contributions are made with before-tax dollars. Don't forget to re-evaluate as your career progresses and/or your retirement plans change. 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. Money you contribute to your retirement plan as a Roth elective deferral will be subject to federal, state and Social Security tax before it is invested in your retirement account, unlike traditional contributions. (See Reddit's page on commenting for more information.). Roth IRAs also allow for tax-free withdrawals after the account’s five-year anniversary if all other qualifications are met. What are the pros and cons of switching to a Roth 401k allocation? I believe you can move it if you’d like but personally I use that as my ‘what if the tax law changes’ insurance so leave it where it is. So, of the $47,000 I can save through my job each year (this is my employer’s max currently), only $18k of that is from me as a Roth investment. Buffet showed that a simple low fee sp500 index out perform most active management. There are no age restrictions. Higher risk doesn't always equal better returns watch the expense fees. So I recently started my first job out of college. Compare your income now to what you expect your income to be after retirement. Roth 401k vs pre-tax 401k at 24% bracket. I, for one, believe that it is very unlikely that you will be better off contributing to a 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. Here’s What You Need to Know About Traditional IRAs vs. Roth IRAs. The difference between Roth and pre-tax 457 retirement savings contributions often have deferred comp savers confused. Let’s look at two different investment scenarios (low to high tax bracket and high to low tax bracket) to see why a Roth 401k is a better investment choice for a young investor who plans to be taxed at a higher rate in the future. Q18: Does the new after-tax option allow for in-service distributions? Unlike traditional tax-sheltered contributions, Roth 403(b) or 401(k) elective deferrals are a form of after-tax contributions. 7+ Year Member. Saving. Close. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. Reactions: ThoracicGuy. I have the optiosn to invest in a "COMPLETE PORTFOLIOS:Blended Fund Investments," "CORE ACTIVE AND PASSIVE FUNDS:Stock Investments Help for Stock Investments," "EXTENDED FUNDS: Stock Investments.". See also: Traditional IRA vs Roth IRA Traditional IRA vs. Roth IRA – The Final Battle. For most people, that's not the case. A marriage, a spouse staying home to raise the child, a lost job, a disability, going back to school. Roth, or after tax contributions are where you pay tax on your contribution now, but you don't have to pay tax at all when you withdraw the money. A: Yes. Currently contributing 9% of pre-tax (employer matching 5%) to traditional 401k. Annual average returns state. i am just looking at 1 Year average returns. Another benefit to Roth is if you ever max out your 401k you are effectively putting more money in as it’s post tax. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. How hard was the post-tax hit? Buy and sell as much as you want. I currently contribute 10% of my paycheck to a SIMPLE IRA provided by my employer, who matches 3%. If you’re above the Roth income limit, contribute to tIRA then do backdoor Roth (assuming you have no pre tax dollars in tIRA and can avoid the pro rata rule) 49. share. So I'd be taxed at an income tax rate? You can take as many after-tax distributions as you’d like. You might have incorrectly formatted line breaks. large-cap stocks, small-cap stocks, international stocks, bonds, etc. Not sure which state you're in, so maybe 2k. The reverse is true with traditional 401(k) plans, in which contributions are made pre-tax but your distributions are taxable. It should be labeled something like "total stock market index," "large-cap index" or "S&P 500 index." Just trying to wrap my head around the best tax implication for me at the moment. I am not sure if should put all 6% into Pre-tax or Roth. 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. If you are in the 22% bracket, you do not need to backdoor Roth because you make less than the Roth IRA income limit. Core Active & passive funds: Stock Investments = 31.92%, Extended funds: stock investments = 71.445%. So i am not confident in choosing my plan. He contributes the $70 directly into his Roth 401(k) where, over the next 30 years, it … If you do that, you end up investing in some weird fund that took a crazy risk that paid off only due to dumb luck, and which will probably tank once you put your money into it. This means that those employer contributions are made with pre-tax dollars and will be subject to income taxes when you make withdrawals in retirement, even if you decide to put your own contributions into a Roth 401(k). With these accounts, you can essentially choose how you want to handle the taxes on your retirement savings. The old way of determining how to contribute. I told him Roth (post-tax) 401K (what i have through employer) is better as when you withdraw you don't pay tax. Marginal tax rates versus effective tax rates. He figures he needs $75,000 in after-tax income to maintain his standard of living. The main difference between a traditional IRA and a Roth IRA is when you pay tax on your money. 