401k or Roth 401k

[benchmark]

I have an option to do either 401k or Roth 401k or both. I'm curious if anyone has gone through the analysis on the tipping point (income/tax-rate)?

[racemize]

well, it largely depends on tax rates going in and going out.

 

However, you can put more effective money in the Roth if you max it out.  So on an apples to apples rate basis, if you can afford the max Roth, it is better.

[muscleman]

I think Eric can provide you a great guidance.

I remember one thing he said was that you can contribute "more" for Roth 401k, because the money you put in is already taxed. So choose Roth if you want to contribute more for retirement.

 

Another factor is moving. If you want to save money when you are in a low or no tax state and retire in a high tax state, then Roth is the choice.

 

I am using pre-tax because I think life is already hard now.  ::)

[tede02]

I think your age also matters. Generally speaking, the Roth makes less sense if you're in your fifties for example (and vice versa).  If If you have a lot of time to compound (again, generally speaking), the Roth is probably the better option. 

[bookie71]

Don't forget that the "tax" in a non Roth grows and after several years will give you more after paying the tax than you would have had with a Roth.  You can set up a fairly easy spread sheet and it will show you the difference.

 

[Guest longinvestor]

Relative to the regular Roth, the higher contribution limits in the 401K (or 403b or 457) is the biggest advantage. In my case, I can put in $24000 into the Roth 401K versus the $6500 into the regular Roth. Past age 70, I would like to have much of my networth in the Roth. Of course Roth conversions are available as well. 

 

It is a bummer that the best thing I can invest in the 401K Roth is an index fund (not a calamity), while the Roth IRA can be invested as I please.

[Jurgis]

Like racemize says, it depends on the tax rates going in and out. It also depends on how good are you in growing your 401k. If you grow 10-20% year, you're likely end up with huge portfolio and very high marginal tax rate even on minimal required withdrawals (oh tough problem to have ;) ) if you go traditional.

 

There's something nagging in my mind about Roth 401k, but I can't remember what it was. Maybe it's nothing...

Edit: maybe I was concerned on how well Fidelity (our 401k/Roth 401k provider) manages the separation of 401k/Roth 401k money. I.e. if I contribute to Roth 401k, will it go into separate account/bucket or will it be mixed and I'd have to keep numbers myself. Anyone with experience in that? Currently I only have traditional 401k monies.

 

I'll paste couple links that raise some questions - though some of these were mentioned here already:

 

https://thefinancebuff.com/case-against-roth-401k.html

 

http://whitecoatinvestor.com/some-more-thoughts-on-roth-401k-contributions/

[Guest longinvestor]

I think your age also matters. Generally speaking, the Roth makes less sense if you're in your fifties for example (and vice versa).  If If you have a lot of time to compound (again, generally speaking), the Roth is probably the better option.

 

Single best thing 20-somethings could do for their out years. Max out your Roth & pile up $50k+ by age 30! 

[benchmark]

I think Eric can provide you a great guidance.

I remember one thing he said was that you can contribute "more" for Roth 401k, because the money you put in is already taxed. So choose Roth if you want to contribute more for retirement.

 

Another factor is moving. If you want to save money when you are in a low or no tax state and retire in a high tax state, then Roth is the choice.

 

I am using pre-tax because I think life is already hard now.  ::)

 

It is confusing -- the IRS says that  you can contribute max of $18000 for Roth 401k -- if that's after tax, then you are contributing $26000 before tax money assuming 30% tax rate.

[benchmark]

Like racemize says, it depends on the tax rates going in and out. It also depends on how good are you in growing your 401k. If you grow 10-20% year, you're likely end up with huge portfolio and very high marginal tax rate even on minimal required withdrawals (oh tough problem to have ;) ) if you go traditional.

 

There's something nagging in my mind about Roth 401k, but I can't remember what it was. Maybe it's nothing...

Edit: maybe I was concerned on how well Fidelity (our 401k/Roth 401k provider) manages the separation of 401k/Roth 401k money. I.e. if I contribute to Roth 401k, will it go into separate account/bucket or will it be mixed and I'd have to keep numbers myself. Anyone with experience in that? Currently I only have traditional 401k monies.

 

I'll paste couple links that raise some questions - though some of these were mentioned here already:

 

https://thefinancebuff.com/case-against-roth-401k.html

 

http://whitecoatinvestor.com/some-more-thoughts-on-roth-401k-contributions/

 

We only have Vanguard index funds in 401k, so growing at 10% is almost impossible :(

[Jurgis]

It is confusing -- the IRS says that  you can contribute max of $18000 for Roth 401k -- if that's after tax, then you are contributing $26000 before tax money assuming 30% tax rate.

That's addressed in http://thefinancebuff.com/roth-401k-for-people-who-contribute-max.html

[Jurgis]

We only have Vanguard index funds in 401k, so growing at 10% is almost impossible :(

 

Right. Some people have 401ks that are like brokerage accounts.

[fareastwarriors]

We only have Vanguard index funds in 401k, so growing at 10% is almost impossible :(

 

Right. Some people have 401ks that are like brokerage accounts.

 

You're lucky if you're plan have Vanguard index funds and/or other cheap index funds because most plans have terrible choices with super expensive funds. My friend is paying like 90 basis points for a S&P 500 index fund at his company and that's the cheapest option available...