Roth 401K vs Traditional 401K

[ThankYouJack]

Can you use Excel?

If not, taxcaster could also help - https://turbotax.intuit.com/tax-tools/c ... taxcaster/

Any of the Tax estimation tools listed there could be used, but only one provides an Automated marginal rate chart. For the others, it may take much more work (calculate taxes one step at a time and then calculate the marginal rates "by hand") but it can be done if Excel is not available.

How does the automated marginal rate chart work? I see the Tax Rates worksheet in the toolbox but that doesn't seem to do much.

For the other tools, the OP could increase / decrease the 401k by $100 and look at the difference in taxes to figure out their marginal rate.

[cosmos]

in 2026 high earners over 50 will have their catch up contributions in roth 401k and be ineligible to dump it all in their primary 401k (the catch up portion). That is likely how I will end up with my first Roth anything while still working.

[FiveK]

Can you use Excel?

If not, taxcaster could also help - https://turbotax.intuit.com/tax-tools/c ... taxcaster/

Any of the Tax estimation tools listed there could be used, but only one provides an Automated marginal rate chart. For the others, it may take much more work (calculate taxes one step at a time and then calculate the marginal rates "by hand") but it can be done if Excel is not available.

How does the automated marginal rate chart work? I see the Tax Rates worksheet in the toolbox but that doesn't seem to do much.

It's on the 'Calculations' tab.
Some places to look for help with that:
- The first ~30 rows of the "Instructions" tab
- The Using a spreadsheet section of the Roth conversion wiki.
- Roth Conversion with Social Security and Medicare IRMAA
- Roth Conversion and Capital Gains On ACA Health Insurance

To look at 401k contributions instead of Roth conversion amounts, change cell Calculations!G107 to contain "B11" (w/o quotes) and click the "Update chart" button.

Does that help?

[FiveK]

Can you use Excel?

If not, taxcaster could also help - https://turbotax.intuit.com/tax-tools/c ... taxcaster/

Any of the Tax estimation tools listed there could be used, but only one provides an Automated marginal rate chart. For the others, it may take much more work (calculate taxes one step at a time and then calculate the marginal rates "by hand") but it can be done if Excel is not available.

For the other tools, the OP could increase / decrease the 401k by $100 and look at the difference in taxes to figure out their marginal rate.

Yes, Kelly, that is what you would have to do if not using the Excel tool. To look at $0-$10K for traditional 401k contributions that way would take 100 different entries and 99 calculations of (difference in tax)/$100 to get the marginal rates. You could cut that to 10 entries and 9 calculations by using $1000 steps, possibly at the cost of blurring some details.

[KellyInBaconville]

Yes, thank you!

Can you use Excel?

If not, taxcaster could also help - https://turbotax.intuit.com/tax-tools/c ... taxcaster/

Any of the Tax estimation tools listed there could be used, but only one provides an Automated marginal rate chart. For the others, it may take much more work (calculate taxes one step at a time and then calculate the marginal rates "by hand") but it can be done if Excel is not available.

How does the automated marginal rate chart work? I see the Tax Rates worksheet in the toolbox but that doesn't seem to do much.

It's on the 'Calculations' tab.
Some places to look for help with that:
- The first ~30 rows of the "Instructions" tab
- The Using a spreadsheet section of the Roth conversion wiki.
- Roth Conversion with Social Security and Medicare IRMAA
- Roth Conversion and Capital Gains On ACA Health Insurance

To look at 401k contributions instead of Roth conversion amounts, change cell Calculations!G107 to contain "B11" (w/o quotes) and click the "Update chart" button.

Does that help?

[ThankYouJack]

Can you use Excel?

If not, taxcaster could also help - https://turbotax.intuit.com/tax-tools/c ... taxcaster/

Any of the Tax estimation tools listed there could be used, but only one provides an Automated marginal rate chart. For the others, it may take much more work (calculate taxes one step at a time and then calculate the marginal rates "by hand") but it can be done if Excel is not available.

How does the automated marginal rate chart work? I see the Tax Rates worksheet in the toolbox but that doesn't seem to do much.

It's on the 'Calculations' tab.
Some places to look for help with that:
- The first ~30 rows of the "Instructions" tab
- The Using a spreadsheet section of the Roth conversion wiki.
- Roth Conversion with Social Security and Medicare IRMAA
- Roth Conversion and Capital Gains On ACA Health Insurance

To look at 401k contributions instead of Roth conversion amounts, change cell Calculations!G107 to contain "B11" (w/o quotes) and click the "Update chart" button.

