{ "media_type": "text", "post_content": "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.", "post_id": "58ec304b86483600104592fb", "reply_count": 22, "vote_count": 3, "bowl_id": "552d1d24dc1c586b09d2d051", "bowl_name": "Consulting", "feed_type": "crowd" }

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.

like
Posting as :
works at
You are currently posting as works at

Roth.

like

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

like

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.

like

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

like

^ 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.

like

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.

like

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.

like

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

like

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.

like

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

like

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.

like

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

like

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.

Related Posts

Anyone with 20+ years at one agency? What do you think? Did the rest of us make a mistake? Also, how and when you retire: you’re better off waiting til they have to fire you than quit, right?

I’m considering joining Prudential as an Advisor. Give me the good, the bad, the ugly in your opinion… Thanks!

likehelpful

What are other startups offering in terms of a 401k plan? Are a lot of start ups offering a match program?

like

Anyone moves from Accenture to PwC ? - did you guys move your 401K to PwC plans? Thoughts if I should keep it at Accenture or move it over?Accenture PwC Strategy&

like

Tomorrow is my last day - is there a checklist of things I need to do? Like do I need to do anything with my 401k? (I’m sorry I’m such a noob, leaving my first job out of college 🙈)

like

If you live with parents, would you max our Roth 401k ($19.5k) and after-tax retirement account ($15k) instead of investing through an individual brokerage? The after-tax $15k can be rolled into the Roth 401k right? Thinking of doing this since I can pull principal out of my Roth 401k after 5 years. Am I missing something here? Any better options?

like

How much do we really need in order to retire? I am 41 and have 2M in stocks/cash and fully own my apt (3M). I have no outstanding debt and ready to find an exit.

likefunnysmartupliftinghelpful

Other than higher pay (I didn’t become a lawyer to get rich 🤣) what is the benefit of working for BigLaw, or private practice in general? As a government lawyer, I make 6 figures, have excellent benefits, no billable hours requirements, more time off than I know what to do with (including mental health days), a pension, a 401(K), option to chose whether to WFH or not, no weekend work, no working before 8am or after 5pm. It seems like so many lawyers in private practice are unhappy.

likefunnyhelpful

If anyone is interested in learning more about personal finance please let me know. My friend and I are teaching a class tomorrow night where we discuss all aspects of personal finance. We’ll cover 401k, IRA, Roth, debt, ETFs, savings, budgeting, etc. If this interests you please PM me and I’ll send you the details.

like

I turn 25 soon. What’s your life advice for those later in their career, life, etc.

likefunny

Hi all.New to this bowl and very young so looking for some advice. I’m starting my first job post-grad in September of this year at $88k TC. My parents are 60 years old and don’t have any savings, been paycheck to paycheck since forever just so I have the opportunity to not be. The reality is I need to retire them in 5 years. Is it a bad idea to forgo my Roth IRA and 401K investments to save up cash to put into real estate? I need the quickest route to supplemental income. Am I thinking wrongly?

likehelpful

Is anyone else upset by how much we lose from our paychecks to taxes?? I calculated it out and it’s like 20% of mine. Why give people stimulus checks when you could just have everyone pay less in taxes.

likefunnysmarthelpfuluplifting
like

Whats a money lesson you wish you would have learned earlier?

likesmarthelpful

How much $ is sitting in your 401k today?

like

Hey guys just started with the firm (graduated undergrad this December), and I was wondering if you guys had any basic pointers on personal finance, which funds to select 401k, etc. Thanks!

like

At what age are you planning to retire?

like

401k loan - go for it or look somewhere else?

like

How much money is “enough” for you guys? I’ll go first - $2M/year from passive investments so that I can work on whatever I want or not work if I don’t want to.

likefunnyhelpful

Any downfalls to using Robinhood to start investing in individual stocks? Just want to start playing around.Already have 401k, Roth, savings etc. Any drawbacks besides my potentially poor stock choice

like

Additional Posts

Fhhbbbbjjnnnnnnsn dnnsndjjjd dhjhdjjdjdjdjnd dhjhdjjdjdjdjnd djjfjdjjdndndnnfnd dhjhdjjdjdjdjnd dhjhdjjdjdjdjnd djjfjdjjdndndnnfnd djjfjdjjdndndnnfnd now djjfjdjjdndndnnfnd do. D dndnnfndnnsdhjdjdjdjnd

like

Part of the crowd. The briefcase doesn't show in post details though.

like

Where is a new build???

like

Post to test

like

New posts and

Changed my company but it didn't update!

Hdjdjjdjd f hdjdjdjdhjd djdjdjjd d djdjdjjd bend djdjdjjdjjd djdjdjjdjjd djdjdjjdjjd djdjdjdjjdhdhdhdbbd djdjjdjdjdjdhje djdjjdjdjdjdhje djdjjdjdjdjdhje djdjdjjd djdjdjdjjdhdhdhdbbd djdjhdjdjdjdhdhhdj

like

Not crashing anymore.

like

How does this sound?

like

test on 1.1.5!

like

Make sure your hard work is protected. File or register with the U.S. Patent and Trademark Office or U.S. Copyright Office before it's too late. Complete our easy questionnaire and we'll help you quickly submit your application. Use your INNOVATOR code for 10% OFF.*

Beyond 2 lines the text in each post card is cut off. I wonder how many lines in the comment section?

like

What are some good companies to work for in Dallas?

Not seeing any other posts!

Yeah you're right. It cuts after two lines instead of expanding.

like

How great would office emojis be in this app?

like

new test post

like

Bhh d hhjjj dudjejr the jejune rhjejej. Jdjdjdn dhejejjdne dhejejjdne hehehehehje rhjejej he hehehehehje rhjejej

like

Bbdjdndjdjgsjdjcbbdbxndbdbcghsbxhdbdbbxbbdbdbbdbdhxhdbbdbxjdbxbhebsbxb dbdbdbd Bebe the. Dbdbdbd sehsbevshdvhdbdbdbdbdd dbhsbvdbdvdvdbvduchhcbd dbhsbvdbdvdvdbvduchhcbd and I have love you so too but I

like

So has anyone ever heard of workplace terrorism? Because I've been experiencing it

like

New to Fishbowl?

Download the Fishbowl app to
unlock all discussions on Fishbowl.
Download Fishbowl to see what others are saying
That was just a preview…
Sign Up to see all discussions
  • Discover what it’s like to work at companies from real professionals
  • Get candid advice from people in your field in a safe space
  • Chat and network with other professionals in your field
Sign up in seconds to unlock all discussions on Fishbowl.

Already a user?
Login here

Share

Embed this post

Copy and paste embed code on your site

Preview

Download the Fishbowl app

Get realtime notifications and see
what's happening in your industry
from the palm of your hand.

For account settings, visit Fishbowl on Desktop Browser or

General

Legal