Roth 401K vs Traditional 401K

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Drock3307
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Roth 401K vs Traditional 401K

Post by Drock3307 » Sat Aug 12, 2017 11:11 am

Hello, my wife and I currently contribute to both. We have the traditional to earn some tax break now due to our income and assume our income will be less during retirement. However, I am worried tax rates will be much higher then. What is your strategy? Do you just put all in Roth now, pay the taxes now, so at least growth will be tax free? We are 35 yrs of age. Thanks!

retiredjg
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Re: Roth 401K vs Traditional 401K

Post by retiredjg » Sat Aug 12, 2017 11:21 am

Welcome to the forum. There is a discussion on this topic in the Wiki (link upper center).

The usual suggestion is to use traditional 401k unless you have reason to believe your tax bracket will actually be higher during retirement. This is not impossible, but people are usually in a lower or the same bracket in retirement.

An exception might be if you are in a very low tax bracket now, such as 15%. If your income is about to go up a lot and stay there for decades, using Roth 401k in the 25% bracket might be a good idea.

This topic comes up at least once a week. Just stick around and read or use the google box upper right and find old threads.

Drock3307
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Re: Roth 401K vs Traditional 401K

Post by Drock3307 » Sat Aug 12, 2017 11:43 am

Hi retiredjg!

Why is Roth better at 25% bracket? What if my rate is lower at retirement (though really hard to know)? Thanks!

KlangFool
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Re: Roth 401K vs Traditional 401K

Post by KlangFool » Sat Aug 12, 2017 11:50 am

Drock3307 wrote:
Sat Aug 12, 2017 11:43 am
Hi retiredjg!

Why is Roth better at 25% bracket? What if my rate is lower at retirement (though really hard to know)? Thanks!
Drock3307,

Unless you have a good pension, why would your income tax rate at retirement be at 25%?

https://taxfoundation.org/2017-tax-brackets/

For a couple, the taxable income would need to be at least 75K. With personal exemption and deduction, the gross income needs to be at least 100K. In order to generate 100K of income without social security and/or pension, you need at least 25 times 100K = 2.5 million worth of investment.

This is before the tax bracket adjusted upward every year by inflation.

<<though really hard to know)?>>

It is not hard to know. 90% of the US household has a net worth less than 1 million.

KlangFool
Last edited by KlangFool on Sat Aug 12, 2017 12:07 pm, edited 1 time in total.

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FiveK
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Re: Roth 401K vs Traditional 401K

Post by FiveK » Sat Aug 12, 2017 12:05 pm

retiredjg wrote:
Sat Aug 12, 2017 11:21 am
If your income is about to go up a lot and stay there for decades, using Roth 401k in the 25% bracket might be a good idea.
Drock3307 wrote:Why is Roth better at 25% bracket? What if my rate is lower at retirement (though really hard to know)? Thanks!
Need to look at retiredjg's suggestion in context.

Retiredjg's "if" and your "if" assume opposite things. Given opposite assumptions, opposite conclusions are not unexpected.

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ruralavalon
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Re: Roth 401K vs Traditional 401K

Post by ruralavalon » Sat Aug 12, 2017 12:13 pm

Drock3307 wrote:
Sat Aug 12, 2017 11:11 am
Hello, my wife and I currently contribute to both. We have the traditional to earn some tax break now due to our income and assume our income will be less during retirement. However, I am worried tax rates will be much higher then. What is your strategy? Do you just put all in Roth now, pay the taxes now, so at least growth will be tax free? We are 35 yrs of age. Thanks!
What is your current tax bracket, both federal and state? Will either or both of you be eligible for a substantial pension? You can simply add this to your original post using the edit button.

A low current tax bracket (15% or under) would mean that it costs you little (in tax deduction you passed up) to make Roth contributions. It is very difficult to predict what your tax bracket will be 30 years from now, or even predict what the tax brackets will be then.

A pension matters because of the progressive structure of the tax code.

