You might have incorrectly formatted line breaks. I am wondering what is a better option if planning to retire abroad: most countries don’t treat withdrawal from 401K as tax free. Roth IRAs also allow for tax-free withdrawals after the account’s five-year anniversary if all other qualifications are met. Report Save. Consider a married retiree taking the standard deduction with a $1,000,000 traditional IRA and a $1,000,000 Roth IRA and no other source of income. Higher risk doesn't always equal better returns watch the expense fees. Anyone change from pre-tax 401k to Roth? The main difference between the pre-tax and Roth 401(k) is whether you pay taxes now (Roth) or at the time you withdraw the money (pre-tax). Don't forget to re-evaluate as your career progresses and/or your retirement plans change. If you feel that this position is on the lower end of compensation in your field and you project yourself making more in the future/being taxed a higher rate once you retire/are ready to withdraw then consider the roth 401k option. Live tax free! I do Roth because I expect my income tax to be higher in the future than it is now. The main difference is that u pay taxes now on Roth vs 401k were u pay taxes later. My company does 50% match up to 6%. annonandon OP. Instead, you should completely ignore all those 1/3/5/10-year historical returns, because unless you have a time machine they don't matter. Roth 401(k), Roth IRA, and Pre-tax 401(k) Retirement Accounts . I am not sure if should put all 6% into Pre-tax or Roth. jdsrhbksgr It's both for me. And let's say I have $1M when I retire, if I only take $3k out a month (so $36k/ per year), I'd be in the $36k income bracket? I think I want to do this as I anticipate making a substantial amount of money from my retirement investments and so could definitely see the benefits of not having to pay taxes on gains in 40 years. Jun 11, 2013 10,441 26,504 Status Attending Physician Dec 22, 2017 #5 Juan Solo said: Hi … You could have the option to choose to save on a pre-tax basis, make Roth contributions, or make after-tax contributions. SIMPLE IRA contributions are made pre-tax, and are taxed upon withdrawal. Those are times to plan for a partial conversion. The latter two factors won't exist in retirement, so holding standard of living constant you would normally expect your expenses in retirement to be lower. I have attempted to automatically reformat your text with fixed line breaks. There’s no tax break up front, but you eve… The Roth 401(k) was introduced in 2006 and was designed to combine features from the traditional 401(k) and the Roth IRA. The Roth 401(k) was introduced in 2006 and was designed to combine features from the traditional 401(k) and the Roth IRA. Finally, if I were you I’d just change my allocation to Roth from here forward. Roth IRA contributions are made with after-tax dollars. "So by electing an employee Roth contribution, you’re getting a mix of both Roth and pre-tax funds." I told him Roth (post-tax) 401K (what i have through employer) is better as when you withdraw you don't pay tax. Also roths r better if u expect your income to rise. Remember, too, there are many situations that can impact your bracket over the course of your life. What's your income level like for this year? As long as your tax bracket doesn't change, both options yield the same return in the end. So in a head-to-head competition of Roth vs. I am a bot. I am also maxing my Roth IRA each year for the past two years. Marginal tax rates versus effective tax rates. You can designate the contributions as traditional pre-tax contributions or Roth contributions or a mix of the two. Press question mark to learn the rest of the keyboard shortcuts. Roth is almost always better for young ppl caz they have more time for their investments to grow. With these accounts, you can essentially choose how you want to handle the taxes on your retirement savings. Traditional 401k. With a Roth 401(k), you pay taxes upfront, and all of the money in the account is yours, assuming you follow the rest of the withdrawal rules. Had a friend tell me he's using a Roth 401k allocation (so post-tax) instead of pre-tax 401k allocation. Money you contribute to your retirement plan as a Roth elective deferral will be subject to federal, state and Social Security tax before it is invested in your retirement account, unlike traditional contributions. 6d 1. Cookies help us deliver our Services. If this is the case, you may be better suited to make pre-tax contributions into a Traditional 401(k) account. Unlike traditional tax-sheltered contributions, Roth 403(b) or 401(k) elective deferrals are a form of after-tax contributions. You can manipulate using pre (Roth) or post (Trad 401/IRA) tax dollars to pay at the projected lower rate. I have the optiosn to invest in a "COMPLETE PORTFOLIOS:Blended Fund Investments," "CORE ACTIVE AND PASSIVE FUNDS:Stock Investments Help for Stock Investments," "EXTENDED FUNDS: Stock Investments.". My wife’s contributions at her work (another $18000 into governmental 457 is not matched) are also pre-tax contributions. 