Traditional vs Roth 401k/IRA - which do you have?

[texanchris]

Usually when I switch employers I alternate between putting money in a Roth 401k and Traditional 401K. When I leave, I rollover the funds into one of my IRA’s. Dont really feel one is significantly more beneficial than the other so just curious on which one you guys primarily prefer.

[nutsy54]

ROTH is enormously more beneficial in the long run. When it comes time to withdraw, the vast majority of the balance will be interest... which isn't taxed when withdrawing from a ROTH. With a traditional, you're paying tax.

ROTH whenever possible. Small tax hit today, huge tax-free results in the future.

[IronFelix13]

ROTH is enormously more beneficial in the long run. When it comes time to withdraw, the vast majority of the balance will be interest... which isn't taxed when withdrawing from a ROTH. With a traditional, you're paying tax.

ROTH whenever possible. Small tax hit today, huge tax-free results in the future.

OMG, you get me so hot when you talk financial planning.

[SouthDakotaBrah]

If you have a 30-40% marginal income tax rate (anyone earning $100k+) Traditional > Roth, although the IRA is an exception because the income limit for deducting contributions to a traditional IRA is like ~$75k or something (where you can't even take full advantage of the tax deduction because your marginal tax rate is so low). For that reason, Roth IRA almost always makes more sense than Traditional IRA.

When it comes to the 401k, Traditional > Roth. If you put $22,500 into a Traditional 401k, you receive ~$8,000 back in tax credit (which can then be "put towards" your Roth IRA contribution for the year). 35% return in year 1 (compounded over the next 30 years) is more valuable than the Roth tax advantage when it comes time to withdraw

Ideally, you want both Traditional and Roth savings for retirement. You can withdraw from the Traditional savings until you reach the first major income tax ladder (~40-50k for a single person) and then withdraw from Roth savings for the rest. And obviously an HSA (counts as Roth savings) to hedge against future medical expenses.

[jafomofo]

ROTH is enormously more beneficial in the long run. When it comes time to withdraw, the vast majority of the balance will be interest... which isn't taxed when withdrawing from a ROTH. With a traditional, you're paying tax.

ROTH whenever possible. Small tax hit today, huge tax-free results in the future.

this is incorrect. roth vs traditional depends on when you will have a lower tax bracket, now or in retirement. If you are a high wage earner today and expect to be drawing down a modest amount against your 401k in retirement then a traditional makes more sense. If you are at parity then roth or either.

i have both.

[Cudabrah]

The advantage in the $$$ available in retirement is purely based upon the tax rate at deposit vs the tax rate at withdrawal.

If your tax rate is higher now, traditional is better (pay tax at withdrawal). If your tax rate is lower now, Roth is better (pay the tax now).

The Roth does have the advantage of being able to withdraw the contributions penalty free prior to retirement.

[newtothesite]

this is incorrect. roth vs traditional depends on when you will have a lower tax bracket, now or in retirement. If you are a high wage earner today and expect to be drawing down a modest amount against your 401k in retirement then a traditional makes more sense. If you are at parity then roth or either.

i have both.

Is the fuking money for a traditional pre-tax then? Otherwise, you'd be contributing money that has already been taxed only to get taxed again down the road whereas with the fuking Roth, it doesn't get taxed in retirement.

[jafomofo]

Is the fuking money for a traditional pre-tax then? Otherwise, you'd be contributing money that has already been taxed only to get taxed again down the road whereas with the fuking Roth, it doesn't get taxed in retirement.

yes, contributions to a traditional 401K are pre-tax contributions. its also a useful way to get yoru taxable income down if you are close to a lower bracket.

[newtothesite]

yes, contributions to a traditional 401K are pre-tax contributions. its also a useful way to get yoru taxable income down if you are close to a lower bracket.

I was asking about contributions to a traditional IRA. I'm sorry if I wasn't clear with my question. I know that Roth contributions are on money that has already been taxed, then it is tax free when you withdraw after the appropriate age. I was wondering about traditional IRA contributions.