For most people traditional 401k contributions will probably be better. TFB blog post, "The case against Roth 401k". "I think for most people the majority, if not 100%, of the contribution should go to a Traditional 401(k)."

Ordinarily most people are likely better off making traditional contributions to their work-based plans. A pension changes that analysis, so that Roth contributions are likely better if you have a significant pension coming. TFB blog post, "Most TSP participants should switch to the Roth TSP". That post discussed the effect of a federal pension, but the analysis should hold for other pensions.

Wiki article, "Traditional vs Roth".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

CppCoder
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Re: Roth 401K vs Traditional 401K

Post by CppCoder » Sat Aug 12, 2017 1:09 pm

If you can't decide, hedge, and do some of both. I max my pretax 401k, my after-tax 401k (converted annually to Roth), and two (backdoor) Roth IRAs each year. Given that employer match goes to pre-tax, this ends up as approximately $28k Roth and $37k pretax. I have a significant pension promise for retirement, and I would probably be better off contributing to the Roth 401k. However, given that I can't bring myself to give up the pretax 401k tax deduction, at least I'm hedged with a fairly significant Roth contribution annually (that I assume will eventually just become an inheritance fund).

livesoft
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Re: Roth 401K vs Traditional 401K

Post by livesoft » Sat Aug 12, 2017 1:11 pm

My strategy is to put it ALL in traditional 401(k). Then when I got to a lower tax bracket in retirement, I did Roth conversions. I saved tens of thousands of dollars doing that.

And the money I saved on taxes by contributing all to traditional 401(k) was used to contribute to Roth IRAs when they became available.
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DSInvestor
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Re: Roth 401K vs Traditional 401K

Post by DSInvestor » Sat Aug 12, 2017 1:28 pm

I agree with livesoft. The tax savings gave me more take home pay gave me more options to a) fund Roth IRA, b) invest in taxable, c) pay extra mortgage principal and many other financial priorities.

State income tax is another issue to consider. If you currently live in a state with a high state income tax, Traditional 401k contributions may save you substantial amounts of state income tax. I worked in states with high state income taxes and moved to state with no state income tax in retirement. Traditional 401k contributions helped me avoid Fed and state taxes. Once I moved to no state income tax state, I was able to do Roth conversions with no state income tax liability.

Drock3307
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Re: Roth 401K vs Traditional 401K

Post by Drock3307 » Sat Aug 12, 2017 7:43 pm

Thank you all! I thought we were at 25% but we are actually at 28% plus CA state. I expect we will be at a lower bracket at retirement unless the rates increase so seems traditional is the way to go then convert when our rate goes down in the future. But since we don't know where tax rates will be in 30 years, I'll do some Roth as well though heavier on traditional.

Drock3307
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Re: Roth 401K vs Traditional 401K

Post by Drock3307 » Sat Aug 12, 2017 8:13 pm

KlangFool wrote:
Sat Aug 12, 2017 11:50 am
Drock3307 wrote:
Sat Aug 12, 2017 11:43 am
Hi retiredjg!

Why is Roth better at 25% bracket? What if my rate is lower at retirement (though really hard to know)? Thanks!
Drock3307,

Unless you have a good pension, why would your income tax rate at retirement be at 25%?

https://taxfoundation.org/2017-tax-brackets/

For a couple, the taxable income would need to be at least 75K. With personal exemption and deduction, the gross income needs to be at least 100K. In order to generate 100K of income without social security and/or pension, you need at least 25 times 100K = 2.5 million worth of investment.

This is before the tax bracket adjusted upward every year by inflation.

<<though really hard to know)?>>

It is not hard to know. 90% of the US household has a net worth less than 1 million.

KlangFool

We will not be at 25% at retirement. I expect it to be lower so long as rates do not change. We do not have pension.

