Newbie question here. Trying to understand why Roth is so popular vs Traditional 401k. If you retire and start drawing from your 401k (which is ordinary income for tax purposes), surely that income will be less than what you made the last year before you retired. So your tax rate will be lower post-retirement. So Traditional 401k should make more sense. What am I missing?

likesmart
Posting as :
works at
You are currently posting as works at
Highlighted IconHIGHLIGHTED

You are not missing anything. The scenario you lay out will be the case for many, but not all. You just need to make some effort to assess your facts. For example if you will have a pension, that combined with SS security and RMDs may put you in a higher bracket. If you do traditional, make sure you invest the current tax savings though. If not, Roth will likely be better.

like

I’ve always questioned that chart… preferably, It’s really income dependent. Ie, saving for a house will come before a mega back door when you make $120k

likesmart

If you are still young, a Roth makes 1000x more sense since you are getting taxed on the principal investment now but all of your future earnings from the investment will essentially be tax free. And since most of your lifetime savings will come from the magic of compounding over time (assuming young), it makes more sense to pick Roth. With a traditional, you get a tax break on the principal investment now but all your future earnings from the investment will be taxable.

likesmart

Even ignoring the 1000x, saying Roth is better is wrong. Neither is better for everyone. I understand how it works very well. It boils down to taxes and not age. That is why these definitions are created in the tax code. I will give the same advice to you as you gave me. Maybe we both will learn something new.

likefunny
Recent IconRecent

I think most people in here (myself included) would advocate for going with a Traditional 401k and a Roth IRA. Assuming you make
more now than you will need in retirement, it’s best to reduce your current tax burden via a traditional 401k and then hedge against the possibility that you’ll need more in retirement than you currently make with a Roth IRA. Also, many of the people on this app make too much to get the Traditional IRA deduction, so there’s no point in having one (except to use as a pass-through for a Backdoor Roth).

like

You are assuming that tax rates stay the same over time. That may not be the case. Tax rates are at historic lows currently. Who knows what they will be when you or I retire.

likesmart

This. Tax rates are at historic lows and most likely will go up a lot to pay for more and more social safety nets, military, government salaries, etc.

like

My thinking has always been to contribute to a Roth when you're younger and not necessarily making as much. Then taper to a Traditional as you get older and your income (and tax bracket) go up. I've set up Roths for my daughters who are teenagers and making money during the summer. They have pretty much no tax liability so no benefit to a Traditional IRA.

like

You should definitely have retirement accounts that are both tax free and taxable at retirement. So it’s not one or the other. Generally early in your career you should go with a Roth 401k, and then switch to a traditional at some point.

like

Thank you, makes sense and helpful

Taxability of SS benefits and amount paid for Medicare premiums is based on taxable income so being able to draw from Roth funds allows you to minimize those. For example, current Medicare premiums range ~$170-$578 per month based on taxable income.

like

Meh, the government could just as easily change the law to be able to touch your Roth.

likesmart

Your assumption would be correct if you believed tax rates would stay consistent for the next 40 years. But entitlement spending and our national debt is such that I think they can only go up.

smart

I assume brackets limits will be higher, standard deduction will be higher and if you delay ss you will have a lot of income space in lower brackets for withdrawals or conversions. Not sure why you find that funny, but OK

You may find this table useful. Though it’s for an IRA, the ‘Roth vs Traditional’ comparison as far as tax savings is concerned, would also be applicable to a 401k.
https://www.troweprice.com/content/dam/iinvestor/Forms/RothIRAsMoreEffective.pdf

Post Photo
like

This is a great depiction that perfectly captures the intuition I was envisioning (though I expect Traditional is much better in later years for the UMC relative to this which is below income of many on here). Should be higher up in the replies!

like

Everyone's financial situation is different. At retirement you may have only 401K or a combination of many other income sources (pension, other tax-advantaged accounts, rental income etc.) Therefore it is not a given that your total income post retirement will be lesser than total income today. It might be the other way around.

Related Posts

On a local project through the end of the year and will be 10k MQM short of renewing Delta gold. Delta Platinum Amex no longer gives you a 10k sign up MQM bonus. What to do? Settle for Silver 😱?

like

Any NY employee benefits and executive compensation folks with 1-3 yrs of experience interested in lateraling to my market v40 firm? Deal experience preferred. DM me and we can talk

like

Looking for any Bay Area referrals for a non-technical role that requires an amazing people-person. Calm app?
Husband worked in an education nonprofit for 7 years - started as program staff, quickly promoted to program director, left because of toxic management, lured back as another team manager with better pay and benefits but toxic boss is no longer worth it. He is truly an exceptional manager and is having trouble finding a way into a new org that isn’t at the bottom rung or dismal pay…

I make $140k in New York. Should I invest a Traditional 401K or a Roth 401K or do a split?

like

Hi Fishes,
Can anyone please help me in calculating in-hand salary?
I have 1.5lac investment under 80C
and 96k for house rent

