{ "media_type": "text", "post_content": "Setting up a 401k for the first time. Did you decide to do pre-tax or post-tax? Why did you decide that? Retirement savings and options are all overwhelming!", "post_id": "611d324776f969001dedd356", "reply_count": 26, "vote_count": 2, "bowl_id": "552d1d24dc1c586b09d2d051", "bowl_name": "Consulting" }

Setting up a 401k for the first time. Did you decide to do pre-tax or post-tax? Why did you decide that? Retirement savings and options are all overwhelming!

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The other side of the coin is that the pretax deduction now is worth a hell of a lot less than the post tax growth when you start to withdraw. If you plan on making big bucks, post tax should be a consideration.

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• Pre tax is Traditional. The bet is your income tax rate will be less than it is now in retirement. • Roth is post tax. The bet is your income tax will be higher in retirement than it is now. • “After Tax” sounds like Roth but it is not. An after tax does not have the capital gains tax shield which makes it sound useless. However, it can be rolled into a Roth IRA (Mega back door) Some people have qualitative reasons for Roth like they want to tear off the income tax bandage now, or for traditional, they want to spend more now.

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Another thought on traditional vs roth - assume 20% income tax: Roth: • $6000 max contribution • $1200 income tax owed / paid • $7200 out of pocket Traditional: • $6000 max contribution • $1200 income tax owed BUT! Typically spent and not invested to grow proportionally alongside the 401k/IRA, resulting a FV income tax payment with growth rate equal to the growth rate of your 401k/IRA • $7200 out of pocket PV, plus the FV differential you must come up with during withdrawals, often taken from the retirement account directly, giving the appearance of a lower return

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I did Traditional 401k and Roth IRA. Figured I’d “diversify” my tax exposure. But I live in a high tax state (NY). So I weight it toward Traditional.

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Pre-tax: one of the main benefits of doing a 401k is not paying taxes on that money. If you can afford it, you should max your contributions ($19,500 in 2021).

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Not necessarily. You need to look at your income now vs how much income you’ll need in retirement (assuming housing will paid, not saving for retirement, not saving for kids etc)

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I used to do pre-tax but now all post-tax. I can afford the taxes now, and most high earners are doing anything they can to reduce tax burden later when they begin to withdraw. And taxes certainly aren't going down in the future...

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Taxes will certainly be higher when you're older, and at least for Roth IRA (which you should be maxing if you still can), the growth is also tax-free. Keep in mind that your taxable income isn't strictly your salary from employment.

Key point to consider too: Roth 401(k) and post-tax contributions to 401(k) are not the same thing. I have no idea why anyone would do post-tax contribution to 401(k) outside of Roth

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Fair

Roth 401K until over the ROTH IRA cutoff limit. Traditional 401k after that + back door ROTH IRA. If you still have more income after that and company plan allows it, mega back door Roth 401k (after tax )

You should plan to hve some pre-tax money at retirement. It is useful to show taxable income in retirement to avoid falling into MEDICAID

If you are young do post tax because the compounded interest you will earn over time makes it so that the tax burden now will be less than your tax burden later. If you are older or close to retirement than do pre-tax as you won’t be earning as much interest due to shorter time span

People are saying on her post-tax is advantageous if you think you’ll be in a higher income bracket, they are absolutely right. The other consideration is the very high probability that the government will raise taxes on high earners in the future. I think of it as two options: lock in a low tax rate now (maybe 20-22%) or face the uncertainty of high taxes in the future (potentially 40% + the way this country borrows and spends money)

I used to do roth(post-tax) but started to get killed on taxes once our household income became pretty high. Our accountant motivated us to switch to traditional and our yearly taxes became more manageable. Honestly nobody knows what the future holds, but I’m pretty confident rich people will find loopholes and hopefully my accountant will be smart enough then to copy them

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