Drock3307
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Re: Roth 401K vs Traditional 401K

Post by Drock3307 » Sat Aug 12, 2017 8:17 pm

CppCoder wrote:
Sat Aug 12, 2017 1:09 pm
If you can't decide, hedge, and do some of both. I max my pretax 401k, my after-tax 401k (converted annually to Roth), and two (backdoor) Roth IRAs each year. Given that employer match goes to pre-tax, this ends up as approximately $28k Roth and $37k pretax. I have a significant pension promise for retirement, and I would probably be better off contributing to the Roth 401k. However, given that I can't bring myself to give up the pretax 401k tax deduction, at least I'm hedged with a fairly significant Roth contribution annually (that I assume will eventually just become an inheritance fund).
Sorry I am not very good at this. You mentioned you do traditional 401k then convert annually to Roth. Making the same contributions annually and with same tax rate, don't you end up paying tax on Roth conversion the same deduction on pre tax contribution so it's a wash? Thanks for clarifying. I'm sure this is not the case or else you won't do it but I am missing something. Thanks for educating me here!

CppCoder
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Re: Roth 401K vs Traditional 401K

Post by CppCoder » Sat Aug 12, 2017 8:23 pm

Drock3307 wrote:
Sat Aug 12, 2017 8:17 pm
CppCoder wrote:
Sat Aug 12, 2017 1:09 pm
If you can't decide, hedge, and do some of both. I max my pretax 401k, my after-tax 401k (converted annually to Roth), and two (backdoor) Roth IRAs each year. Given that employer match goes to pre-tax, this ends up as approximately $28k Roth and $37k pretax. I have a significant pension promise for retirement, and I would probably be better off contributing to the Roth 401k. However, given that I can't bring myself to give up the pretax 401k tax deduction, at least I'm hedged with a fairly significant Roth contribution annually (that I assume will eventually just become an inheritance fund).
Sorry I am not very good at this. You mentioned you do traditional 401k then convert annually to Roth. Making the same contributions annually and with same tax rate, don't you end up paying tax on Roth conversion the same deduction on pre tax contribution so it's a wash? Thanks for clarifying. I'm sure this is not the case or else you won't do it but I am missing something. Thanks for educating me here!
My 401k has many buckets: pretax contribution, after-tax contribution, Roth contribution, employer match, Roth conversion account. I only convert the after-tax contribution, on which I've already paid taxes, which then goes into the Roth conversion account. This is money above the $18k pre-tax contribution. If the after-tax has any gains at year end, I do pay additional taxes only on the gains. This is essentially the mega backdoor Roth IRA (you can search for that term to find threads) except I keep the money in my 401k instead of using an in service distribution to roll it over to a Roth IRA.

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marklearnsbogle
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Re: Roth 401K vs Traditional 401K

Post by marklearnsbogle » Fri Aug 18, 2017 8:29 am

livesoft wrote:
Sat Aug 12, 2017 1:11 pm
My strategy is to put it ALL in traditional 401(k). Then when I got to a lower tax bracket in retirement, I did Roth conversions. I saved tens of thousands of dollars doing that.
And the money I saved on taxes by contributing all to traditional 401(k) was used to contribute to Roth IRAs when they became available.
livesoft - similarly I have all in a 403(b) and am 58 years old. if at 59.5 I can convert that to a Roth, then so be it. what i understand though is it's best to first go into a traditional IRA, then into a Roth, thus keeping the tax implication as low as possible. sound right? thanks.
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FiveK
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Re: Roth 401K vs Traditional 401K

Post by FiveK » Fri Aug 18, 2017 10:26 am

marklearnsbogle wrote:
Fri Aug 18, 2017 8:29 am
...what i understand though is it's best to first go into a traditional IRA, then into a Roth, thus keeping the tax implication as low as possible. sound right?
No. Unless you are implying that the 403b -> Roth IRA would happen all in one year, vs. 403b -> tIRA in one year then tIRA -> Roth IRA spread over many years.
Due to the progressive nature of the tax code the former would likely incur a larger tax bite. All things being equal, though, one pays the same tax on 403b -> Roth IRA as on tIRA -> Roth IRA.