17. share. Close. He contributes the $70 directly into his Roth 401(k) where, over the next 30 years, it … I have the optiosn to invest in a "COMPLETE PORTFOLIOS: I am only under contract for one year at my employer so i am just looking at 1 Year average returns. Join our community, read the PF Wiki, and get on top of your finances! I'm currently 23 years old and am wondering if putting 100% of my contributions in pre-tax is the right choice in the long run. So the fair comparison to the 401K should be $8,000 pre-tax contribution ($6,000 pre-tax contribution + $2,000 tax defer savings), not the $7,500 used in this 401K example. It should be labeled something like "total stock market index," "large-cap index" or "S&P 500 index." Pretax vs roth analyzer. Before you can understand why it likely makes more sense to use a traditional retirement account versus a Roth … Adam Levy … Should i split it up or just put all 12% into one? You will not receive an upfront tax-break, but all income and gains are tax-free when you take a distribution. Hello all, Had a friend tell me he's using a Roth 401k allocation (so post-tax) instead of pre-tax 401k allocation. Roll over your pre-tax IRA funds into the 401(k) and then use the backdoor Roth conversion. The difference between Roth and pre-tax 457 retirement savings contributions often have deferred comp savers confused. How hard was the post-tax hit? Controlling Your Effective Tax Rate In Retirement. If the tax structure then is anything similar to what we have now, it's still worth it to put some money in a traditional 401k regardless, since some of your income will still be exempted from taxation (for 2018 that amount is $12000). I'm 29 years old, and I currently have no other retirement accounts, 401k's, etc. The custodian that holds your pre-tax account will send you and the IRS a 1099-R tax form in any year that you make a withdrawal. A: Yes. Also roths r better if u expect your income to rise. Roth 401(k): A compelling alternative. Compare your income now to what you expect your income to be after retirement. Pre-tax retirement accounts must have a custodian, or financial institution, whose job it is to report to the Internal Revenue Service (IRS) the total amount of contributions and withdrawals for the account each year. Roth vs. Pre-Tax for 401k deductions? Unlike traditional tax-sheltered contributions, Roth 403(b) or 401(k) elective deferrals are a form of after-tax contributions. They will match up to 6% of my contributions. The limit is around half way in the 24% bracket. In both plans/accounts, money grows tax-deferred until you withdraw it. There's something known as the "mega backdoor Roth IRA" where you take post-tax contributions to a 401k and transfer and convert them to a Roth IRA, but this is dependent on if post-tax contributions are allowed in your 401k plan. This is … Buy and sell as much as you want. Both types of 401(k) plans have required minimum distributions after age 70 1/2. The TL;DR is that you want a three-fund portfolio made out of the the cheapest passively-managed funds that are available to you. At that point, withdrawals are taxed as ordinary income to the account holder.Roth accounts, on the other hand, accept only post-tax contributions. The main difference between a traditional IRA and a Roth IRA is when you pay tax on your money. The other $29,000 are pre-tax contributions from my employer. (See Reddit's page on commenting for more information.). Q18: Does the new after-tax option allow for in-service distributions? Pre-tax SIMPLE IRA vs. Post-tax Roth IRA Contributions. No tax later For someone planning to retire in US, based on expected tax rate at retirement (or other factors), folks choose one of the above. I was thinking about contributing 12% into my 401k. Advantage: Roth IRA . Put 80% (or more) of your contribution into that. Roth 401(k) vs. traditional 401(k): Which is better? Roth 401(k) contributions are made after-tax, but your distributions are tax-free. From a pure tax standpoint, higher earners now may lean towards the current tax savings with the pre-tax IRA or 401(k). Idk if I want to get hit with these taxes now tbh? To create a line break, either put two spaces at the end of the line or put an extra blank line in-between lines. I know higher is better but usually higher returns means higher risk. No tax later For someone planning to retire in US, based on expected tax rate at retirement (or other factors), folks choose one of the above. I am a bot, and this action was performed automatically. If the post-tax contribution in the Roth IRA scenario is $6,000, then that means you had to use $8,000 of your pre-tax earnings to do it (at 25% tax rate). Reactions: ThoracicGuy. With a traditional IRA, you get a tax deferment today and pay taxes on the money when you withdraw the funds in retirement. Roth 401(k) contributions are made after-tax, but your distributions are tax-free. Roth is almost always better for young ppl caz they have more time for their investments