401k (pretax) vs Roth 401 (aftertax)

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Topic Author
floridanurse
Posts: 10
Joined: Thu Sep 29, 2011 12:58 pm

401k (pretax) vs Roth 401 (aftertax)

Post by floridanurse »

Hi all,

last month I noticed that I reached my 401k max of $17k. There is a Roth 401 option that I wasn't really sure what it was, so I just put like 2% allocation and then the rest to the '401k' option.

My pay stub for the year shows:

401k: $14797.64

Roth 401: $2042.03

I spoke with payroll this morning and she said that the Roth option was after tax funds vs my 401k option which obviously is pretax.

She stated that the Roth option was good since when I eventually start to cash out (I'm 38 now) I won't pay tax on the Roth funds.

All funds are invested in the same things with Fidelity, so I'm not sure if next year I should allocated all funds to the 401k or should I increase my Roth portion, etc.

My info:
38 male, married, 5 yr old son. Income varies btw $150k (base pay) and $200k per year depending on how many overtime shifts I chose to pickup at hospital.

I'm not sure what else to ask or what other information would be useful for this post. Thank you all for your time.
Default User BR
Posts: 7502
Joined: Mon Dec 17, 2007 6:32 pm

Re: 401k (pretax) vs Roth 401 (aftertax)

Post by Default User BR »

floridanurse wrote:38 male, married, 5 yr old son. Income varies btw $150k (base pay) and $200k per year depending on how many overtime shifts I chose to pickup at hospital.
100% tax-deferred. Do not use the Roth 401(k). Contribute to a Roth IRA either directly or through backdoor depending on taxable income.


Brian
Bob's not my name
Posts: 7417
Joined: Sun Nov 15, 2009 8:24 am

Re: 401k (pretax) vs Roth 401 (aftertax)

Post by Bob's not my name »

Your pre-tax 401k contributions make you eligible for IRA contributions:

$200,000 gross income
- $17,500 401k contributions (2013 maximum)
- $4,000 pre-tax health, dental, and disability insurance premiums withheld from your pay (guess)
- $2,500 FSA contributions (guess)
------------
$176,000 MAGI --> $2,000 under the Roth IRA and deductible spousal TIRA phaseout

If your spouse does not work or if she does work but is not covered by an employer retirement plan, shelter more money from taxes by contributing $5,500 to a deductible traditional IRA for her. If you can save even more, contribute $5,500 to a Roth IRA for you.
M1garand30064
Posts: 93
Joined: Tue Sep 04, 2012 8:49 pm

Re: 401k (pretax) vs Roth 401 (aftertax)

Post by M1garand30064 »

Will you have any significant pension when you retire? If not then traditional 401(k) is definitely the best option.
Topic Author
floridanurse
Posts: 10
Joined: Thu Sep 29, 2011 12:58 pm

Re: 401k (pretax) vs Roth 401 (aftertax)

Post by floridanurse »

thank you for the replies.

@ M1garand - no pension at all

@Bob'snotmyname - I contribute max 401k, so 17.5k next year. Plus since we got married this year, I just signed up during the open enrollment for health insurance. We are doing a "consumer driven family HDHP" - going to cost us $375/mo. ($156 for the medical insurance and $219 towards HSA). The HSA -- I will contribute $5700 and employer contributes $750 - this will max it out at $6450.

No FSA
No back door anything, and yes, we can save the $5,500 each for IRAs for both of us. I

Wife works part time for a private family, makes $100k/yr, but has no benefits of any sort. no insurance, no retirement, no pension.

Right now starting in January, we are opening up a Vanguard account and will be depositing all our "savings" into the account. Fidelity will handle the 401k since it is through my work.

Once again, thank you guys so much for your time and insight. This forum is invaluable.
Khanmots
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Joined: Sat Jun 11, 2011 2:27 pm

Re: 401k (pretax) vs Roth 401 (aftertax)

Post by Khanmots »

M1garand30064 wrote:Will you have any significant pension when you retire? If not then traditional 401(k) is definitely the best option.
Hm, this has me wondering when the cutoff point is. I'm vested in a private pension at a company that I've been at 7-8 years now and can envision myself staying here for the rest of my career (20-30 more years). Currently I'm maxing my 401k (non-roth) and maxing a Roth IRA. Are there any guidelines as to how you should account for a pension when determining how much of your tax-advantaged savings should be pre/post tax?
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grabiner
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Location: Columbia, MD

Re: 401k (pretax) vs Roth 401 (aftertax)

Post by grabiner »

Khanmots wrote:
M1garand30064 wrote:Will you have any significant pension when you retire? If not then traditional 401(k) is definitely the best option.
Hm, this has me wondering when the cutoff point is. I'm vested in a private pension at a company that I've been at 7-8 years now and can envision myself staying here for the rest of my career (20-30 more years). Currently I'm maxing my 401k (non-roth) and maxing a Roth IRA. Are there any guidelines as to how you should account for a pension when determining how much of your tax-advantaged savings should be pre/post tax?
Wiki article link: Traditional versus Roth

You use the pension, 401(k), Social Security, and any other source of retirement income to estimate your retirement tax bracket. If you don't have any taxable savings, then a traditional and a Roth 401(k) are equally good if you expect to retire in the same tax bracket. If you can max out a Roth 401(k) and will retire in about the same tax bracket, then the Roth 401(k) is better because you can effectively tax-defer more money. If you expect to retire in a much lower tax bracket, then the extra tax-deferred money isn't worth the extra taxes.

You will re-make the decision every year, so if you will get into a higher tax bracket later in your career, it may be worth using a Roth now and a traditional 401(k) later.
Wiki David Grabiner
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