401(k): Roth vs Non-Roth

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CrownVic
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401(k): Roth vs Non-Roth

Post by CrownVic »

At what point does a regular 401(k) make sense over a Roth 401(k)? The obvious answer that comes to mind is when you are at the peak of your earned income, but what other situations would it make sense to invest in one over a regular one? Would it be any time your marginal tax rate is above the rate you would fall into once in retirement? This is assuming that taxes do not change.
bloom2708
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Re: 401(k): Roth vs Non-Roth

Post by bloom2708 »

Many threads on this topic.

If you are in a very low tax bracket now (12%) and KNOW you will be in a much higher tax bracket later (24% or 32%) you can make a case. Also, if you have pensions that will cover all your spending you might choose Roth.

90% should do Pre-tax 401k + Roth IRA. $18.5k can move you from one marginal tax bracket to a lower bracket. If your state has a high tax, you also defer that and may live in a 0% tax state later.

The tax savings on $18.5k fills up 3/4 of a Roth. X 2 (married) that means you are saving more. Saving more earlier with 30/40 years to grow is always best.

You can do Roth conversions later. The worst case scenario isn't all that bad. Your are sitting in your late 70s (alive), RMDs are growing, with a big pile and have to pay more tax. Many unknowns, so I don't like to see people filling up the 22% and 24% brackets now when they might pay much less tax on those dollars as they fill up the various buckets of income.

Search and read the related threads. It is not a slam dunk and you can justify most any course with some numbers.
Topic Author
CrownVic
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Re: 401(k): Roth vs Non-Roth

Post by CrownVic »

Thank you so much for your response. For some reason when I looked, I wasn't able to find relevant threads.
keystone
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Re: 401(k): Roth vs Non-Roth

Post by keystone »

You may find this thread of interest: viewtopic.php?f=10&t=249635

I kind of laugh at the title, because the thread had several hundred posts yet after reading most of it I am just as convinced as I was before reading it that the traditional 401(k) is preferable for most (probably >90%) people during the bulk of their working years.
rkhusky
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Re: 401(k): Roth vs Non-Roth

Post by rkhusky »

CrownVic wrote: Thu Aug 16, 2018 1:48 pm Thank you so much for your response. For some reason when I looked, I wasn't able to find relevant threads.
Perhaps you didn't search for Roth versus Traditional, although "Roth versus non-Roth" generates 29K hits.
MichCPA
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Re: 401(k): Roth vs Non-Roth

Post by MichCPA »

How much does the extra effective contribution for a roth play into everyone's decision on this? 18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, where r is your tax rate (not that I book a deferred tax liability when calculating my net worth). Obviously that math only works if you are at (or close to) the max of your total tax advantaged space. Otherwise it becomes a tax arbitrage game. At a 24% bracket that is an contribution of over 24,000 if you tax equalize it. On the other hand, if you are in a very high bracket, you would want to defer. Thoughts?
Topic Author
CrownVic
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Re: 401(k): Roth vs Non-Roth

Post by CrownVic »

It seems like it's best for me to go with the traditional option.
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FiveK
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Re: 401(k): Roth vs Non-Roth

Post by FiveK »

CrownVic wrote: Thu Aug 16, 2018 12:32 pm Would it be any time your marginal tax rate is above the rate you would fall into once in retirement?
Yes.
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FiveK
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Re: 401(k): Roth vs Non-Roth

Post by FiveK »

MichCPA wrote: Thu Aug 16, 2018 3:17 pm How much does the extra effective contribution for a roth play into everyone's decision on this? 18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, where r is your tax rate (not that I book a deferred tax liability when calculating my net worth). Obviously that math only works if you are at (or close to) the max of your total tax advantaged space. Otherwise it becomes a tax arbitrage game. At a 24% bracket that is an contribution of over 24,000 if you tax equalize it. On the other hand, if you are in a very high bracket, you would want to defer. Thoughts?
See Maxing out your retirement accounts and either of the two spreadsheets mentioned there for more discussion and quantification respectively.
rkhusky
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Re: 401(k): Roth vs Non-Roth

Post by rkhusky »