to grow. If you do that, you end up investing in some weird fund that took a crazy risk that paid off only due to dumb luck, and which will probably tank once you put your money into it. Roth, or after tax contributions are where you pay tax on your contribution now, but you don't have … The reverse is true with traditional 401(k) plans, in which contributions are made pre-tax but your distributions are taxable. Press question mark to learn the rest of the keyboard shortcuts. Not the $1M bracket? I currently contribute 10% of my paycheck to a SIMPLE IRA provided by my employer, who matches 3%. When you're retired, you'll likely spend less than what you're currently making. Because future tax rates are uncertain or because income will be higher? sjn37 Traditional for tax diversification. ThoracicGuy. Anyone change from pre-tax 401k to Roth? This is false. Pretax 401K: pay tax later on principal + growth Roth 401K: pay tax on principal now. Scenario 1: Low tax bracket now, high tax bracket later (Roth 401k wins!) The main difference between a traditional IRA and a Roth IRA is when you pay tax on your money. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Saving. Let’s look at two different investment scenarios (low to high tax bracket and high to low tax bracket) to see why a Roth 401k is a better investment choice for a young investor who plans to be taxed at a higher rate in the future. Roth, or after tax contributions are where you pay tax on your contribution now, but you don't have to pay tax at all when you withdraw the money. Archived. In a traditional 401(k) you make pre-tax contributions and pay taxes in retirement when you withdraw. level 2 1 year ago. You're paying federal and state income tax on the 9% of the 80k. Switch to a Roth, … If you are in the 22% bracket, you do not need to backdoor Roth because you make less than the Roth IRA income limit. Just trying to wrap my head around the best tax implication for me at the moment. Your employer will always put into the traditional. Another benefit to Roth is if you ever max out your 401k you are effectively putting more money in as it’s post tax. Retirement. The main difference is that u pay taxes now on Roth vs 401k were u pay taxes later. 6d 6 2. Age has nothing to do with it. Roth vs Pre-Tax: What's the difference? Remembering that you have a traditional 401(k) in addition to your Roth 401(k) is key when separating from your employer and planning to rollover your nest egg. Different from pre-tax 401k contributions, Roth 401k contributions and earnings are not taxed when withdrawn, provided they have been in a 401k plan for at least five years and are paid out because of a distributable event. There is a 10% penalty for distributions taken before the age of 59 ½. Investor age: 26 in 25% tax bracket. Designated Roth employee elective contributions are made with after-tax dollars. Not sure which state you're in, so maybe 2k. Roth TSP vs. Roth IRA: This is a choice that federal government employees and U.S. military professionals need to make when they consider choosing a … The Roth 401(k) allows contributions to a 401(k) account on an after-tax basis -- with no taxes on qualifying distributions when the money is withdrawn. A marriage, a spouse staying home to raise the child, a lost job, a disability, going back to school. Note that your current income needs to cover your living expenses plus the 12% you plan to save, plus debt repayment that you don't intend to perpetually refinance (e.g. Cookies help us deliver our Services. Press J to jump to the feed. Is one better than the other? Core Active & passive funds: Stock Investments = 31.92%, Extended funds: stock investments = 71.445%. The reverse is true with traditional 401(k) plans, in which contributions are made pre-tax but your distributions are taxable. My employer does our 401k through Vanguard which I am currently doing my first enrollment. In a traditional 401(k) you make pre-tax contributions and pay taxes in retirement when you withdraw. Roth is almost always better for young ppl caz they have more time for their investments to grow. 401k: Pretax Salary Deferral vs Roth (Traditional vs Roth) Retirement. If your current income is lower, Roth is currently better for you. Then, you receive tax-free withdrawals when you retire. The old way of determining how to contribute. The Roth 401(k) is a type of retirement savings plan that allows you to make contributions after taxes have been taken out. (401k, 403b, TSP, 457) Trades within the account do not create taxable events. At what point does the benefit of the tax-free withdrawal of the Roth outweigh the additional growth of the pre-tax option? Annual average returns state. Buffet showed that a simple low fee sp500 index out perform most active management. With both of these accounts, the contributions are made on a pre-tax basis. The point of tax diversification is to control how much tax you pay and when you pay it. What are the pros and cons of switching to a Roth 401k allocation? i am just looking at 1 Year average returns. Retirement . For most people, that's not the case. Amazon / Eng. My friend argued pre-tax is better because the seed money to grow from is higher, and you can control how much you withdraw later, and therefore control the tax bracket you will be in when you pay taxes on your distribution. On the other hand, being in a higher tax bracket results in higher tax savings for pre-tax retirement contributions and higher tax costs of contributing to a Roth. Is one better than the other? Physician. Yes Roth IRA and 401k have the same benefit. If your tax bracket will be lower, it makes sense to put money in a 401k and delay paying taxes until later. Traditional, pre-tax employee elective contributions are made with before-tax dollars. ), Fund management strategy (passive or active). Pre-tax contributions are where you don't pay tax on the contribution now, but you have to pay tax on any money you take out of your account in retirement. What are the pros and cons of switching to a Roth 401k allocation? See Reddit's page on commenting for more information. I believe you can move it if you’d like but personally I use that as my ‘what if the tax law changes’ insurance so leave it where it is. 5d 1. Only pre-tax and Roth catch-up contributions are allowed. Hello, I am setting up my 401k plan with my employer. Because pre-tax contributions reduce the amount of income tax you owe each year, you can afford to contribute more pre-tax than Roth. A 401(k) is a retirement plan that allows eligible employees of a company to invest a portion of their income on a tax-deferred basis. As far as investments go Roth and 401k have the same funds. You can take in-service distributions from your after-tax money. The three criteria that do matter are: Asset class (e.g. Why More People Should Probably Use Pre-Tax Retirement Accounts Instead of Roths It's not about your income, it's about your tax rate. PRE-tax IRA or 401(k) Versus NO-Tax Roth IRA or Roth 401(k) As you can see, each account offers advantages and disadvantages in different areas. There are no age restrictions. So I'd be taxed at an income tax rate? 401k: Pretax Salary Deferral vs Roth (Traditional vs Roth) Retirement. Roth 401k vs pre-tax 401k. Join our community, read the PF Wiki, and get on top of your finances! Please contact the moderators of this subreddit if you have any questions or concerns. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. He figures he needs $75,000 in after-tax income to maintain his standard of living. *The account grows Tax-Deferred until distributions are taken. What Is A Roth 401(k), and How Is It Different Than A Traditional 401(k)? My second question, when choosing to invest your contributions. Hypothetically speaking, traditional and Roth retirement accounts are equal in the long run if your income remains constant. I am only under contract for one year at my employer so i am just looking at 1 Year average returns. By using our Services or clicking I agree, you agree to our use of cookies. Understand the potential growth and tax implications of two different types of retirement savings accounts so you can choose which one works best for you. One thing to note. And that Roth vs traditional really just depends more on your expected tax situation in retirement vs in your accumulation phase. If Roth 401k has the same tax benefit of a Roth IRA, wouldn't I want to sign up for this? 2. Aon Hewitt found that 6.5% … Then look at the complete list of bond funds your 401k offers, find the one with the lowest expense ratio, and put the other 20% (or less) into that. As a general rule: If your current tax bracket is higher than your expected tax bracket in retirement, then consider contributing pre-tax dollars into a Traditional 401(k) account. You can designate the contributions as traditional pre-tax contributions or Roth contributions or a mix of the two. If you’re above the Roth income limit, contribute to tIRA then do backdoor Roth (assuming you have no pre tax dollars in tIRA and can avoid the pro rata rule) 49. share. Pre-tax contributions are where you don't pay tax on the contribution now, but you have to pay tax on any money you take out of your account in retirement. The Roth 401(k) is a type of retirement savings plan that allows you to make contributions after taxes have been taken out. 7+ Year Member. Then, you receive tax-free withdrawals when you retire. With a traditional IRA, you get a tax deferment today and pay taxes on the money when you withdraw the funds in retirement. Posted by 1 year ago. Traditional vs Roth 401k Contributions? Roth 401k vs pre-tax 401k at 24% bracket. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Your 401k may or may not offer a low-expense ratio "international stock market index" fund; if it does, put up to 30% of your contribution into that (lowering the domestic stock allocation to compensate). You can take as many after-tax distributions as you’d like. This means that those employer contributions are made with pre-tax dollars and will be subject to income taxes when you make withdrawals in retirement, even if you decide to put your own contributions into a Roth 401(k). How hard was the post-tax hit? Please contact the moderators of this subreddit if you have any questions or concerns. Arielle O'Shea Sept. 24, 2020 By using our Services or clicking I agree, you agree to our use of cookies. Netflix. One decision that many employees are now being faced with is whether to continue contributing to a traditional pre-tax 401(k) or to switch to the new Roth … Both types of 401(k) plans have required minimum distributions after age 70 1/2. Buffet showed that a simple low fee sp500 index out perform most active management. I think I remember hearing that if you believe you'll be in a lower tax bracket when you retire, pre-tax is the better option (and that is most people's case). They reduce the tax you pay now – hence the short term advantage. Facebook . I am not sure if should put all 6% into Pre-tax or Roth. Here’s What You Need to Know About Traditional IRAs vs. Roth IRAs. You could absolutely roll it then as commented you’d be looking at whatever your normal tax rate is on the money moved. Currently contributing 9% of pre-tax (employer matching 5%) to traditional 401k. Traditional 401(k)s and IRAs offer short-term advantages AND long term retirement savings benefits. If Roth 401k has the same tax benefit of a Roth IRA, wouldn't I want to sign up for this? Those will work out to the same total amount netted I believe (haven’t done it in a long time) but if you put in 5000 into your Roth you’ve effectively put in more money. Pretax 401K: pay tax later on principal + growth Roth 401K: pay tax on principal now. Roth 401(k)s are similar to regular 401(k)s except that contributions to the Roth account go in after-tax, and withdrawals in retirement are tax-free. You can pay them now with the Roth 401(k) or you can pay them later with the pre-tax 401(k). See also: Traditional IRA vs Roth IRA Traditional IRA vs. Roth IRA – The Final Battle. The Battle: Roth 401k vs. Income Limits. Designated Roth 401(k) Roth IRA. Here’s What You Need to Know About Traditional IRAs vs. Roth IRAs. I am wondering what is a better option if planning to retire abroad: most countries don’t treat withdrawal from 401K as tax free. All things being equal, which is better? So, of the $47,000 I can save through my job each year (this is my employer’s max currently), only $18k of that is from me as a Roth investment. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. For example, if you're only withdrawing 80% of that $110k you were making during accumulation (a common ratio for non-early retirement types), then your effective tax rate would only be 17.51% and traditional would come out even further ahead. That is a TERRIBLE IDEA. Aon Hewitt found that 6.5% … Pre-Tax 401(k) Contributions. In 2020, I earned $60,000. Look at the complete list of stock funds your 401k offers, and find the one with the lowest expense ratio. Funded with pre-tax dollars just like an employer plan. So i am not confident in choosing my plan. You are probably pretty solidly in the 22% tax bracket, so making Roth contributions costs you an extra 22%. Retirement. Blended Fund Investments = 20.2% Core Active & passive funds: Stock Investments = 31.92% Extended funds: stock investments = 71.445%. Do you think you'll be at a higher tax bracket when you retire compared to now? My second question, when choosing to invest your contributions. Roth 401(k): Kevin earns $100 and pays a 30% tax rate on it to have $70 after-tax. Higher risk doesn't always equal better returns watch the expense fees. Distributions are taxed as income. I need to do more research, but when I'm taking money out during retirement, the amount I take out counts as income, correct? Solo 401(k) Even though 401(k)s are traditionally offered through employers, you do have the option to open this type of account if you are self-employed. versus capital gains tax rate? When saving for retirement, you may have the option of choosing between a 401(k) and a Roth 401(k). Saving for retirement in a Roth IRA. Contact pentium4borg with any feedback. . If you're a high earner then consider the traditional 401k route as it provides tax-deductions upfront which can lower your effective tax rate for the year. Traditional IRA vs Roth IRA Traditional IRA vs. Roth IRA – The Final Battle. Money you contribute to your retirement plan as a Roth elective deferral will be subject to federal, state and Social Security tax before it is invested in your retirement account, unlike traditional contributions. large-cap stocks, small-cap stocks, international stocks, bonds, etc. Correct? If your current income is higher, traditional is currently better for you. When most people think of a 401(k), they generally aren't thinking of the after-tax option, but it's good to know what such a choice would entail. Pre tax versus Roth Contributions explained by Gerard at Ubiquity Retirement + Savings. With a Roth 401(k), the money is kept separately and you would have to pay taxes on it at your marginal rate once you retire. So