JW-Retired
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Re: Roth 401K vs Traditional 401K

Post by JW-Retired » Fri Aug 18, 2017 10:36 am

retiredjg wrote:
Sat Aug 12, 2017 11:21 am
An exception might be if you are in a very low tax bracket now, such as 15%. If your income is about to go up a lot and stay there for decades, using Roth 401k in the 25% bracket might be a good idea.
retiredjg,
I'm thinking maybe that 25% percent is a typo? did you really mean 15%? If not I'm confused.
JW
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WanderingDoc
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Re: Roth 401K vs Traditional 401K

Post by WanderingDoc » Fri Aug 18, 2017 11:24 am

CppCoder wrote:
Sat Aug 12, 2017 1:09 pm
If you can't decide, hedge, and do some of both. I max my pretax 401k, my after-tax 401k (converted annually to Roth), and two (backdoor) Roth IRAs each year. Given that employer match goes to pre-tax, this ends up as approximately $28k Roth and $37k pretax. I have a significant pension promise for retirement, and I would probably be better off contributing to the Roth 401k. However, given that I can't bring myself to give up the pretax 401k tax deduction, at least I'm hedged with a fairly significant Roth contribution annually (that I assume will eventually just become an inheritance fund).
Good strategy.

Would the TSP allow one to convert their Roth 401k to Roth IRA annually?
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

retiredjg
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Re: Roth 401K vs Traditional 401K

Post by retiredjg » Fri Aug 18, 2017 1:58 pm

JW-Retired wrote:
Fri Aug 18, 2017 10:36 am
retiredjg wrote:
Sat Aug 12, 2017 11:21 am
An exception might be if you are in a very low tax bracket now, such as 15%. If your income is about to go up a lot and stay there for decades, using Roth 401k in the 25% bracket might be a good idea.
retiredjg,
I'm thinking maybe that 25% percent is a typo? did you really mean 15%? If not I'm confused.
JW
I guess I could have written it better. No, I actually meant 25% for the one portion of the population.

I developed that opinion after hearing from several people who spent only a year or two in the 25% bracket and them moved up to 35%+ never to return to anything lower than 25%. These were usually doctors after leaving school and going through internship and/or residency and then on to a very lucrative specialty. That year or two was the only time they could contribute more than a pittance (or even anything) to Rothness. Some wished they had used Roth while in the 25% bracket.


But yes, I agree with you that for ordinary people who get ordinary raises and promotions - they have a very good chance of dropping back into the 15% bracket in retirement, so using traditional at 25% is preferable to Roth at 25%.

Did that clarify?

retiredjg
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Re: Roth 401K vs Traditional 401K

Post by retiredjg » Fri Aug 18, 2017 2:01 pm

WanderingDoc wrote:Would the TSP allow one to convert their Roth 401k to Roth IRA annually?
No plan is allowed to do that (to my knowledge) before the age of 59.5 and then only if the plan allows it (which they do not have to do).

JW-Retired
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Re: Roth 401K vs Traditional 401K

Post by JW-Retired » Fri Aug 18, 2017 2:48 pm

retiredjg wrote:
Fri Aug 18, 2017 1:58 pm
JW-Retired wrote:
Fri Aug 18, 2017 10:36 am
retiredjg wrote:
Sat Aug 12, 2017 11:21 am
An exception might be if you are in a very low tax bracket now, such as 15%. If your income is about to go up a lot and stay there for decades, using Roth 401k in the 25% bracket might be a good idea.
retiredjg,
I'm thinking maybe that 25% percent is a typo? did you really mean 15%? If not I'm confused.
JW
I guess I could have written it better. No, I actually meant 25% for the one portion of the population.