MichCPA wrote: Thu Aug 16, 2018 3:17 pm How much does the extra effective contribution for a roth play into everyone's decision on this? 18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, where r is your tax rate (not that I book a deferred tax liability when calculating my net worth). Obviously that math only works if you are at (or close to) the max of your total tax advantaged space. Otherwise it becomes a tax arbitrage game. At a 24% bracket that is an contribution of over 24,000 if you tax equalize it. On the other hand, if you are in a very high bracket, you would want to defer. Thoughts?
When I looked at this, it worked out that there was about a 5% gap between Roth and Traditional when maxing all tax-advantaged accounts, i.e. if you are in the 24% bracket now, then break-even is about 19% in retirement (if not maxing accounts, break-even is 24% in retirement). At the time, my marginal rate was 30% due to child tax credit phaseout, so I figured as long as my retirement rate was projected to be below 25% I would contribute to Traditional. It is appearing that my retirement marginal rate will be 12% for the near future.
bloom2708
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Re: 401(k): Roth vs Non-Roth

Post by bloom2708 »

FiveK wrote: Thu Aug 16, 2018 10:49 pm
CrownVic wrote: Thu Aug 16, 2018 12:32 pm Would it be any time your marginal tax rate is above the rate you would fall into once in retirement?
Yes.
Not such a firm "yes" in my mind.

If your marginal rate is 22% today. You pay 22% on all the dollars you put in Roth.

Let's fast forward and say you only withdraw those $18,500 35 years from now. If the tax brackets look somewhat similar, you fill up 0%, 12%, 14% first. None of your dollars taxed at 22% way back when did you pay 22% on, even if there is a 22% and up.

A very simplified version. You might have SS by then filling in those lower buckets. If you lock in paying 22 or 24% now, those dollars can't grow and we can't know what the rates will look like 30 years from now.
KlangFool
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Re: 401(k): Roth vs Non-Roth

Post by KlangFool »

MichCPA wrote: Thu Aug 16, 2018 3:17 pm How much does the extra effective contribution for a roth play into everyone's decision on this? 18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, where r is your tax rate (not that I book a deferred tax liability when calculating my net worth). Obviously that math only works if you are at (or close to) the max of your total tax advantaged space. Otherwise it becomes a tax arbitrage game. At a 24% bracket that is an contribution of over 24,000 if you tax equalize it. On the other hand, if you are in a very high bracket, you would want to defer. Thoughts?
MichCPA,

<<18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, >>

Obviously, that statement is not true unless the person pays zero tax for the $18,500 in post-tax. Please stop spreading this myth.

KlangFool
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KlangFool
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Re: 401(k): Roth vs Non-Roth

Post by KlangFool »

bloom2708 wrote: Thu Aug 16, 2018 12:43 pm Many threads on this topic.

If you are in a very low tax bracket now (12%) and KNOW you will be in a much higher tax bracket later (24% or 32%) you can make a case. Also, if you have pensions that will cover all your spending you might choose Roth.
bloom2708,

That is not necessarily true. At low tax bracket, saver's credit and Earned Income Tax Credit (EITC) come into play. A person may contribute enough into the tax-deferred account and they qualify for those tax credits. In that situation, the tax may become negative or zero. Aka, besides not paying tax, the person is paid by the IRA due to the non-refundable tax credit.

Search on the thread for folks with income around 40K to 50K for those examples.

Basically, by default, Roth 401K is a bad idea for almost everyone.

KlangFool
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bloom2708
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Re: 401(k): Roth vs Non-Roth

Post by bloom2708 »

KlangFool wrote: Fri Aug 17, 2018 9:29 am
bloom2708 wrote: Thu Aug 16, 2018 12:43 pm Many threads on this topic.

If you are in a very low tax bracket now (12%) and KNOW you will be in a much higher tax bracket later (24% or 32%) you can make a case. Also, if you have pensions that will cover all your spending you might choose Roth.
bloom2708,

That is not necessarily true. At low tax bracket, saver's credit and Earned Income Tax Credit (EITC) come into play. A person may contribute enough into the tax-deferred account and they qualify for those tax credits. In that situation, the tax may become negative or zero. Aka, besides not paying tax, the person is paid by the IRA due to the non-refundable tax credit.

Search on the thread for folks with income around 40K to 50K for those examples.

Basically, by default, Roth 401K is a bad idea for almost everyone.

