If you have both options, do you use Roth 401k or Traditional 401k? Why? It seems to me like the typical advice gets this wrong so just wondering if I'm the only one seeing it. Or if I'm crazy.

Roth.

I use both but put the weight of my % into traditional for the tax cut. I put about 5% into Roth because I'm only 3 years in and I better be a higher tax bracket later in life

If you're just starting out, the Roth is better since you are likely paying tax at a lower rate than when you retire. Plus, those savings have even more time to continue to grow those sweet, sweet tax-free earnings. However, if you're a Partner making bank, and you plan to retire fairly modestly, then the Roth isn't a good option for you. Take the tax savings while you're paying a higher rate of tax. If you really don't know, do 50/50. It's nice to have options when you retire.

Tax * Principle * Interest = Principle * Interest * Tax Traditional 401k/IRA: Magic 8 ball says your taxes will be lower in the future Roth: You don't give a fuck and don't want to be bothered with act of dealing with taxes in the future Dollar cost avg between both: you're conservative/prudish/boring and don't ever get laid

^ One other argument I've heard for traditional is increased cash flow during high-spend years of life. Is an interesting way to look at it if that's your lifestyle.

Most people in this industry aspire to being high-income high net worth people (evidence in posts). We don't know what the future tax rates will be but it's probably a safe bet that you won't be living on social security. You will have a lifestyle you will want to maintain that will put you in a higher tax bracket. Paying now could be a really smart choice for later if you are young and make some good investments.

Disagree. The income tax is not taken out of the brokerage account, leaving the Roth with more and the Traditional with less. Its an annual filing on all income the same as any year. Assuming the same income tax rate, the max contribution of $18k, as a portion of your total income, will be taxed the exact same amount in both Roth and Traditional and leave you with the same value. Neither pay any cap gains, both account for the same income tax burden.

I do both - it's a matter of paying tax now or later - there are arguments for both - don't give up company match tho - so understand all the options

Agreed A3 but I would go further. Back of the envelope, with a 5% nominal annual return and ~30 year horizon the breakeven point is a solid 14-point tax rate differential i.e. If your tax rate won't fall by at least 14 percentage points between now and retirement, you're leaving money on the table with traditional.

Do Roth when you are starting out, it phases out for high income individuals as you move up the ladder then Traditional becomes your only option

OP, the sole benefit of 401k/IRAs is being shielded from Capital Gains Tax. And both can have the same $18k/$5.5k contribution that are equally shielded from cap gains. The illusion you are seeing (More in a Roth) is from Income Tax, however, it is and illusion. The order of your variables does not matter: Income Tax * Principle * Interest = Principle * Interest * Income Tax. In both cases the value is the same, the only variable is the unknown future Income Tax rate.

^Both Roth and Traditional 401k /IRA***

Roth. You'll hopefully be at a much higher tax bracket when you take it out - if you can let it grow tax free, will huge savings at retirement time.

You should overall diversify your money between Traditional and Roth accounts. It is easier to get money into Roth IRAs so my 401(k) money is weighted toward Traditional.

I get the trade off of future tax rate vs present. What I haven't heard anybody comment on is that the annual contribution limit is the same even though one is before tax and the other is after. If you're going to save more than the contribution limit anyway, you can make a larger share of your savings tax-advantaged with Roth. Unless your tax rate in retirement will be super low, or you expect returns to be very low, this dominates the other considerations

If you decide to go the Roth route, you should check to see if your plan allows in-plan conversions (i.e. Contribute to the regular and then convert to Roth). If it does, converting in-plan allows you to avoid paying state tax in some states. You just have to pay the federal tax with funds from outside the 401k account.

Roth. All company match is traditional anyways. This tends to balance some of it back out. If you're young Roth is most likely the best bet.

Think of it this way, if tax rate is 33% for round numbers, it takes $1.5 of pretax earnings to save $1 post-tax. So a Roth (post-tax) contribution limit of $17k is like a pre-tax contribution limit of $26k. But in reality the traditional (pre-tax) contribution limit is also $17k. So if you're hitting the limits anyway, you can effectively put 50% more away with Roth.

I should emphasize this only shifts the advantage if you were already going to max out and still have extra savings overflow into post-tax regardless. If below the limit, the standard logic about tax rate differentials applies, i.e. break even is a rate differential of zero.

I agree it's all about the capital gains - just saying you can make those gains on a larger base. If it's a question of contributing 1000 post tax or 1500 pretax, your math works. But for it to work at the limits, the limits would need to be set differently for Roth and Traditional. They aren't.