Traditional Vs Roth 401k. Which is better and why?

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BCG what's wrong with A1s suggestion..he's correct

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Roth is always better if you plan to get to a higher tax bracket later in your career. Pay (low) taxes at the investing time instead of (high) taxes when you consume the fund 30 years later.

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^this person doesn’t know what they’re talking about

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Why not both? I’m contributing 6% to each

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Everyone should have an amount of traditional IRA/ pre-tax 401k money.

The reason: after you leave your employer, you can convert pre-tax 401k into traditional IRA. Trad IRAs can be converted into Roth at any time, with the amount converted added to your marginal income for the year.

That’s significant because in years you have less income (MBA, unemployed, maternity/paternity) you could capture the lower marginal rate and thus lower your tax burden.

Roth means you’re locking in your tax rate at the marginal rate for that year. Having traditional balances available to convert on off years is v useful. Hence why I said whoever above didn’t know what they were talking about. Saying Roth is always better is assuming there will be not a single year in the future in which your marginal rate is lower than presently. Have traditional IRA money (converted from pre-tax 401k) in your back pocket.

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Taxes are going to go way up in the future given how deep in debt this country has sunken. Wouldn’t be surprised if the Feds ultimately confiscated 401ks, IRAs, etc, once the welfare payments dry up and the entitled take to the streets.

Invest in real estate.

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You dont take withdrawals when youre working geniuses. Lower tax rate when youre retired.

Love when people argue the wrong side

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I’m betting that I don’t know what might happen in the future and want to be able to pick and chose my tax strategy as my situation dictates. I’m also slightly nervous that congress could take action against either Roth or traditional 401ks like they were considering this year and would like to diversify that risk

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Both

Am also splitting, figure the flexibility to optimize my tax structure in the future offsets any potential losses planning for the unknown

Learn about conversions
Going all Roth assumes you can’t convert and capture tax rates ever

BCG1 - can you please explain in details?

M1: can you elaborate on your strategy? Are you betting that you'll be on the lower end of the future tax bracket?

Can you elaborate BCG1 please?

If you max it out, effective max for Roth is higher because the same annual contribution cap is applied after tax instead of before. At this point that’s the main draw for me. I might pay higher or lower tax rates at retirement but applying tax advantages to a larger portion of savings is a no-brainer.

I live in California and plan to retire in a no tax state. Traditional all the way.

Also I’m on the side that the country goes towards fiscal conservatism and reduces taxes, but realistically I can’t predict what’s going to be the state at the time of retirement.

I'm a ROTH and real estate man.

While the initial money put into a 401k is not taxed when withdrawing it for retirement, you are taxed on any gains.

On the flip side, for a Roth 401k, you pay taxes on the initial contributions now. But all gains are tax free!

So it all comes down to your retirement strategy. Do you think you'll make less when you retire vs now?

@BCG1 - That makes sense. So it depends on what stage a person is at in their life and whether or not they will have an opportunity for a year of less income.

In my case, I've already done my MBA and have been in consulting for some time now. When i was in grad school, I converted my 401k to a Roth IRA and am thankful that I did that. On the plus side, I was at McCombs (UT Austin) so I didn't have a state tax impact!

So now, I am focused on Roth 401k as I don't anticipate having a down hear. Unless I decide to take a sabbatical and travel / volunteer or do my own startup...

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