[texanchris]

Thanks brahs!

I was asking about contributions to a traditional IRA. I'm sorry if I wasn't clear with my question. I know that Roth contributions are on money that has already been taxed, then it is tax free when you withdraw after the appropriate age. I was wondering about traditional IRA contributions.

I could be wrong but I believe you get a tax form at the end of the year showing that you contributed $XXXX amount to your traditional IRA and it’s deducted when you file

[CanardMedic]

No idea if one is truly better than the other in the long run.

[iloveus]

[SaviorSelfJT]

If you have a traditional 401k, don't rollover into a traditional IRA if you plan on doing backdoor IRA in the future (look up the 'pro rata' rule)

[guest89]

I don't have either. My job provides me with a pension. I contribute 6% per year they contribute 6%. Depending on how many years I put into it I get a percent of my salary on retirement. If I were to quit my job prior to being able to retire (20 year minumum). Then my money goes into a 401K and it was essentially a 401K with employer match. I have a regular brokerage account that I manage myself on the side.




I'm not a fan of traditional investing/retirement options. The main thing that discouraged me was penalties for early withdrawal. With a 401k and ROTH IRA you can't withdraw without penalties until 59.5 years old.

I'm on track to retire mid to late 40s. At 36 years old I only have another 8 to go. If I decide to work longer. It'll only be because I choose to and I want to build a great deal more wealth before hanging it up for good.



I recognize the benefit of using an employer match 401K. And the benefits of a ROTH. I just have no desire to be dependent on employers/employment until I'm 60.

[SouthDakotaBrah]

I don't have either. My job provides me with a pension. I contribute 6% per year they contribute 6%. Depending on how many years I put into it I get a percent of my salary on retirement. If I were to quit my job prior to being able to retire (20 year minumum). Then my money goes into a 401K and it was essentially a 401K with employer match. I have a regular brokerage account that I manage myself on the side.




I'm not a fan of traditional investing/retirement options. The main thing that discouraged me was penalties for early withdrawal. With a 401k and ROTH IRA you can't withdraw without penalties until 59.5 years old.

I'm on track to retire mid to late 40s. At 36 years old I only have another 8 to go. If I decide to work longer. It'll only be because I choose to and I want to build a great deal more wealth before hanging it up for good.



I recognize the benefit of using an employer match 401K. And the benefits of a ROTH. I just have no desire to be dependent on employers/employment until I'm 60.

You can use your brokerage account as a "bridge" from 45 years old (assumed early retirement age) to 60 years old (when you can start withdrawing from the 401k). That way you still get the massive tax benefit provided by a traditional 401k (33% return the first year which then compounds for the next 30 years, insanely valuable benefit if you avoid withdrawing before 60/65) which will pay off big time once you do come of age. The amount you need in your brokerage account to retire at 45 years old will also be relatively low, as you won't need enough money to last you for life, just enough to last you until you can start withdrawing penalty-free from your retirement accounts.


If you put $22,500 into a Traditional 401k today, and you have a 33% marginal tax rate, that is $7,425 received in the form of cash which can then be invested in VTI in your brokerage account. 30 years later, the tax benefit from one year of maxing out the traditional 401k becomes ~$75,000. If you plan it right, you can still retire early at the same age, but end up with a lot more money thanks to these tax benefits compounding over time (to the tune of several million dollars - for free, assuming you don't need 100% of your stocks to be liquid prior to 60)

[taperedtam]

Usually when I switch employers I alternate between putting money in a Roth 401k and Traditional 401K. When I leave, I rollover the funds into one of my IRA’s. Dont really feel one is significantly more beneficial than the other so just curious on which one you guys primarily prefer.

for a while, i was doing both, at a 50/50 split. now i solely do roth. like that you can sell without having to pay taxes. makes switching positions easier