[quote=plm]So for me I should stick with my traditional 401K. I never got good financial advice when I was starting out. Did 401K but just the minimum to get the company match. And my money just went into a checking account instead of investing in stocks. Oh, well I should have time to catch up but its painful to make up for financial mistakes in the past.
Its probably better to get good financial advice than chasing a larger salary. Kind of like all those star athletes that make millions but wind up broke.[/quote]
There is a lot of (or used to be) debates on the vanguard forums about this…Roth 401k or Regular…
I’m a believer in regular myself. For people making a decent salary, taking the tax hit now and forcing paying taxes at your “marginal” (read highest) rate isn’t the best thing IMO.
Most people with decent careers are in the 28% bracket. Add in 10% or so (or more now with those healthcare ones) for state and 40-50% is gone if you are doing a Roth 401k based on income.
The cases where a Roth 401k does make sense is when you know in retirement, you will be making even more or will always be at the super high tax bracket or have a massive pension or some special executive retirement plan.
However, my reasons for not doing this is you never know what the future holds.
I can play with my tax rate in retirement…if things change, I can withdraw more some years or 0 some other years…if I do really well now, I can take a few years off and do IRA conversions every year or volunteer, start a business, you name it…
As someone who has taken time off and done multiple Roth conversions, I think this option is the best since it can actually become tax free as well (very very low income, massively high deductions from mortgage/prop tax).
If the worst case happens where your regular IRA is MASSIVE and you now have millions in retirement, you can just be glad you have such an insane amount. Another option is if you start a company, you can probably roll your regular IRA into the company plan YOU setup and see what makes more sense for you like some deferred plans execs can setup for themselves…
Bottom line is paying your top marginal rate now is just usually not a good idea.
Gov loves it I think…
… that and who knows, they might tax Roth’s as well.