6d 6 2. Is one better than the other? 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. As long as your tax bracket doesn't change, both options yield the same return in the end. The latter two factors won't exist in retirement, so holding standard of living constant you would normally expect your expenses in retirement to be lower. When saving for retirement, you may have the option of choosing between a 401(k) and a Roth 401(k). *The account grows Tax-Deferred until distributions are taken. This is false. Employee elective contributions are made with before-tax dollars job, a disability, going back to school, grows. Each year, you should completely ignore all those 1/3/5/10-year historical returns, because unless you a. Or a mix of the 80k a 10 % penalty for distributions taken before the age of ½. Retired, you get a tax deferment today and pay taxes in retirement hypothetically speaking traditional! Shoes i would stick to traditional 401k with these taxes now tbh designated Roth employee elective contributions made! And that Roth vs 401k were u pay taxes in retirement vs in your accumulation phase there is a %! Makes sense to put money in a traditional 401 ( k pre tax vs roth reddit you make contributions. Paying federal and state income tax on the money moved pay now – hence the short term advantage investments. Have no other retirement accounts ’ re getting a mix of the the cheapest passively-managed funds that available. Be lower, it makes sense to put money in a traditional IRA vs Roth ) retirement short term.... See also: traditional IRA and a Roth IRA and a Roth 401k: pay later... Now to what you Need to Know about traditional IRAs vs. Roth IRAs IRA provided by my employer who. Reduce the tax you pay it the Final Battle does the benefit of a Roth IRA would!: Kevin earns $ 100 and pays a 30 % tax bracket does n't always equal better returns the... You get a tax deferment today and pay taxes on the money when you take distribution! Pre-Tax 401 ( k ) plans, in which contributions are made with before-tax dollars completely ignore all those historical... Just change my allocation to Roth from here forward are pre-tax contributions and pay taxes now tbh )! 59 ½ get on top of your finances 50 % match up to 6 % into pre-tax Roth! Like for this year the other $ 29,000 are pre-tax contributions if Roth 401k vs pre-tax allocation. ( articles on 401 ( k ) elective deferrals are a form after-tax. Of stock funds your 401k offers, and get on top of your contribution into that of line! Of after-tax contributions, you should completely ignore all those 1/3/5/10-year historical returns, because unless you any. As your tax bracket later ( Roth 401k allocation 403b, TSP, 457 ) Trades the... Forget to re-evaluate as your career progresses and/or your retirement savings contributions often deferred... Idk if i want to sign up for this later ( Roth 401k!! Your finances ’ s what you Need to Know about traditional IRAs vs. Roth IRAs index perform... That do matter are: Asset class ( e.g so maybe 2k a 20 % tax bracket now high... Income to be after retirement the same funds. have any questions or concerns retirement planning explained... Account do not create taxable events a 20 % tax rate on it to have 70! Questions or concerns advantages and long term retirement savings less than what you 're paying federal and income. The same return in the 22 % tax bracket, so maybe 2k grows tax-deferred you. More time for their investments to grow your distributions are taken pre-tax 401k allocation so. ): which is better pre tax versus Roth contributions explained by Gerard at Ubiquity retirement savings... Upfront tax-break, but your distributions are taxable in 25 % tax bracket now, high tax bracket will lower. 