I developed that opinion after hearing from several people who spent only a year or two in the 25% bracket and them moved up to 35%+ never to return to anything lower than 25%. These were usually doctors after leaving school and going through internship and/or residency and then on to a very lucrative specialty. That year or two was the only time they could contribute more than a pittance (or even anything) to Rothness. Some wished they had used Roth while in the 25% bracket.


But yes, I agree with you that for ordinary people who get ordinary raises and promotions - they have a very good chance of dropping back into the 15% bracket in retirement, so using traditional at 25% is preferable to Roth at 25%.

Did that clarify?
Yes it did. Thanks.
JW
Retired at Last

WanderingDoc
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Re: Roth 401K vs Traditional 401K

Post by WanderingDoc » Fri Aug 18, 2017 3:57 pm

retiredjg wrote:
Fri Aug 18, 2017 1:58 pm
JW-Retired wrote:
Fri Aug 18, 2017 10:36 am
retiredjg wrote:
Sat Aug 12, 2017 11:21 am
An exception might be if you are in a very low tax bracket now, such as 15%. If your income is about to go up a lot and stay there for decades, using Roth 401k in the 25% bracket might be a good idea.
retiredjg,
I'm thinking maybe that 25% percent is a typo? did you really mean 15%? If not I'm confused.
JW
I guess I could have written it better. No, I actually meant 25% for the one portion of the population.

I developed that opinion after hearing from several people who spent only a year or two in the 25% bracket and them moved up to 35%+ never to return to anything lower than 25%. These were usually doctors after leaving school and going through internship and/or residency and then on to a very lucrative specialty. That year or two was the only time they could contribute more than a pittance (or even anything) to Rothness. Some wished they had used Roth while in the 25% bracket.


But yes, I agree with you that for ordinary people who get ordinary raises and promotions - they have a very good chance of dropping back into the 15% bracket in retirement, so using traditional at 25% is preferable to Roth at 25%.

Did that clarify?
What would you recommend (traditional or Roth 401k), for someone who will be near the 28% bracket for the next half decade.. At that point, they will either be in the highest tax bracket (work full time), 25% bracket (part time or 1099 work), or pursuing time off or non-medicine ventures. Would you consider splitting 50/50 Roth and traditional? This is so complicated. I wish this retirement planning stuff was as straight forward as investing in real estate! :confused
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

chinto
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Re: Roth 401K vs Traditional 401K

Post by chinto » Fri Aug 18, 2017 4:09 pm

A lot of it has to do with where you are in life, how much runway you have left,and if you know what state you may retire in verses the one you worked in. If you have a good idea where you income may end up and you will definitely benefit from a lower tax bracket in retirement then it makes a great deal of sense.

On the other hand, some intrinsic come into play. We are not suppose to speculate on future legislation, so I won't I'll just say when the Government needs money it goes where the money is. So far the masses are in non-Roth type plans. But of course, in looking at that cloudy crystal ball, your age becomes very relevant. Another variable is how you invest. The reality is capital gains are currently taxed at a lower rate than ordinary income so where you place your money makes a difference in terms of your asset allocation, will that be the case in the future who knows.

And legacy factors come into play. You can roll your ROTH 401k into a ROTH IRA, but you cannot roll your Traditional IRA RMD into a ROTH IRA after your RMD date for a year. So in the event you pass on with a large traditional 401K balance your heirs will never get chance to benefit from inheriting a ROTH (there also is a 5 year ROTH to be aware of). Of course part of that analysis is guessing what the income tax rate for your heirs will be in the future at the time of your death as well as guessing what their income level would be.

And then there is the old taxation of SS thing to consider or discard out of hand, but to make it simple, distribution from a ROTH are not counted as income for SS benefit taxation purposes. And distributions fro an IRA or Traditional 401K can put you in line fro higher medicare premiums or mess with Obamacare. A ROTH avoids those issues (currently).