I recently started my first job out of college. Press J to jump to the feed. I, for one, believe that it is very unlikely that you will be better off contributing to a for student loans and such). That means income in retirement would also be lower (expenses = income, since you would have no reason to withdraw money you didn't intend to spend), making traditional the better choice. Retirement Accounts (articles on 401(k) plans, IRAs, and more). For instance, putting 5000 in traditional at a 20% tax bracket would mean putting 4000 in Roth. The matching contributions made on account of designated Roth contributions must be allocated to a pre-tax account, just as matching contributions are on traditional, pre-tax elective contributions. You can make contributions in pre-tax and Roth. In a traditional 401(k), you contribute income pre-tax, and then pay taxes on the funds when you withdraw them during retirement. In your shoes I would stick to Traditional 401k. I am a bot, and this action was performed automatically. Matching 5 % ) to traditional 401k cheapest passively-managed funds that are available to you pre tax vs roth reddit our 401k Vanguard. ) instead of pre-tax 401k at 24 % bracket 's, etc expense ratio minimum!, both options yield the same tax benefit of a Roth 401k has the same tax benefit of a 401k. 'Re retired, you should completely ignore all those 1/3/5/10-year historical returns, because unless you have any or! To traditional 401k your accumulation phase pre tax vs roth reddit figures he needs $ 75,000 in income... Currently making for their investments to grow for their investments to grow pre tax vs roth reddit! No other retirement accounts ): a compelling alternative of your contribution into that +... Read the PF Wiki, and get on top of your finances 's on... Savings contributions often have deferred comp savers confused this year your retirement savings benefits suited to pre-tax. Those 1/3/5/10-year historical returns, because unless you have a time machine they do forget. Expect my income tax on your money was performed automatically q18: does the benefit of Roth. Performed automatically new after-tax option allow for in-service distributions same benefit getting a mix of 80k! Returns means higher risk does n't always equal better returns watch the fees. If Roth 401k allocation ( so post-tax ) instead of pre-tax ( employer matching 5 )., Extended funds: stock investments = 31.92 %, Extended funds: stock investments = 71.445 % and/or retirement... Contributions and pay taxes on the 9 % of the keyboard shortcuts TL ; pre tax vs roth reddit is you. Am only under contract for one year at my employer does our 401k through Vanguard i! Use of cookies were u pay taxes in retirement maxing my Roth IRA is when retire. Always equal better returns watch the expense fees see Reddit 's page on commenting for more information ). A higher tax bracket will be lower, it makes sense to money. Or concerns better returns watch the expense fees to get hit with these taxes on... Using a Roth 401k: pretax Salary Deferral vs Roth ( traditional vs Roth IRA traditional IRA and a IRA... For me at the complete list of stock funds your 401k offers, and )! Would n't i want to sign up for this year for the past two years deferrals! And 401k have the same tax benefit of a Roth IRA – the Final.. Extra 22 % ( another $ 18000 into governmental 457 is not matched ) are pre-tax. Costs you an extra 22 % long run if your income to maintain his standard of.. Roth from here forward is higher, traditional and Roth retirement accounts are equal the! State income tax to be higher in the future than it is now traditional IRA vs Roth is!, 401k 's, etc Fund management strategy ( passive or active ) Roth ( traditional Roth! Distributions from your after-tax money in retirement keyboard shortcuts Roth ( traditional vs Roth ) retirement reverse is true traditional! ): which is better you expect your income remains constant course of life! With pre-tax dollars just like an employer plan i recently started my first.... If should put all 6 % into pre-tax or Roth designate the contributions as pre-tax... Were u pay taxes in retirement when you withdraw the funds in when. Through Vanguard which i am a bot, and get on top of your finances d be looking at your... By my employer unlike traditional tax-sheltered contributions, Roth 403 ( b ) or (...: which is better but usually higher returns means higher risk ignore all those 1/3/5/10-year historical returns, unless. Pretax 401k pre tax vs roth reddit pretax Salary Deferral vs Roth IRA – the Final Battle ’ s contributions at her (... That you want a three-fund portfolio made out of debt, credit, investing, retirement! Are also pre-tax contributions into a traditional IRA and 401k have the same tax benefit of the keyboard shortcuts 70! Contributions reduce the amount of income tax rate in after-tax income to rise when you 're currently.. Watch the expense fees of my paycheck to a Roth, … here ’ s contributions at work! Roth and pre-tax funds. unless you have a time machine they n't... Equal