Dwjdvm said:

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My work offers both a regular 401K and Roth 401K with matching that can go into either of them. I know the concepts between them, pre tax vs post tax, pay taxes now or pay taxes later. My original thought was doing the Roth, but I was hoping to get some of your opinions on which route you would choose and why. Thanks

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Dwjdvm said:

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Thanks for the heads up. The benefits person at my work said that the Roth match would go into the Roth account, but I will double check with the actual company it is with first.

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Dwjdvm said:

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I've had someone tell me this before, but I don't fully understand. My thought process is if I was going to put $500 in after tax, wouldn't it grow the same as $500 pre tax? Is it that most of the time it's decided on percentage so they are comparing $500 pre tax to $400 after tax?

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Dwjdvm said:

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I've had someone tell me this before, but I don't fully understand. My thought process is if I was going to put $500 in after tax, wouldn't it grow the same as $500 pre tax? Is it that most of the time it's decided on percentage so they are comparing $500 pre tax to $400 after tax?

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Stasco said:

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Premium said:

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Dwjdvm said:

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I've had someone tell me this before, but I don't fully understand. My thought process is if I was going to put $500 in after tax, wouldn't it grow the same as $500 pre tax? Is it that most of the time it's decided on percentage so they are comparing $500 pre tax to $400 after tax?

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Yeah, say you have $500 pretax dollars to work with - or $400 post-tax dollars.

Say that extra $100 gets to make you money for 30 years - say 7% for 30 years. Well, that turns into an EXTRA $700+. So even if you're taxed at a higher rate that $700 will easily cushion you against the higher rate.

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Try running the actual math. If your marginal tax rate is the same now as it will be when you retire, then the two options are equivalent. So the relevant question is, when will your marginal tax rate be lower? Now or when you retire.

Or did you really think that countless professional investment advisors were just too dumb to realize the Roth method is a ripoff?

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James09 said:

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Premium said:

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Stasco said:

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Premium said:

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Dwjdvm said:

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I've had someone tell me this before, but I don't fully understand. My thought process is if I was going to put $500 in after tax, wouldn't it grow the same as $500 pre tax? Is it that most of the time it's decided on percentage so they are comparing $500 pre tax to $400 after tax?

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Yeah, say you have $500 pretax dollars to work with - or $400 post-tax dollars.

Say that extra $100 gets to make you money for 30 years - say 7% for 30 years. Well, that turns into an EXTRA $700+. So even if you're taxed at a higher rate that $700 will easily cushion you against the higher rate.

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Try running the actual math. If your marginal tax rate is the same now as it will be when you retire, then the two options are equivalent. So the relevant question is, when will your marginal tax rate be lower? Now or when you retire.

Or did you really think that countless professional investment advisors were just too dumb to realize the Roth method is a ripoff?

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Then why would anyone use a 1031 Exchange? Isn't that the same concept? What I'm saying is, I'd rather pay taxes later.

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Stasco is exactly right. The growth on the money you didn't pay in taxes is negated by having to pay taxes on all of your gains. The math is pretty simple.
Using your example:
Assume the $100 grew into $700 after 30 years.
That means the other $400 would grow into $2800 over the same time period.
If you invest $400 in a Roth account, in 30 years you have $2800 and owe no taxes.
If you invest $500 in a pretax account, in 30 years you have $3500, but owe taxes.
If your marginal rate at retirement is the same as when the money went in (20%), you owe $700 in taxes and take home $2800.
If your marginal rates are the same, you end up with exactly the same take home. The tricky part is predicting what your marginal rate in retirement would actually be.

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GigEm81 said:

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The answer does depend on your circumstances. However, most people's tax rates are lower when they retire than when they are working. If you expect this will be the case for you, then you want to max out the regular 401K, then the Roth.

In fact the order for me would be (this assumes you have adequate emergency cash outside of investment funds):

HSA (if available to you. Triple tax free. Don't use for current health care expenses. Save for retirement health costs)
401K or traditional IRA
Roth 401k or Roth IRA
Taxable

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Ridge14 said:

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I think he's saying he needs to lower his income by contributing to traditional 401k to bring him below the roth ira phase out

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Stasco said:

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Premium said:

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Dwjdvm said:

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I've had someone tell me this before, but I don't fully understand. My thought process is if I was going to put $500 in after tax, wouldn't it grow the same as $500 pre tax? Is it that most of the time it's decided on percentage so they are comparing $500 pre tax to $400 after tax?

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Yeah, say you have $500 pretax dollars to work with - or $400 post-tax dollars.

Say that extra $100 gets to make you money for 30 years - say 7% for 30 years. Well, that turns into an EXTRA $700+. So even if you're taxed at a higher rate that $700 will easily cushion you against the higher rate.

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Try running the actual math. If your marginal tax rate is the same now as it will be when you retire, then the two options are equivalent. So the relevant question is, when will your marginal tax rate be lower? Now or when you retire.

Or did you really think that countless professional investment advisors were just too dumb to realize the Roth method is a ripoff?

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