Post Photo
like

Hi all! Could anyone help provide some insight into how good the maternity leave policy is at EY? Thank you 🙏🏻

In MBB / T2 market in SEA what would be the net take home ( in USD post tax w/o adjusting to cost of living) relatively to each other . My sense is that if we take Singapore of index of 100% of net income for the level than:
1) Indonesia 70%
2) Malaysia 80%
3) Thailand 75%
4) Philippines 65%

like

Curious about thoughts on on discount points (I think I’ve already read every article on Google). I am refinancing my personal residence (future rental) as well as a rental property. The mortgage brokers discourage me from spending a ton on points (rolled in, not up front). In some cases, it’s a 16 year break even. I get that’s a very long time to break even, but I have no intention of getting rid of the properties and doubt rates will drop much below current. Max breakeven point for you?

like

I'll start - How much do benefits factor into your job search and deciding on an offer? For me, the vacation is critical, and it reflects the extent of the agency's culture of trust.

like

What are some additional maternity benefits or perks at your firm (beyond leaves)? I have heard of Amex gift cards, firm-based support groups, free counselling, goodies (parenting books, water bottles), free pump... what else?

like

Will TCS Provide Dental benefits???
If yes, who all can avail it ?

like

Thoughts on a starting salary in NY? I have a concentration I healthcare law, this would be my first position. I graduated then Covid happened. I want to start at 90k because inflation and cost of living but a place I’m going to interview with wants to start at 79/80k. Lowball or is that about right?

like

When it comes to the digitization of healthcare, how important is it to have tech exp vs. healthcare exp? I understand it’s ideal to have both, but healthcare seems so far behind other industries. Is it better to go into tech for a few years and then go back to healthcare and try to become a change agent?

like

My back kills me every time I get off the plane and I end up spending a bunch of money on massages. Any idea if I can get medical coverage for that type of thing?

like

How do you calculate what tax bracket you will be at when you retire? Keep reading choose the option based of what tax bracket you will be at retirement but I literally have no clue

like

Best investment book recommendations?

like

Pharma companies with great tuition reimbursement. Thanks!

like

What is maximum amount you can submit for cell phone bill reimbursement ?

like

Als Partner einer mittelständischen IT Beratung interessiert mich, welche Employee Benefits für Consultants attraktiv sind. Bislang war unser Ansatz die Mitarbeiter einfach überdurchschnittlich zu entlohnen, aber gefühlt werden Perks wie Fitnessmitgliedschaften und co. angefordert und besser bewertet.

like

More Posts

Here's why more waves are coming, and un-avoidable. On an average, during 2007-08 recession, consulting companies had to let go 10-25% of their staff. look at the curve, it could be easily 15-40%

Post Photo
like

McKinsey & Company Bain & Company What are the pros/cons or uniqueness of working in different healthcare spaces? Payers, providers, life science, Med tech/devices. ZS Associates PwC Deloitte EY KPMG L.E.K. Consulting McKinsey & Company Bain & Company Boston Consulting Group

like

Hi Everyone,

Does TechMahindra provide physical Reliving letter after exit or is it only a soft copy in email, please help me with this.

COO candidate after his second interview remarking to me about my CEO,
"good lord, she's good looking. How happy is she with her fiancé?"
Me: "Well, her fiancé is the chairman of the board, so I guess you can ask him how happy they are."

SMH.

likefunnysmart

I've been "voluntold" to demo an "enrichment lesson" to be filmed and broadcast on our school district tv channel. I'm totally drawing a blank on what to do...what is broadly appealing from US hist?

likeuplifting

Do you feel bad going in the office at 10am? It's either that or I don't show up and wfh, but still feel a bit bad about it.

like
like

I'm on a work visa in the US. Employer naturally has a higher leverage over me and my peers make 10-15% more money than I do despite having relatively lower performance ratings. Any tips on how to negotiate?

like

Please help. I was recently hired by a Venture Capital firm that uses MacBooks instead of PCs. I’m extremely efficient with Excel on PCs and am struggling with the transition to Mac. Do any Mac users have a list of keyboard shortcuts that they use frequently, or any other tips/tricks?

likefunny

Hello everyone,

I'm looking for job opportunities in Ontario Canada in quality control department in pharmaceutical or biotechnology company. I'm permanent resident.

I'm applying online on various sites but nothing is working from last 3 months.

Kindly help me out.

Welcoming any feed back on my resume. I have been applying to supply chain roles (primarily planning and procurement) since May and have not received any interviews. Would love to hear any recommendations on what is missing and/or what kind of roles I should steer toward based on my experience. Thanks and happy holidays!…the rest of the resume will be in the comments.

Post Photo
likehelpfulupliftingsmart

Anyone gonna be in NYC on Halloween? I’m hosting a happy hour until 8pm. I don’t want to just hang out in my hotel after. What’s goin down?