KlangFool
I agree with you. I tell people (almost always) to do Pre-tax 401k/403b. I think we have to list "there may be a few scenarios where Roth could come out ahead...". I can't say pre-tax WILL come out ahead. There are too many unknowns.
Danielle896
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Re: 401(k): Roth vs Non-Roth

Post by Danielle896 »

There are advantages to having a plan that keeps tax brackets approximately the same throughout your lifetime. (I think will find doing that will give your the best result when deciding on a Roth strategy.) Watch out for the cost of Medicare Part B. It goes up in (steps) based on income. Roth income is appreciated if you go over one of those steps. For some one young where it's difficult to see far into the future I would aim for a split between the standard 401K and Roth. You really do not know where the brackets will lie many years down the road.
KlangFool
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Re: 401(k): Roth vs Non-Roth

Post by KlangFool »

Danielle896 wrote: Fri Aug 17, 2018 10:22 am There are advantages to having a plan that keeps tax brackets approximately the same throughout your lifetime. (I think will find doing that will give your the best result when deciding on a Roth strategy.) Watch out for the cost of Medicare Part B. It goes up in (steps) based on income. Roth income is appreciated if you go over one of those steps. For some one young where it's difficult to see far into the future I would aim for a split between the standard 401K and Roth. You really do not know where the brackets will lie many years down the road.
Danielle896,

Roth 401K is not needed for that split. Contribute to Trad. 401K and put the tax savings into Roth IRA is the best combination.

KlangFool
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MichCPA
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Re: 401(k): Roth vs Non-Roth

Post by MichCPA »

KlangFool wrote: Fri Aug 17, 2018 9:25 am
MichCPA wrote: Thu Aug 16, 2018 3:17 pm How much does the extra effective contribution for a roth play into everyone's decision on this? 18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, where r is your tax rate (not that I book a deferred tax liability when calculating my net worth). Obviously that math only works if you are at (or close to) the max of your total tax advantaged space. Otherwise it becomes a tax arbitrage game. At a 24% bracket that is an contribution of over 24,000 if you tax equalize it. On the other hand, if you are in a very high bracket, you would want to defer. Thoughts?
MichCPA,

<<18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, >>

Obviously, that statement is not true unless the person pays zero tax for the $18,500 in post-tax. Please stop spreading this myth.

KlangFool
How is this not true? The 18,500 deposit into a roth is worth 18,500 after taxes. If you put 18,500 into a traditional account, you really have a deferred tax liability on that 18,500. I apologize if I wasn't clear on that, but I stand by that logic.
keystone
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Re: 401(k): Roth vs Non-Roth

Post by keystone »

bloom2708 wrote: Fri Aug 17, 2018 9:21 am
FiveK wrote: Thu Aug 16, 2018 10:49 pm
CrownVic wrote: Thu Aug 16, 2018 12:32 pm Would it be any time your marginal tax rate is above the rate you would fall into once in retirement?
Yes.
Not such a firm "yes" in my mind.

If your marginal rate is 22% today. You pay 22% on all the dollars you put in Roth.

Let's fast forward and say you only withdraw those $18,500 35 years from now. If the tax brackets look somewhat similar, you fill up 0%, 12%, 14% first. None of your dollars taxed at 22% way back when did you pay 22% on, even if there is a 22% and up.

A very simplified version. You might have SS by then filling in those lower buckets. If you lock in paying 22 or 24% now, those dollars can't grow and we can't know what the rates will look like 30 years from now.
I might be misunderstanding what you're saying, but it looks like your answer is supporting "yes" to the question above.
keystone
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Re: 401(k): Roth vs Non-Roth

Post by keystone »

MichCPA wrote: Fri Aug 17, 2018 10:45 am How is this not true? The 18,500 deposit into a roth is worth 18,500 after taxes. If you put 18,500 into a traditional account, you really have a deferred tax liability on that 18,500. I apologize if I wasn't clear on that, but I stand by that logic.
I agree with you unless your tax rate is 0%, however most Bogleheads would take the tax savings from the traditional contributions and invest them elsewhere. So it's not exactly an apples to apples comparison.
KlangFool
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Re: 401(k): Roth vs Non-Roth

Post by KlangFool »

MichCPA wrote: Fri Aug 17, 2018 10:45 am
KlangFool wrote: Fri Aug 17, 2018 9:25 am
MichCPA wrote: Thu Aug 16, 2018 3:17 pm How much does the extra effective contribution for a roth play into everyone's decision on this? 18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, where r is your tax rate (not that I book a deferred tax liability when calculating my net worth). Obviously that math only works if you are at (or close to) the max of your total tax advantaged space. Otherwise it becomes a tax arbitrage game. At a 24% bracket that is an contribution of over 24,000 if you tax equalize it. On the other hand, if you are in a very high bracket, you would want to defer. Thoughts?
MichCPA,

<<18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, >>

Obviously, that statement is not true unless the person pays zero tax for the $18,500 in post-tax. Please stop spreading this myth.