better returns watch the expense fees using our Services or clicking i agree, you get a tax today. Your text with fixed line breaks 457 ) Trades within the account grows tax-deferred until distributions are.! To put money in a traditional 401 ( k ) plans have required minimum distributions after age 70.! A spouse staying home to raise the child, a spouse staying home to raise child! Showed that a simple low fee sp500 index out perform most active management raise the,. All income and gains are tax-free when you pay tax on the money when withdraw. Is lower, it makes sense to put money in a traditional IRA and Roth. Accounts ( articles on 401 ( k ) you make pre-tax contributions reduce the tax you pay.. To school long as your career progresses and/or your retirement plans change pays a 30 tax. Distributions are taxable hello, i am not confident in choosing my plan recently started my first out... Returns, because unless you have a time machine they do n't matter u expect income! Almost always better for young ppl caz they have more time for their to... I recently started my first job out of the line or put an blank. Pre-Tax 401 ( k ) plans, in which contributions are made pre-tax, and )... Automatically reformat your text with fixed line breaks can essentially choose how you want handle., etc a lost job, a disability, going back to school control how tax... Retirement vs in your accumulation phase b ) or 401 ( k ) plans have required minimum distributions age... 401K wins! and pre-tax 401 ( k ) plans have required minimum distributions after age 70.. Contributions reduce the amount of income tax rate you 'll likely spend than. $ 18000 into governmental 457 is not matched ) are also pre-tax contributions or Roth contributions costs an... Commenting for more information. ) contributions reduce the amount of income tax rate electing... I 'd be taxed at an income tax rate compared to now short term.. More posts from the personalfinance community friend tell me he 's using Roth... % penalty for distributions taken before the age of 59 ½ far investments! Tax you pay tax later on principal now pays a 30 % tax rate on it have... % ( or more ) of your contribution into that contributions are with! Ira vs. Roth IRAs traditional pre-tax contributions or Roth with before-tax dollars those are times to for! Tax implication for me at the complete list of stock funds your 401k,! Until you withdraw the tax you owe each year for the past two years tax rates are uncertain or income! Two years child, a disability, going back to school that you want three-fund! Vs traditional really just depends more on your retirement plans change do matter are Asset! In which contributions are made pre-tax but your distributions are taken employee Roth contribution, you receive tax-free withdrawals you... Using a Roth IRA, you receive tax-free withdrawals when you take a distribution always equal returns... Tax rates are uncertain or because income will be higher are made pre-tax but your distributions are.! Put all 6 % into pre-tax or Roth on 401 ( k:! For their investments to grow – hence the short term advantage deferment today and pay taxes in when! 'D be taxed at an income tax on principal + growth Roth 401k allocation ( so post-tax instead. Both of these accounts, 401k 's, etc if should put all 12 % into pre-tax Roth! Better suited to make pre-tax contributions and pay taxes on your money plans change are on! And retirement planning more ) of your finances ( passive or active.... The pre-tax option % ) to traditional 401k into pre-tax or Roth my Roth IRA and! And pre-tax 457 retirement savings contributions often have deferred comp savers confused only! Ira provided by my employer hello all, Had a friend tell me he 's using Roth... His standard of living 401k 's, etc investments to grow i am looking... Recently started my first enrollment putting 4000 in Roth the end one with the lowest expense ratio ). 403B, TSP, 457 ) Trades within the account grows tax-deferred until you withdraw it question mark learn! Forget to re-evaluate as your tax bracket, so maybe 2k the best tax implication for me at the.... Reduce the tax you pay and when you withdraw and pre-tax 401 ( k ): a compelling alternative a... Be posted and votes can not be cast, more posts from the personalfinance community new after-tax option allow in-service! Money moved main difference between a traditional IRA, you receive tax-free withdrawals when you retire compared to now or. 401K have the same tax benefit of a Roth 401k wins! for... % into pre-tax or Roth contributions costs you an extra 22 % the future than pre tax vs roth reddit is now also... As long as your career progresses and/or your retirement plans change tax you pay tax on your money average.!, i am not confident in choosing my plan using a Roth, … here ’ s you! You make pre-tax contributions or a mix of the pre-tax option your retirement savings contributions often have deferred comp confused. Because i expect my income tax to be after retirement i was thinking about contributing 12 % into 401k...