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Finance experts: Traditional 401k or a roth 401k

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Goldy

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@flyangler and others.  Im interested in hearing your opinions. 
 

traditional 401k or a roth 401k.    Ive been doing a roth 401k at my current job for 10+ years but im not sure if that is the right decision.    Post tax vs pre tax.    But at 59.5 i can withdrawal tax free.   Well thats all well and good but what if my tax rate is lower then.  
 

my first part of my career i dont even think anyone offered roth 401k so i would say i have 12+ yrs with traditional. 
 

curious what others think and what others are doing. 

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Roth contributions are always a great path, tax free income at retirement, especially if you have a state income tax.  Sometimes a traditional contribution can place in a lower tax bracket, but my thoughts are creating tax free buckets of income during retirement years is critical.   In addition, Roths are not subject to required minimum distributions (RMD's).

 

Also, different subject, are you contributing to an HSA, if eligible?  Consider it a medical IRA to pay for medical expenses during retirement on a tax free basis, plus this is a deduction from current income.

Edited by cartopper

"Starving dogs begging for scraps. The big picture is not important as long as we can get our scraps."
 

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1 hour ago, Kml said:

Your tax rate should be lower by the time you start drawing from the Roth.

Herein lies the rub.  Should.  

 

@Goldy this is a subject near and dear and one I've beaten up pretty good in the last year, and much like the taste great less filling argument, there is no one size fits all answer.

 

I look at my historic income over the last 20 years, and save a few outliers, it's been pretty consistent and I expect my expenses to track similarly.  Point being, I expect to remain in a similar tax bracket for quite some time, and, we don't know how those brackets might change in the next 30 years.

 

I only started funding a roth 401k in 2018 or 2019, and added separate IRA's (funded from savings) for me and my wife last year.

 

I love roth's, but truth told, don't know if I would have funded them as aggressively as I did my 401k years ago based on the deferral aspect.  In this case hindsight isn't clear, for me.  

 

I'll continue to fund my roth's and might, perhaps maybe, convert a little, so that I have 3 buckets to manipulate during retirement.  Trad 401k for taxable income and roth and savings for tax free.  throw social security in as a 4th, but that's not for 13 years.

 

taht's my thought process.  

 

My CPA, who's a friend since 1986, doesn't suggest roth's or conversion.  He's a fairly high earner, and fully funds his deferral accounts, to save tax.  He's a Cpa and they are by default, wired to delay tax.  who's right?

 

 

 

 

#otterlivesmatter

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I am not a fan of the Roth myself, I believe my overall tax burden will be less in retirement.

 

I do have a small account, I started it when I was employed by someone who offered nothing.

 

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I’m not a financial expert but for me being able to contribute pretax allows me to invest more money now then post tax. Hopefully that extra money growing for decades will be more than the future tax burden. 

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1 hour ago, Kings over Queens said:

 

 

My CPA, who's a friend since 1986, doesn't suggest roth's or conversion.  He's a fairly high earner, and fully funds his deferral accounts, to save tax.  He's a Cpa and they are by default, wired to delay tax.  who's right?

 

 

 

 

No offense, but I'm gonna go with the CPA over the Insurance guy.  

 

 

"all of jase's posts are valid." -Otter

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2 hours ago, Kml said:

Your tax rate should be lower by the time you start drawing from the Roth.

 

That is my point... if my tax rate is lower, Roth doesn't sound right.  

 

1 hour ago, Kings over Queens said:

Herein lies the rub.  Should.  

 

@Goldy this is a subject near and dear and one I've beaten up pretty good in the last year, and much like the taste great less filling argument, there is no one size fits all answer.

 

I look at my historic income over the last 20 years, and save a few outliers, it's been pretty consistent and I expect my expenses to track similarly.  Point being, I expect to remain in a similar tax bracket for quite some time, and, we don't know how those brackets might change in the next 30 years.

 

I only started funding a roth 401k in 2018 or 2019, and added separate IRA's (funded from savings) for me and my wife last year.