KlangFool
How is this not true? The 18,500 deposit into a roth is worth 18,500 after taxes. If you put 18,500 into a traditional account, you really have a deferred tax liability on that 18,500. I apologize if I wasn't clear on that, but I stand by that logic.
MichCPA,

Do you pay tax on the $18,500 deposit into the Roth 401K? Yes or no? If the answer is yes, you are comparing an after-tax contribution of $18,500 with a pre-tax contribution of $18,500. Then, you are not comparing the same thing.

A correct comparison would be

A) $18,500 contribution to Roth 401K.

or

B) $18,500 contribution to Trad. 401 and the tax savings into Roth IRA

Or

C) $18,500 contribution to Trad. 401 and the tax savings into the taxable account.

KlangFool
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Crisium
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Re: 401(k): Roth vs Non-Roth

Post by Crisium »

I believe it is more likely that tax rates will increase by the time I retire then the chances rates will be the same or decrease. And to the point where even the benefit of withdrawing in lower brackets (including 0% standard deductions) will not make up for the raise.

It would violate political rules for me to elaborate why I think this will happen; it is only a belief - though hopefully you do not think of me as wearing a tin foil hat. However, factually as current law stands tax rates will increase in 10 years.

If I am wrong I will still have the pleasure of 0% taxes on most of my retirement income.

Though if I earned enough to have meaningful federal taxes like most folks here, I might change my mind. Especially if one has a taxable account then they might pursue pre-tax contributions to get into the 0% capital gains bracket. I'm already there.
foo.c
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Re: 401(k): Roth vs Non-Roth

Post by foo.c »

Personally, I don't see it as a binary choice. I do both, and we have Roth IRAs and do taxable as well.
KlangFool
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Re: 401(k): Roth vs Non-Roth

Post by KlangFool »

Crisium wrote: Fri Aug 17, 2018 11:04 am
I believe it is more likely that tax rates will increase by the time I retire then it is likely that they will be the same or decrease. And to the point where even the benefit of withdrawing in lower brackets (including 0% standard deductions) will not make up for the raise.
Crisium,

1) Even if that is true, why do this matters? Unless you have a very good pension that helps you generates more income than when you are working, you will still pay fewer taxes?

It takes 1 million of the tax-deferred portfolio to generate 40K of retirement income using 4% withdrawal. Do you have that much money in your tax-deferred account?

2) Why do you think that it will be the income tax? Globally, income rates are dropped and replaced by a consumption/sale tax.

KlangFool
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MichCPA
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Re: 401(k): Roth vs Non-Roth

Post by MichCPA »

KlangFool wrote: Fri Aug 17, 2018 10:55 am
MichCPA wrote: Fri Aug 17, 2018 10:45 am
KlangFool wrote: Fri Aug 17, 2018 9:25 am
MichCPA wrote: Thu Aug 16, 2018 3:17 pm How much does the extra effective contribution for a roth play into everyone's decision on this? 18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, where r is your tax rate (not that I book a deferred tax liability when calculating my net worth). Obviously that math only works if you are at (or close to) the max of your total tax advantaged space. Otherwise it becomes a tax arbitrage game. At a 24% bracket that is an contribution of over 24,000 if you tax equalize it. On the other hand, if you are in a very high bracket, you would want to defer. Thoughts?
MichCPA,

<<18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, >>

Obviously, that statement is not true unless the person pays zero tax for the $18,500 in post-tax. Please stop spreading this myth.

KlangFool
How is this not true? The 18,500 deposit into a roth is worth 18,500 after taxes. If you put 18,500 into a traditional account, you really have a deferred tax liability on that 18,500. I apologize if I wasn't clear on that, but I stand by that logic.
MichCPA,

Do you pay tax on the $18,500 deposit into the Roth 401K? Yes or no? If the answer is yes, you are comparing an after-tax contribution of $18,500 with a pre-tax contribution of $18,500. Then, you are not comparing the same thing.

A correct comparison would be

A) $18,500 contribution to Roth 401K.

or

B) $18,500 contribution to Trad. 401 and the tax savings into Roth IRA

Or

C) $18,500 contribution to Trad. 401 and the tax savings into the taxable account.

