I was just thinking tonight that I could put away more money in a Roth 401k than a traditional 401k. Everyone says invest in traditional because of your tax bracket and then invest in a taxable account after. What if you invested everything in a Roth instead of investing in both a traditional 401k and taxable account. Wouldn't the break you got from maxing the Roth 401k be better than the traditional followed by taxable account?
Hopefully I got my point across, it was a lot to type on a phone.
Roth 401k over traditional 401k and taxable?
Re: Roth 401k over traditional 401k and taxable?
Wiki article link: Traditional versus Roth
If you can max out a Roth 401(k), and expect to retire in the same tax bracket or one only slightly lower, the opportunity to tax-defer more money makes the Roth 401(k) a better deal. But if you expect to retire in a significantly lower tax bracket (33% versus 25%, 25% versus 15%, or 25% plus 8% state versus 25% and no state tax when you retire in Florida), then the benefit of paying taxes at a lower rate in retirement rather than a higher weight now makes the traditional 401(k) better.
If you can max out a Roth 401(k), and expect to retire in the same tax bracket or one only slightly lower, the opportunity to tax-defer more money makes the Roth 401(k) a better deal. But if you expect to retire in a significantly lower tax bracket (33% versus 25%, 25% versus 15%, or 25% plus 8% state versus 25% and no state tax when you retire in Florida), then the benefit of paying taxes at a lower rate in retirement rather than a higher weight now makes the traditional 401(k) better.
Re: Roth 401k over traditional 401k and taxable?
That's exactly what I was looking for. Thank you!
Re: Roth 401k over traditional 401k and taxable?
Also, use Traditional if you expect to have a number of years between retirement and taking a pension and/or Social Security in which to do Roth conversions at a lower rate than you would be paying now for a Roth.