 

I love roth's, but truth told, don't know if I would have funded them as aggressively as I did my 401k years ago based on the deferral aspect.  In this case hindsight isn't clear, for me.  

 

I'll continue to fund my roth's and might, perhaps maybe, convert a little, so that I have 3 buckets to manipulate during retirement.  Trad 401k for taxable income and roth and savings for tax free.  throw social security in as a 4th, but that's not for 13 years.

 

taht's my thought process.  

 

My CPA, who's a friend since 1986, doesn't suggest roth's or conversion.  He's a fairly high earner, and fully funds his deferral accounts, to save tax.  He's a Cpa and they are by default, wired to delay tax.  who's right?

 

 

 

 

Yeah.. the real question is who is right and who is wrong... 

Can we fund both?  I don't even know the answer.. My Accountant says to do Roth 401k, but who the F really knows... I can't see my tax rate being higher when I retire or plan to retire...  I mean who has a higher tax rate when they retire?  Let's say I'm in the 30+ federal married. (hypothetically) but I would assume I would be in the 20's when I retire.. so I'm paying the higher now on the Roth 401k.   

 

 

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1 hour ago, z-man said:

I’m not a financial expert but for me being able to contribute pretax allows me to invest more money now then post tax. Hopefully that extra money growing for decades will be more than the future tax burden. 

I'm confused with this statement.  Aren't the limits the same for 401K Roth vs traditional?

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2 mins ago, Goldy said:

I'm confused with this statement.  Aren't the limits the same for 401K Roth vs traditional?

I’m not referring to the limits I’m referring to how much money I can afford to put into a retirement fund. The pre tax money is money I would never see as it would be given to the IRS. 

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5 mins ago, JaseB said:

No offense, but I'm gonna go with the CPA over the Insurance guy.  

No offense,  I don't care.  

 

Point is, there is no right or wrong answer.  If you disagree, I'd be interested in seeing the math.

 

I think, my opinion, the choice between deferral v roth is steeped in emotion, and I'll share the discussion I had with Peter, my cpa, on this very point.

 

Me:  I like the idea of choking the government out of all that tax on the growth that's going to accumulate over the next number of years.

 

Him:  I like the idea of choking the government out of all that tax on income today.  

 

who's right?

#otterlivesmatter

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8 mins ago, Goldy said:

That is my point... if my tax rate is lower, Roth doesn't sound right.  

 

Yeah.. the real question is who is right and who is wrong... 

Can we fund both?  I don't even know the answer.. My Accountant says to do Roth 401k, but who the F really knows... I can't see my tax rate being higher when I retire or plan to retire...  I mean who has a higher tax rate when they retire?  Let's say I'm in the 30+ federal married. (hypothetically) but I would assume I would be in the 20's when I retire.. so I'm paying the higher now on the Roth 401k.   

You can fund both, subject to income limits.  

 

does your company match your 401k roth contribution?  If so, that part (the match) is most likely going into a deferral account.  You should check.

 

 

#otterlivesmatter

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5 hours ago, Goldy said:

@flyangler and others.  Im interested in hearing your opinions. 
 

traditional 401k or a roth 401k.    Ive been doing a roth 401k at my current job for 10+ years but im not sure if that is the right decision.    Post tax vs pre tax.    But at 59.5 i can withdrawal tax free.   Well thats all well and good but what if my tax rate is lower then.  
 

my first part of my career i dont even think anyone offered roth 401k so i would say i have 12+ yrs with traditional. 
 

curious what others think and what others are doing. 

Roth is only what you put in, what your company matches is traditional so lets say you are 50/50 comapny and you. you leave that employes and transfer your 401K to lets say Vanguard. What you put in ROTH and what they put in will be split into a tradiditonal (granted you can pay the tax and convert it

Edited by Sandflee

If you try to change it, you will ruin it. Try to hold it, and you will lose it.

 

Lao Tzu, Tao Te Ching

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