KlangFool
If we are talking about this at the max, lets say you start with 25k in gross earnings that gives you 18,500 after tax. Your options are 1: Go roth at 18,500. Option 2: Traditional of 18,500 and putting the tax savings of 6,500 in a taxable account. This means a roth is shielding an extra 6,500 from tax in the future. Effectively, your roth contribution limit is 25k gross dollars,but your are limits to 18.5k gross dollar in traditional. I max my roth IRA before the 401, so using the 'savings' for that isn't possible. I am not saying that holding, 18,500 in roth and traditional are the same thing, I am saying they are different due to the 18,500 limit not changing despite the difference in tax treatment.
KlangFool
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Re: 401(k): Roth vs Non-Roth

Post by KlangFool »

MichCPA wrote: Fri Aug 17, 2018 11:11 am
KlangFool wrote: Fri Aug 17, 2018 10:55 am
MichCPA wrote: Fri Aug 17, 2018 10:45 am
KlangFool wrote: Fri Aug 17, 2018 9:25 am
MichCPA wrote: Thu Aug 16, 2018 3:17 pm How much does the extra effective contribution for a roth play into everyone's decision on this? 18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, where r is your tax rate (not that I book a deferred tax liability when calculating my net worth). Obviously that math only works if you are at (or close to) the max of your total tax advantaged space. Otherwise it becomes a tax arbitrage game. At a 24% bracket that is an contribution of over 24,000 if you tax equalize it. On the other hand, if you are in a very high bracket, you would want to defer. Thoughts?
MichCPA,

<<18,500 in post tax is worth more than 18,500 in pre-tax by 18,500/r, >>

Obviously, that statement is not true unless the person pays zero tax for the $18,500 in post-tax. Please stop spreading this myth.

KlangFool
How is this not true? The 18,500 deposit into a roth is worth 18,500 after taxes. If you put 18,500 into a traditional account, you really have a deferred tax liability on that 18,500. I apologize if I wasn't clear on that, but I stand by that logic.
MichCPA,

Do you pay tax on the $18,500 deposit into the Roth 401K? Yes or no? If the answer is yes, you are comparing an after-tax contribution of $18,500 with a pre-tax contribution of $18,500. Then, you are not comparing the same thing.

A correct comparison would be

A) $18,500 contribution to Roth 401K.

or

B) $18,500 contribution to Trad. 401 and the tax savings into Roth IRA

Or

C) $18,500 contribution to Trad. 401 and the tax savings into the taxable account.

KlangFool
If we are talking about this at the max, lets say you start with 25k in gross earnings that gives you 18,500 after tax. Your options are 1: Go roth at 18,500. Option 2: Traditional of 18,500 and putting the tax savings of 6,500 in a taxable account. This means a roth is shielding an extra 6,500 from tax in the future. Effectively, your roth contribution limit is 25k gross dollars,but your are limits to 18.5k gross dollar in traditional. I max my roth IRA before the 401, so using the 'savings' for that isn't possible. I am not saying that holding, 18,500 in roth and traditional are the same thing, I am saying they are different due to the 18,500 limit not changing despite the difference in tax treatment.
MichCPA,

I choose Option (B). Why won't I?

<<I max my roth IRA before the 401>>

Bad idea! You can start your own topic and we can go through the numbers and show why that is true.

You should check out this thread.

viewtopic.php?t=87471
<<How to pay ZERO taxes in retirement with 6-figure expenses>>

KlangFool
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Topic Author
CrownVic
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Re: 401(k): Roth vs Non-Roth

Post by CrownVic »

Wait so hold on. How about we do something similar to my example:

a. Currently in the 22% bracket and will likely remain there for a while before either falling to the 12% or falling a bit in the 22% (working while grad school) and then likely to max out to the 24% after that (earning after grad school)
b. Currently maxing out Roth IRA and maxing out my state's 529 plan
c. age = 24
d. I plan to have a new job before I start grad school in the next 5 or so years (could switch 401k to new employer's plan, convert to Roth IRA, or keep where it is because it's a good plan)
e. plan to be in the 22% bracket upon retirement (naturally this is subject to change)

Given what's been posted here, it seems that it's pretty much a toss up between Roth and Trad 401k options, but leaning more towards 401k due to who knows what will happen, tax reduction now to save more in 529, and tax diversification with aforementioned Roth IRA. This is a bit of a oversimplification I guess, but does that general idea make sense?

Thanks again to everyone that's responded, naturally I'm pretty new to this.
KlangFool
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Re: 401(k): Roth vs Non-Roth

Post by KlangFool »

CrownVic wrote: Fri Aug 17, 2018 1:12 pm Wait so hold on. How about we do something similar to my example:

a. Currently in the 22% bracket and will likely remain there for a while before either falling to the 12% or falling a bit in the 22% (working while grad school) and then likely to max out to the 24% after that (earning after grad school)
b. Currently maxing out Roth IRA and maxing out my state's 529 plan
c. age = 24
d. I plan to have a new job before I start grad school in the next 5 or so years (could switch 401k to new employer's plan, convert to Roth IRA, or keep where it is because it's a good plan)
e. plan to be in the 22% bracket upon retirement (naturally this is subject to change)

Given what's been posted here, it seems that it's pretty much a toss up between Roth and Trad 401k options, but leaning more towards 401k due to who knows what will happen, tax reduction now to save more in 529, and tax diversification with aforementioned Roth IRA. This is a bit of a oversimplification I guess, but does that general idea make sense?