Does that help?

Yes, that helps and will save me some time -- thank you!

[KellyInBaconville]

It will also turn the credit into a savers match.
https://www.kiplinger.com/taxes/savers- ... vers-match

in 2026 high earners over 50 will have their catch up contributions in roth 401k and be ineligible to dump it all in their primary 401k (the catch up portion). That is likely how I will end up with my first Roth anything while still working.

[cosmos]

It will also turn the credit into a savers match.
https://www.kiplinger.com/taxes/savers- ... vers-match

in 2026 high earners over 50 will have their catch up contributions in roth 401k and be ineligible to dump it all in their primary 401k (the catch up portion). That is likely how I will end up with my first Roth anything while still working.

Oh interesting, would have loved that in the early 90s when I started working (the govt match that is).

[KellyInBaconville]

I decided to open the Roth 401k. I have limited index funds to choose from.
SP 500 VINIX, er .035, I have this in the traditional 401k.

Balanced Fund VBAIX er .06
Small cap VSIIX er .006
Mid Cap VMCIX er .04
International VTSNX er .09

[HMSVictory]

I like the Roth option up to the top of the 24% bracket for my situation. Yours may be different.

The ONLY way to make these calculations with some degree of accuracy is to use retirement planning software like NewRetirement.

You will still have to make some return and future tax rate assumptions but you can then model different options and conversions in retirement.

[ruralavalon]

Your employer's plan offers some excellent stock index funds, you are fortunate .

Vanguard Institutional Index I (a S&P 500 index fund) (VINIX) ER 0.035% is an excellent choice for investing in U.S. stocks.

Does the plan offer any bond funds?

I decided to open the Roth 401k. I have limited index funds to choose from.
SP 500 VINIX, er .035, I have this in the traditional 401k.

Balanced Fund VBAIX er .06
Small cap VSIIX er .006
Mid Cap VMCIX er .04
International VTSNX er .09

Does your employer's plan permit you to use different funds in the Roth sub-account than the funds you use in the traditional sub-account? There is some advantage to using only stock funds in Roth accounts.

In my case, for simplicity I use only Vanguard Balanced Index Fund (VBIAX) ER 0.07% in all accounts.

What is your tax bracket, both federal and state?

What is your desired asset allocation (preferred stock/bond mix, and preferred domestic/international stock mix)?

What is your age, and about how long until expected retirement? What have you done during past stock market crashes? How would you describe your risk tolerance?

What other accounts do you have and what funds do you use in your other accounts?

[KellyInBaconville]

Here’s my update portfolio.
We are in the 12% bracket.
viewtopic.php?t=400619
Those are the index funds. The other 20 are active managed.
There is VBTIX bond,er .035
I can contribute to both!
The only thing is being 7-9 years from retirement, is there enough time to build it up.
Currently I’m putting 20% in traditional 401k.
I was thinking splitting it 10% into each.
They match .50 up to 9% of salary.

Your employer's plan offers some excellent stock index funds, you are fortunate .

Vanguard Institutional Index I (a S&P 500 index fund) (VINIX) ER 0.035% is an excellent choice for investing in U.S. stocks.

Does the plan offer any bond funds?

I decided to open the Roth 401k. I have limited index funds to choose from.
SP 500 VINIX, er .035, I have this in the traditional 401k.

Balanced Fund VBAIX er .06
Small cap VSIIX er .006
Mid Cap VMCIX er .04
International VTSNX er .09

Does your employer's plan permit you to use different funds in the Roth sub-account than the funds you use in the traditional sub-account? There is some advantage to using only stock funds in Roth accounts.

In my case, for simplicity I use only Vanguard Balanced Index Fund (VBIAX) ER 0.07% in all accounts.

What is your tax bracket, both federal and state?

What is your desired asset allocation (preferred stock/bond mix, and preferred domestic/international stock mix)?

What is your age, and about how long until expected retirement? What have you done during past stock market crashes? How would you describe your risk tolerance?

What other accounts do you have and what funds do you use in your other accounts?

[the_wiki]

At 12% tax rate, I would do Roth.

With traditional, you are only saving 12% tax now. That’s basically the bottom, so you can’t really be in a significantly lower bracket later. The tax savings isn’t there.

[ruralavalon]

Does your employer's plan permit you to use different funds in the Roth sub-account than the funds you use in the traditional sub-account? There is some advantage to using only stock funds in Roth accounts.