Another thing to consider is lifestyle. If you are disciplined, if you took a Traditional 401K you would put the tax saving in a taxable account or ROTH IRA and not simply spend the money. Since most of us review retirement as a matter of acquiring a multiple of your expenses this participial discipline is of great importance. One it forces you to save more, thus hitting your multiple earlier and two it by definition reduces your spending, thus lowering your multiple.

And of course that brings us to another, albeit simple point, with a ROTH you know how much money you actually have, it is not X amount less taxes. Remember the tax rates can change up or down even after retirement. So a ROTH allows you to control one risk factor (of course the premium you pay is, you could end up on the wrong side of a change).

So your answer may vary greatly based on your personal assessment of a myriad of factors that may or may not be relevant to you and of course the accuracy of your crystal ball.

retiredjg
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Re: Roth 401K vs Traditional 401K

Post by retiredjg » Fri Aug 18, 2017 4:17 pm

WanderingDoc wrote: What would you recommend (traditional or Roth 401k), for someone who will be near the 28% bracket for the next half decade.. At that point, they will either be in the highest tax bracket (work full time), 25% bracket (part time or 1099 work), or pursuing time off or non-medicine ventures. Would you consider splitting 50/50 Roth and traditional? This is so complicated. I wish this retirement planning stuff was as straight forward as investing in real estate! :confused
Once you get the hang of this, real estate will seem like a pain. :D

I'd recommend traditional 401k combined with Roth IRA (back door if you are willing to do it). This will reduce your taxable income by $18k each year, saving you about $5k in taxes each year. It also gives you both pre-tax assets and post- tax assets as you enter and are in retirement. This is a good thing.

At some future date, in retirement, you can then convert that 401k (which will likely be rolled into an IRA by then) to Roth at only 15% or 25% instead of 28%. This results in your having more money after taxes.

Since there will likely be tax changes before you retire, the numbers may be different. But the fact is that many people drop a tax bracket in retirement so why not try to take advantage of that likelihood even if the future numbers are not exactly 15, 25, and 28?

If you should end up in the 28% bracket at retirement, nothing is lost - it's just a wash. 28% now vs 28% later leaves you with the same amount of money, to the penny.

Please note I'm speaking very roughly about "brackets" not your actual tax rates since your marginal tax rate may be different from your tax bracket. But that is another topic for another time and not something you should worry about until you understand more about taxes. If then. It's not something you have much control over or ability to predict anyway.

WanderingDoc
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Re: Roth 401K vs Traditional 401K

Post by WanderingDoc » Fri Aug 18, 2017 4:23 pm

retiredjg wrote:
Fri Aug 18, 2017 4:17 pm
WanderingDoc wrote: What would you recommend (traditional or Roth 401k), for someone who will be near the 28% bracket for the next half decade.. At that point, they will either be in the highest tax bracket (work full time), 25% bracket (part time or 1099 work), or pursuing time off or non-medicine ventures. Would you consider splitting 50/50 Roth and traditional? This is so complicated. I wish this retirement planning stuff was as straight forward as investing in real estate! :confused
Once you get the hang of this, real estate will seem like a pain. :D

I'd recommend traditional 401k combined with Roth IRA (back door if you are willing to do it). This will reduce your taxable income by $18k each year, saving you about $5k in taxes each year. It also gives you both pre-tax assets and post- tax assets as you enter and are in retirement. This is a good thing.

At some future date, in retirement, you can then convert that 401k (which will likely be rolled into an IRA by then) to Roth at only 15% or 25% instead of 28%. This results in your having more money after taxes.

Since there will likely be tax changes before you retire, the numbers may be different. But the fact is that many people drop a tax bracket in retirement so why not try to take advantage of that likelihood even if the future numbers are not exactly 15, 25, and 28?

If you should end up in the 28% bracket at retirement, nothing is lost - it's just a wash. 28% now vs 28% later leaves you with the same amount of money, to the penny.