Hi Fishes,
Anyone gave interview at grid dynamics by hyderabad recently ? Did anyone receive the offer letter yet. I was selected selected after the interview but did not receive the offer letter yet. No response the hr as well.
@griddynamics

like

Has anybody had any experience with the $400-$600 suits from suit supply?

like

Anyone willing to share their exits from consulting? (Company, position, compensation, etc)

In this Assurance-Consulting split, where would the SaT and Tax service lines end up?

like

Neutral colored Louboutins at work, yay/nay? Thinking about the 100mm height in black or nude. Work in tech with all guys at manufacturing client and cautious about being too “fashion forward”.

like

Anyone have any suggestions on a good place to get nicely used clubs?

Anyone else effected by the wonderful chemical leak in La Porte?

like

Does anyone have any secret insight about the changes with AIML and DE?

Additional Posts in Personal Investment Chatter

Has anyone invested in a Alumni Ventures group VC fund (e.g. Chestnut Street Ventures, The Yard ventures, etc.?). Is there fee and return structure competitive?

likehelpful

Fully aware this is a newbie question. Looking for the best way to get started in purchasing stocks. I used to use E-Trade back in high school like 11 years ago, but stayed away to focus on paying

like

VOO, VTI or ARKK for first investment in Roth IRA? 23 years old for context.

likehelpful

I am looking for reliable property managers that help with buying and renting investment properties in the following cities. If you have had a good experience with any, please share.

Boise, Idaho
Atlanta, Georgia
Dallas, Texas
Orlando, Florida

like

Which career pathway to take, if I reside in BC (Canada)
1) Clinical Psychologist
2) RCIC (Immigration Consultant/ Lawyer)

I’m open to pros and cons or any insights if you work in either of those industries?

Thank you in advance ☺️

like

People investing in rental real estate what’s your ROI this year? My profit divided by current value is barely above 3% (and that’s with no renovations and 100% occupancy). Should probably sell it and invest elsewhere...

like

Can you withdraw money from 401k? What the penalty and how to find out?

like

Can someone from data analytics background explain what differentiates palantir from cloud native services from aws, gcp, azure or databricks? I am interested in why one should invest in this company and hence, asking in this bowl.

like

Worth buying VTI today? Every week I am buying and it’s going lower and lower the next day. I bought it yesterday and today it’s 5$ lesser than yesterday!

like

If you have a side gig/small company that you run while working as a consultant, how much extra compensation does that bring you in each year, on average?

like

Looking to invest in some new stocks. Any recommendations? TIA

like

I’ve seen a couple posts lately with comments saying that people should not use a Roth 401k. Does the logic below capture the spirit of that concept?
1. Use trad. 401k to reduce taxable income now. Convert to trad. IRA once retired, then convert gradually to Roth IRA (ladder, SEPP, etc.) at lowest marginal tax rate
2. Use Roth IRA (and/or backdoor Roth) to take advantage of tax free growth and ability to withdraw principal early without penalty

like

Should be close to breakeven after todays market gains (Invested around 60k during early days of market decline). How many of you are thinking about pulling money out today?

like

How much margin is appropriate/recommended on a percentage of portfolio basis? I used to use about 10% but now that we’re in a bit of a correction it’s closer to 20%. I really want to add to positions on these dips but it would only increase the risk given the margin exposure...

like

I am heavy on US stocks. I keep hearing to diversifying a little bit with bonds and international - feel its a bit over rated if I can withstand volatility and far from retirement. Thoughts? I read a lot on this bowl about not having bonds in portfolio under 40

like

My federal student loans currently have a ~4.5% interest rate. I have a lump sum that could take a significant portion out, but I’m leaning towards investing in VTI instead to outperform the interest rate.

How sound is this strategy and what other investment vehicles should I be looking at?

like

Has anyone maxed out their Roth for the following year yet? Thinking of taking it out of my account for the following year and capitalize on the gains

like

Selling 2022 sealed and brand new Kaplan CFA Level 1 books, comment or DM if interested

like

Has anyone here bought land and built a home or completely renovated a new one in the city? Outside of timeline, are there other pros/cons you would highlight? What was more cost effective?

like

Can you transfer your stocks to someone else’s name if you’re working for a company with an independence clause?

like

New to Fishbowl?

Download the Fishbowl app to
unlock all discussions on Fishbowl.
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

See what’s happening in your industry
from the palm of your hand.

A phone with Fishbowl app

Send download link to your phone

OR

Scan your QR code to download
Fishbowl app on your mobile

By continuing you agree to Terms of Use and Privacy Policy.

Messaging rates may apply

Download app

Sign up for free to view this conversation on Fishbowl

By continuing you agree to Terms of Use and Privacy Policy

Already have an account? Log in

Sign up for free to continue using Fishbowl

By continuing you agree to Terms of Use(New) and Privacy Policy(New)
Messaging rates may apply

Already have an account? Log in

For account settings, visit Fishbowl on Desktop Browser or

General

Legal