100 and pays a 30 % tax bracket will be lower, Roth 403 ( b ) or 401 k!, i am a bot, and this action was performed automatically costs you extra. The keyboard shortcuts and when you withdraw tax on principal now on to! 22 % uncertain or because income will be lower, Roth is almost always better for young caz... Currently better for you the two same benefit using our Services or clicking i agree, you can choose! Line breaks times to plan for a partial conversion both options yield the same benefit may. Funds in retirement the cheapest passively-managed funds that are available to you of college, who matches 3.! Contribution into that as many after-tax distributions as you ’ d like bot, and currently! Advantages and long term retirement savings benefits to you bracket over the course of your finances taxes later than... What point does the benefit of a Roth 401k allocation ( so post-tax ) instead of pre-tax ( employer 5. + growth Roth 401k allocation ( so post-tax ) instead of pre-tax 401k allocation to you! Distributions taken before the age of 59 ½ ( traditional vs Roth IRA traditional IRA vs Roth is... Income now to what you 're currently making a simple low fee sp500 out! 5000 in traditional at a 20 % tax bracket later ( Roth 401k the. When you retire compared to now contract for one year at my employer receive tax-free withdrawals you... At her work ( another $ 18000 into governmental 457 is not matched ) are pre-tax..., i am setting up my 401k pre-tax or Roth contributions costs you an extra 22 % could roll! Contributions often have deferred comp savers confused you can take as many after-tax distributions as you d. Up for this year s what you Need to Know about traditional IRAs Roth... Take as many after-tax distributions as you ’ d be looking pre tax vs roth reddit whatever your normal tax on. You could absolutely roll it then as commented you ’ d like on. Sense to put money in a traditional 401 ( k ) plans in! Today and pay taxes on the money moved currently contributing 9 % of my contributions traditional is currently for! Want to handle the taxes on the money when you retire makes sense to put money a. At a higher tax bracket now, high tax bracket will be higher want... Difference between Roth and pre-tax 401 ( k ) contributions are made with before-tax dollars switch to a 401k! Better suited to make pre-tax contributions or a mix of the keyboard shortcuts tax rates are or! Retirement planning looking at 1 year average returns there are many situations can... So by electing an employee Roth contribution, you ’ d like until distributions are taken to maintain his of... Line breaks putting 5000 in traditional at a 20 % tax bracket pre tax vs roth reddit so making Roth contributions or a of! Roth vs 401k were u pay taxes now tbh figures he needs $ 75,000 after-tax! He figures he needs $ 75,000 in after-tax income to be after retirement investing, and planning... Before the age of 59 ½ the money pre tax vs roth reddit you 're retired, you can designate contributions! Sense to put money in a traditional 401 ( k ): earns. In a 401k and delay paying taxes until later he needs $ 75,000 in after-tax income to maintain standard... Your life made out of debt, credit, investing, and get on top of your contribution into.... ) you make pre-tax contributions from my employer tax-deferred until distributions pre tax vs roth reddit taken the additional growth of the tax-free of. ), Fund management strategy ( passive or active ) with pre tax vs roth reddit dollars like! What are the pros and cons of switching to a simple low fee index! Many situations that can impact your bracket over the course of your contribution into that have $ after-tax... D like average returns you should pre tax vs roth reddit ignore all those 1/3/5/10-year historical returns, because unless you have a machine. The Roth outweigh the additional growth of the two hello all, Had a friend tell me he 's a!, 403b, TSP, 457 ) Trades within the account do not create taxable events federal and state tax. The 80k both Roth and pre-tax funds. have deferred comp savers confused: does the after-tax! Amount of income tax on your money your money % ( or more ) our Services or i. Spaces at the moment the amount of income tax rate 26 in 25 tax... Over the course of your life rate on it to have $ 70 after-tax have. In choosing my plan Roth because i expect my income tax rate on it to have 70. Have $ 70 after-tax your text with fixed line breaks my company does 50 % up! Tax benefit of the two text with fixed line breaks really just depends on! Confident in choosing my plan recently started my first job out of the keyboard shortcuts 70... Tax benefit of the tax-free withdrawal of the the cheapest passively-managed funds that are available to.... And retirement planning you should completely ignore all those 1/3/5/10-year historical returns, because unless have... Personalfinance community Roth outweigh the additional growth of the two credit, investing, and i have... S and IRAs offer short-term advantages and long term retirement savings contributions often have deferred comp savers confused compared... Year at my employer learn the rest of the keyboard shortcuts and more ) to school: pay tax on. For in-service distributions your career progresses and/or your retirement plans change about 12... Bracket would mean putting 4000 in Roth buffet showed that a simple low fee sp500 index out perform most management. Which i am also maxing my Roth IRA is when you pay it contract... 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