Please note I'm speaking very roughly about "brackets" not your actual tax rates since your marginal tax rate may be different from your tax bracket. But that is another topic for another time and not something you should worry about until you understand more about taxes. If then. It's not something you have much control over or ability to predict anyway.
Got it. Re: the bolded above, I read on a blog (maybe Mad Fientist?) who said that if you have a TSP 401k, that is the ONLY 401k that he would recommend NOT to roll over into an IRA after leaving the military/your employer. Your thoughts on this?
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

retiredjg
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Re: Roth 401K vs Traditional 401K

Post by retiredjg » Fri Aug 18, 2017 4:27 pm

WanderingDoc wrote:Got it. Re: the bolded above, I read on a blog (maybe Mad Fientist?) who said that if you have a TSP 401k, that is the ONLY 401k that he would recommend NOT to roll over into an IRA after leaving the military/your employer. Your thoughts on this?
This is way off the original poster's question so this will be very short. It is probably because the TSP has such low costs. Just watch for threads that discuss this. It will come up many times before you need to understand it fully. For now, just use your TSP to the fullest extent you can.

WanderingDoc
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Re: Roth 401K vs Traditional 401K

Post by WanderingDoc » Fri Aug 18, 2017 4:28 pm

chinto wrote:
Fri Aug 18, 2017 4:09 pm
A lot of it has to do with where you are in life, how much runway you have left,and if you know what state you may retire in verses the one you worked in. If you have a good idea where you income may end up and you will definitely benefit from a lower tax bracket in retirement then it makes a great deal of sense.

On the other hand, some intrinsic come into play. We are not suppose to speculate on future legislation, so I won't I'll just say when the Government needs money it goes where the money is. So far the masses are in non-Roth type plans. But of course, in looking at that cloudy crystal ball, your age becomes very relevant. Another variable is how you invest. The reality is capital gains are currently taxed at a lower rate than ordinary income so where you place your money makes a difference in terms of your asset allocation, will that be the case in the future who knows.

And legacy factors come into play. You can roll your ROTH 401k into a ROTH IRA, but you cannot roll your Traditional IRA RMD into a ROTH IRA after your RMD date for a year. So in the event you pass on with a large traditional 401K balance your heirs will never get chance to benefit from inheriting a ROTH (there also is a 5 year ROTH to be aware of). Of course part of that analysis is guessing what the income tax rate for your heirs will be in the future at the time of your death as well as guessing what their income level would be.

And then there is the old taxation of SS thing to consider or discard out of hand, but to make it simple, distribution from a ROTH are not counted as income for SS benefit taxation purposes. And distributions fro an IRA or Traditional 401K can put you in line fro higher medicare premiums or mess with Obamacare. A ROTH avoids those issues (currently).

Another thing to consider is lifestyle. If you are disciplined, if you took a Traditional 401K you would put the tax saving in a taxable account or ROTH IRA and not simply spend the money. Since most of us review retirement as a matter of acquiring a multiple of your expenses this participial discipline is of great importance. One it forces you to save more, thus hitting your multiple earlier and two it by definition reduces your spending, thus lowering your multiple.

And of course that brings us to another, albeit simple point, with a ROTH you know how much money you actually have, it is not X amount less taxes. Remember the tax rates can change up or down even after retirement. So a ROTH allows you to control one risk factor (of course the premium you pay is, you could end up on the wrong side of a change).

So your answer may vary greatly based on your personal assessment of a myriad of factors that may or may not be relevant to you and of course the accuracy of your crystal ball.
So many things to consider. Thanks for the detailed write-up.

On the one hand, I feel like most people are "throwing in the towel" by relegating themselves into a lower tax bracket at retirement.

However, if you contribute to a Roth 401k, this is like a kick in the pants that you need to get your s*** together and make sure you are thinking more abundantly, and get your real estate and other business ventures to earn you more in perpetuity than even your high paying day job did.

OTOH, it would be nice to get a 28% bracket down to 25% or lower for the next few years by doing a traditional 401k. Decisions... interesting discussion.
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

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