What is your desired asset allocation (preferred stock/bond mix, and preferred domestic/international stock mix)?

Vanguard Total Bond Market Index Fund Institutional (VBTIX) is an excellent fund to use for a bond allocation.

Vanguard Total International Stock Index Fund Institutional (VTSNX) is an excellent fund to use for an international stock allocation.

Vanguard Institutional Index I (a S&P 500 index fund) (VINIX) ER 0.035% is an excellent choice for investing in U.S. stocks.

[Church Lady]

Some of us practice tax diversification by having both Roth and Traditional 401k accounts. The idea is that future tax policy and future tax rates are unknowable. We can't know today what the optimal policy would have been ten or twenty years into the future. IF tax rates increase a lot by the time you need the money, Roth accounts will have been a good choice. If in future we abandon income tax in favor of VAT or national sales tax, or if income tax rates are cut drastically when you need to withdraw the money, Roth contributions will be the worst choice we could have made. Today we can't know what will happen. So we do both kinds of accounts.

People speak as if it is an all or nothing decision. It's not Unless your employer is whacko, you can split your 401k contribution between both types of accounts. It doesn't have to be 50/50. It can be whatever split makes sense to you.

As things stand today, tax rates are increasing at the end of 2025 when the TCJA of 2017 expires. It may make sense to contribute to your Roth 401K until the end of 2025. Then re-evaluate your choices.

I don't know if anyone has been morbid enough to mention this, but you and your spouse won't be filing status MFJ forever. You may divorce , or one of you may die . Then your or your spouse's tax rate, under current law, will increase big time. Now may be a good time to pay some tax. Future unknowable and all that! Just saying!

Here is what I did. When my employer introduced a Roth 401K, I contributed a nominal amount to get the five year clock going. After a few years, I saw that RMD tax bomb looming. I then split my contribution so that I stayed in the 25% tax bracket while contributing to the Roth account. The year I retired, I contributed all to the Roth account because I was retiring early in the year.

Good luck!

[amdmaxx]

https://www.youtube.com/watch?v=2lRrTzanMbU&t=1s

[KellyInBaconville]

Yes, as far as I know.
So far 70/30, a tad of international.
Here is our stuff.


Me 58, still working
DW 67, retired, drawing SS.
Tax bracket
Fed-12%
State-5.93%
House-$27000 @ 4.5%

Brokerage-Joint
Our savings, dividends go to core account.
Walmart- $54,069.55
SPAXX-$19,387.69
FSKAX- total US market Index- $12,595.91

My tIRA
Dividends reinvested.
FXNAX-Bond-$9,128.80
FZILX-International-$9,883.23
FZROZ- total US market- $37,131.92

My 401K
Company match of .50 up to 9% of salary, I'm contributing 20%.
VBTIX-index Bond- $47,152.71
VINIX- SP 500 Index- $149,356.94

My ESOP- $4,726.06


DW Rollover IRA
All dividends are going to core account SPAXX.
Company Stock- $55,474.64, sold half of it.
FXNAX- Bond index-$92,075.60
FXAIX- SP 500- $252,657.72
SPAXX- core account- $59,776.97

Does your employer's plan permit you to use different funds in the Roth sub-account than the funds you use in the traditional sub-account? There is some advantage to using only stock funds in Roth accounts.

What is your desired asset allocation (preferred stock/bond mix, and preferred domestic/international stock mix)?

Vanguard Total Bond Market Index Fund Institutional (VBTIX) is an excellent fund to use for a bond allocation.

Vanguard Total International Stock Index Fund Institutional (VTSNX) is an excellent fund to use for an international stock allocation.

Vanguard Institutional Index I (a S&P 500 index fund) (VINIX) ER 0.035% is an excellent choice for investing in U.S. stocks.

[KellyInBaconville]

Our numbers are here.

viewtopic.php?t=400619

Without knowing your exact numbers, I would go with the deductible 401(k).

[FiveK]

Our numbers are here.

viewtopic.php?t=400619

Without knowing your exact numbers, I would go with the deductible 401(k).

Unfortunately, we (and you?) are missing some numbers that matter: your marginal tax saving rates over the range from $0 to the largest traditional 401k contribution you could make.

To get those, what is needed are estimates for other income streams separated by type:
- interest, non-qualified dividends, and short term capital gains
- qualified dividends and long term capital gains
- gross SS benefit
- W-2 box 1, assuming no traditional 401k contributions.

With those, it would be best if you could generate your marginal rate chart, or perhaps someone else will do it for you.