Roth IRA vs Traditional

[Raybyrnes]

As soon as my employer provided the Option for the Roth 401K I went all in with respect to that option. I still have some previous 401K tat I never rolled over simply because the employer offered a very good plan that had a bunch of institution mutual funds I could not get into as an individual investor.

LesBaer
I am missing why the amount you are going to build up or the safety of your job would make a difference on the decision to go with the Roth 401k or the Traditional 401K.

These facts may impact whether you elect to contribute or not but they shouldn’t have any impact on the which to contribute too.

I am not criticizing but would like to get a better understanding of how these would somehow pencil into the decision making process.

To me this is the question. “How do I optimize my savings account.” The first consideration is the mix of funds. Does my plan have funds worth investing in. 2 Are they offering any type of match. 3 what are the long term tax implications. 4 Liquidity. What happens if I absolutely must get to this money 5 Estate planning. If I do not end up needing this money (not the case right now) how doe each pass to my heirs.

What am I missing.

[an]

Like Raybyrnes, I went all in w/ the Roth 401k when it was offered to me. I guess it really depend on how old you are. If you’re in your late 20s/early 30s and have 30 years before you retire, even if all you put in is $15k, the growth being tax free makes a huge deal in my eye. If you make an average of 8% every year over the next 30 years,that $15k will grow to $151k. With a Roth, assuming you’re paying around 35-40% in come tax right now, you’re paying a total of $9000-$9750 in taxes. If you went with a traditional 401k, assume it grows that the same 8% and the total is $151k in 30 years and your tax rate is at 10% 30 years from now, you still have to pay ~$15k in taxes. So, it’s a no-brainer for me. If they do change the way they deal w/ Roth, I’ll worry about it then. But I don’t believe they will do it. It’s much more likely that they stop allowing contribution to it, but to change the way they tax Roth is unlikely in my eyes.

[an]

Like Raybyrnes, I went all in w/ the Roth 401k when it was offered to me. I guess it really depend on how old you are. If you’re in your late 20s/early 30s and have 30 years before you retire, even if all you put in is $15k, the growth being tax free makes a huge deal in my eye. If you make an average of 8% every year over the next 30 years,that $15k will grow to $151k. With a Roth, assuming you’re paying around 35-40% in come tax right now, you’re paying a total of $9000-$9750 in taxes. If you went with a traditional 401k, assume it grows that the same 8% and the total is $151k in 30 years and your tax rate is at 10% 30 years from now, you still have to pay ~$15k in taxes. So, it’s a no-brainer for me. If they do change the way they deal w/ Roth, I’ll worry about it then. But I don’t believe they will do it. It’s much more likely that they stop allowing contribution to it, but to change the way they tax Roth is unlikely in my eyes.

[an]

Like Raybyrnes, I went all in w/ the Roth 401k when it was offered to me. I guess it really depend on how old you are. If you’re in your late 20s/early 30s and have 30 years before you retire, even if all you put in is $15k, the growth being tax free makes a huge deal in my eye. If you make an average of 8% every year over the next 30 years,that $15k will grow to $151k. With a Roth, assuming you’re paying around 35-40% in come tax right now, you’re paying a total of $9000-$9750 in taxes. If you went with a traditional 401k, assume it grows that the same 8% and the total is $151k in 30 years and your tax rate is at 10% 30 years from now, you still have to pay ~$15k in taxes. So, it’s a no-brainer for me. If they do change the way they deal w/ Roth, I’ll worry about it then. But I don’t believe they will do it. It’s much more likely that they stop allowing contribution to it, but to change the way they tax Roth is unlikely in my eyes.

[an]

Like Raybyrnes, I went all in w/ the Roth 401k when it was offered to me. I guess it really depend on how old you are. If you’re in your late 20s/early 30s and have 30 years before you retire, even if all you put in is $15k, the growth being tax free makes a huge deal in my eye. If you make an average of 8% every year over the next 30 years,that $15k will grow to $151k. With a Roth, assuming you’re paying around 35-40% in come tax right now, you’re paying a total of $9000-$9750 in taxes. If you went with a traditional 401k, assume it grows that the same 8% and the total is $151k in 30 years and your tax rate is at 10% 30 years from now, you still have to pay ~$15k in taxes. So, it’s a no-brainer for me. If they do change the way they deal w/ Roth, I’ll worry about it then. But I don’t believe they will do it. It’s much more likely that they stop allowing contribution to it, but to change the way they tax Roth is unlikely in my eyes.

[an]

Like Raybyrnes, I went all in w/ the Roth 401k when it was offered to me. I guess it really depend on how old you are. If you’re in your late 20s/early 30s and have 30 years before you retire, even if all you put in is $15k, the growth being tax free makes a huge deal in my eye. If you make an average of 8% every year over the next 30 years,that $15k will grow to $151k. With a Roth, assuming you’re paying around 35-40% in come tax right now, you’re paying a total of $9000-$9750 in taxes. If you went with a traditional 401k, assume it grows that the same 8% and the total is $151k in 30 years and your tax rate is at 10% 30 years from now, you still have to pay ~$15k in taxes. So, it’s a no-brainer for me. If they do change the way they deal w/ Roth, I’ll worry about it then. But I don’t believe they will do it. It’s much more likely that they stop allowing contribution to it, but to change the way they tax Roth is unlikely in my eyes.