Thanks again to everyone that's responded, naturally I'm pretty new to this.
CrownVic,

1) No, it is not a toast up between Trad.401K and Roth 401K. Roth 401K is the wrong answer.

2) It has nothing to do with your current income tax rate now versus income tax rate a few years later. It has to do with your current income rate now versus when you retire and/or withdraw the money.

It takes 1 million in the tax-deferred account in order to generate 40K in withdrawal. Until and unless you have a lot more money in your tax-deferred account, there is no reason to look at Roth 401K at all.

Trad. 401K and Roth IRA is the best combination.

KlangFool
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smitcat
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Re: 401(k): Roth vs Non-Roth

Post by smitcat »

KlangFool wrote: Fri Aug 17, 2018 2:39 pm
CrownVic wrote: Fri Aug 17, 2018 1:12 pm Wait so hold on. How about we do something similar to my example:

a. Currently in the 22% bracket and will likely remain there for a while before either falling to the 12% or falling a bit in the 22% (working while grad school) and then likely to max out to the 24% after that (earning after grad school)
b. Currently maxing out Roth IRA and maxing out my state's 529 plan
c. age = 24
d. I plan to have a new job before I start grad school in the next 5 or so years (could switch 401k to new employer's plan, convert to Roth IRA, or keep where it is because it's a good plan)
e. plan to be in the 22% bracket upon retirement (naturally this is subject to change)

Given what's been posted here, it seems that it's pretty much a toss up between Roth and Trad 401k options, but leaning more towards 401k due to who knows what will happen, tax reduction now to save more in 529, and tax diversification with aforementioned Roth IRA. This is a bit of a oversimplification I guess, but does that general idea make sense?

Thanks again to everyone that's responded, naturally I'm pretty new to this.
CrownVic,

1) No, it is not a toast up between Trad.401K and Roth 401K. Roth 401K is the wrong answer.

2) It has nothing to do with your current income tax rate now versus income tax rate a few years later. It has to do with your current income rate now versus when you retire and/or withdraw the money.

It takes 1 million in the tax-deferred account in order to generate 40K in withdrawal. Until and unless you have a lot more money in your tax-deferred account, there is no reason to look at Roth 401K at all.

Trad. 401K and Roth IRA is the best combination.

KlangFool
KlangFool,
I agree with all that you said.
But I would urge all to evaluate their own situation as two spouses each accruing a 401K of $750K + and also each getting a larger SS is easily possible and poses differing results. It will depend a bunch on how large your accounts will be when the RMD's are imposed so have a plan in place for the entire timeline and adjust as time goes by.
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FiveK
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Re: 401(k): Roth vs Non-Roth

Post by FiveK »

keystone wrote: Fri Aug 17, 2018 10:47 am
bloom2708 wrote: Fri Aug 17, 2018 9:21 am
FiveK wrote: Thu Aug 16, 2018 10:49 pm
CrownVic wrote: Thu Aug 16, 2018 12:32 pm Would it be any time your marginal tax rate is above the rate you would fall into once in retirement?
Yes.
Not such a firm "yes" in my mind.

If your marginal rate is 22% today. You pay 22% on all the dollars you put in Roth.

Let's fast forward and say you only withdraw those $18,500 35 years from now. If the tax brackets look somewhat similar, you fill up 0%, 12%, 14% first. None of your dollars taxed at 22% way back when did you pay 22% on, even if there is a 22% and up.

A very simplified version. You might have SS by then filling in those lower buckets. If you lock in paying 22 or 24% now, those dollars can't grow and we can't know what the rates will look like 30 years from now.
I might be misunderstanding what you're saying, but it looks like your answer is supporting "yes" to the question above.
Indeed it does. Remember that the original question was
CrownVic wrote: Thu Aug 16, 2018 12:32 pm At what point does a regular 401(k) make sense over a Roth 401(k)?
...
Would it be any time your marginal tax rate is above the rate you would fall into once in retirement?
so "yes" means zero dollars going into Roth.
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