[Coronita]

[quote=Raybyrnes]flu

I don’t agree with the the thought process that the government is going to claw back at the Roth but if this were the logic used than it would be an acceptable reason to go with the Traditional. Similarly if someone were to argue that they thought taxes would actually be lower (i don’t agree with this ) than that too would be an acceptable reason.

My beef is that when they say they are savings person money by going with the Traditional, that is where I have to raise the Bullshit flag. Based on the scenarios they not only are NOT saving their clients money they are costing them money and even after putting it on spread sheet for one they still didn’t get it.

My take is that you have button ushers who can input the data but have no real understanding of the actual products.[/quote]

Fair enough…Actually, I don’t think we’re in disagreement here, because I think we both thinking from the perspective that both our tax rates and actual tax bills due post retirement are most likely going to be higher later versus now.

My point was I’m doing the half/half split because while ideally I’d like to believe that all gains from a Roth IRA will be tax free in the future, I can’t count on this government to keep it’s word.
So that’s why I’m doing sort of the middle approach to see which one shakes out, part tax deferral, part roth. I guess the is also the possibility of being screwed both ways, kinda like the getting hit by a car and then run over by a bus…But oh well… I also save/invest a good portion of after tax dollars in other things too.

Side issue for me also, there was also the small “hurt” of funding a roth401k fully for the first 3-4 of months… I’d get a bi-weekly net paycheck of like $10 after all the deductions from it and every other deferral plan I had!…The first 3-4 months of each year is always much tighter for me the then remaining of the year, just because all the deductions happen for me up front, and some of our other deferral plans don’t release assets/dollars until the middle of the year.

[Coronita]

[quote=Raybyrnes]flu

I don’t agree with the the thought process that the government is going to claw back at the Roth but if this were the logic used than it would be an acceptable reason to go with the Traditional. Similarly if someone were to argue that they thought taxes would actually be lower (i don’t agree with this ) than that too would be an acceptable reason.

My beef is that when they say they are savings person money by going with the Traditional, that is where I have to raise the Bullshit flag. Based on the scenarios they not only are NOT saving their clients money they are costing them money and even after putting it on spread sheet for one they still didn’t get it.

My take is that you have button ushers who can input the data but have no real understanding of the actual products.[/quote]

Fair enough…Actually, I don’t think we’re in disagreement here, because I think we both thinking from the perspective that both our tax rates and actual tax bills due post retirement are most likely going to be higher later versus now.

My point was I’m doing the half/half split because while ideally I’d like to believe that all gains from a Roth IRA will be tax free in the future, I can’t count on this government to keep it’s word.
So that’s why I’m doing sort of the middle approach to see which one shakes out, part tax deferral, part roth. I guess the is also the possibility of being screwed both ways, kinda like the getting hit by a car and then run over by a bus…But oh well… I also save/invest a good portion of after tax dollars in other things too.

Side issue for me also, there was also the small “hurt” of funding a roth401k fully for the first 3-4 of months… I’d get a bi-weekly net paycheck of like $10 after all the deductions from it and every other deferral plan I had!…The first 3-4 months of each year is always much tighter for me the then remaining of the year, just because all the deductions happen for me up front, and some of our other deferral plans don’t release assets/dollars until the middle of the year.

[Coronita]

[quote=Raybyrnes]flu

I don’t agree with the the thought process that the government is going to claw back at the Roth but if this were the logic used than it would be an acceptable reason to go with the Traditional. Similarly if someone were to argue that they thought taxes would actually be lower (i don’t agree with this ) than that too would be an acceptable reason.

My beef is that when they say they are savings person money by going with the Traditional, that is where I have to raise the Bullshit flag. Based on the scenarios they not only are NOT saving their clients money they are costing them money and even after putting it on spread sheet for one they still didn’t get it.

My take is that you have button ushers who can input the data but have no real understanding of the actual products.[/quote]

Fair enough…Actually, I don’t think we’re in disagreement here, because I think we both thinking from the perspective that both our tax rates and actual tax bills due post retirement are most likely going to be higher later versus now.

My point was I’m doing the half/half split because while ideally I’d like to believe that all gains from a Roth IRA will be tax free in the future, I can’t count on this government to keep it’s word.
So that’s why I’m doing sort of the middle approach to see which one shakes out, part tax deferral, part roth. I guess the is also the possibility of being screwed both ways, kinda like the getting hit by a car and then run over by a bus…But oh well… I also save/invest a good portion of after tax dollars in other things too.

Side issue for me also, there was also the small “hurt” of funding a roth401k fully for the first 3-4 of months… I’d get a bi-weekly net paycheck of like $10 after all the deductions from it and every other deferral plan I had!…The first 3-4 months of each year is always much tighter for me the then remaining of the year, just because all the deductions happen for me up front, and some of our other deferral plans don’t release assets/dollars until the middle of the year.

[Coronita]

[quote=Raybyrnes]flu

I don’t agree with the the thought process that the government is going to claw back at the Roth but if this were the logic used than it would be an acceptable reason to go with the Traditional. Similarly if someone were to argue that they thought taxes would actually be lower (i don’t agree with this ) than that too would be an acceptable reason.

My beef is that when they say they are savings person money by going with the Traditional, that is where I have to raise the Bullshit flag. Based on the scenarios they not only are NOT saving their clients money they are costing them money and even after putting it on spread sheet for one they still didn’t get it.

My take is that you have button ushers who can input the data but have no real understanding of the actual products.[/quote]

Fair enough…Actually, I don’t think we’re in disagreement here, because I think we both thinking from the perspective that both our tax rates and actual tax bills due post retirement are most likely going to be higher later versus now.

My point was I’m doing the half/half split because while ideally I’d like to believe that all gains from a Roth IRA will be tax free in the future, I can’t count on this government to keep it’s word.
So that’s why I’m doing sort of the middle approach to see which one shakes out, part tax deferral, part roth. I guess the is also the possibility of being screwed both ways, kinda like the getting hit by a car and then run over by a bus…But oh well… I also save/invest a good portion of after tax dollars in other things too.

Side issue for me also, there was also the small “hurt” of funding a roth401k fully for the first 3-4 of months… I’d get a bi-weekly net paycheck of like $10 after all the deductions from it and every other deferral plan I had!…The first 3-4 months of each year is always much tighter for me the then remaining of the year, just because all the deductions happen for me up front, and some of our other deferral plans don’t release assets/dollars until the middle of the year.

[Coronita]

[quote=Raybyrnes]flu

I don’t agree with the the thought process that the government is going to claw back at the Roth but if this were the logic used than it would be an acceptable reason to go with the Traditional. Similarly if someone were to argue that they thought taxes would actually be lower (i don’t agree with this ) than that too would be an acceptable reason.

My beef is that when they say they are savings person money by going with the Traditional, that is where I have to raise the Bullshit flag. Based on the scenarios they not only are NOT saving their clients money they are costing them money and even after putting it on spread sheet for one they still didn’t get it.

My take is that you have button ushers who can input the data but have no real understanding of the actual products.[/quote]

Fair enough…Actually, I don’t think we’re in disagreement here, because I think we both thinking from the perspective that both our tax rates and actual tax bills due post retirement are most likely going to be higher later versus now.

My point was I’m doing the half/half split because while ideally I’d like to believe that all gains from a Roth IRA will be tax free in the future, I can’t count on this government to keep it’s word.
So that’s why I’m doing sort of the middle approach to see which one shakes out, part tax deferral, part roth. I guess the is also the possibility of being screwed both ways, kinda like the getting hit by a car and then run over by a bus…But oh well… I also save/invest a good portion of after tax dollars in other things too.

Side issue for me also, there was also the small “hurt” of funding a roth401k fully for the first 3-4 of months… I’d get a bi-weekly net paycheck of like $10 after all the deductions from it and every other deferral plan I had!…The first 3-4 months of each year is always much tighter for me the then remaining of the year, just because all the deductions happen for me up front, and some of our other deferral plans don’t release assets/dollars until the middle of the year.

[Raybyrnes]

FLU
Just be careful if your company has some sort of match, that you are not over fuding early in the year. If a company has for instance a 6% match, ideally your final paychack of the year will be the one that gets you to 15500 with that matching contribution.

I work in sales so paychecks can be all over the map. I made the mistake of overfunding one year and it cost me a couple of thousand. Will never make that mistake again.

[Raybyrnes]

FLU
Just be careful if your company has some sort of match, that you are not over fuding early in the year. If a company has for instance a 6% match, ideally your final paychack of the year will be the one that gets you to 15500 with that matching contribution.

I work in sales so paychecks can be all over the map. I made the mistake of overfunding one year and it cost me a couple of thousand. Will never make that mistake again.

[Raybyrnes]

FLU
Just be careful if your company has some sort of match, that you are not over fuding early in the year. If a company has for instance a 6% match, ideally your final paychack of the year will be the one that gets you to 15500 with that matching contribution.

I work in sales so paychecks can be all over the map. I made the mistake of overfunding one year and it cost me a couple of thousand. Will never make that mistake again.

[Raybyrnes]

FLU
Just be careful if your company has some sort of match, that you are not over fuding early in the year. If a company has for instance a 6% match, ideally your final paychack of the year will be the one that gets you to 15500 with that matching contribution.

I work in sales so paychecks can be all over the map. I made the mistake of overfunding one year and it cost me a couple of thousand. Will never make that mistake again.

[Author]

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