401k or Roth 401k? Which is Better? One you are not taxed on the money going on, the other is not taxed when you take it out. Does having more principal to allow for compounding matter? How much does being able to take money out tax free offset the reduction in principal because you have to pay taxes going in? The secret is in the anticipated tax bracket you will be when you retire. If you are not working, your tax bracket will only be higher IF you have SIGNIFICANT assets or basically pretty rich. On other other hand, more people vying for financial independence will spend less than they earn. If that is the case, you will withdraw less and thus be in a lower tax bracket making 401k the better choice.
Link to spreadsheet here: (Graph on the far right)
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Why assume that the investor won't put the same amount in the account in the Roth example? You claim the investor will not put the same amount in a Roth account because they will lose some money in taxes that year. In reality, investors are going to set money aside based on their ability to pay at the moment and not based on the exact amount of tax refund they are expecting unless they do it right when they get the refund I suppose. For those who can afford to max out either account, are they really not going to max out the Roth 401k because of the lack of tax deduction? This assumption definitely skews the results in favor of traditional accounts. I suppose if in your example, all 10,000 were earned in income that year and the investor had no other means to pay taxes, then yes, they would not be able to invest all the money in a Roth account. But that is a very specific example that perhaps only high school students with jobs may be able to relate to – not the average investor.
Me: try to pay attention
My ADHD: look at those cute peas!
Thank you for bringing up the high probably of making less money while retiring than now.
Roth IRA + traditional 401k is the winning combo. No question.
Roth is more applicable to those of us who get a pension.
I'm confused. If I put 10k in a 401k, I get a tax break of $2800. If that $2800 isn't reinvested it's moot. And if I put 10k into a roth 401k it's already been taxed. It's not $7200. It's 10k. So unless you re-invest the tax break of 2800 a roth is a far better choice.
So what you should have said is, if you put 10k in each. You get a $2800 (tax rate) break with the standard 401k. But if you buy dumb shit and not reinvest that $2800. The Roth is a far better choice. But if you reinvest that $2800 it's like you put $12800 instead of 10k.
The downside to traditional 401k is the RMD at the age of 72. The Roth 401k doesn’t have the required RMD. Big difference if you want to pay less taxes.
How about inheritance? Imagine you and your wife both pass before 70, and leave your two high earning kids 2 mil in traditional 401k. They would have to cash it out in 10 years paying insane amount of taxes.
Unfortunately, with all the patients who've died of COVID who is to say that the ROTH IRA is far superior when you're dead and unable to enjoy it? At least you'd have a greater chance of receiving a tax refund check during the time you were alive. In theory, a ROTH IRA is the right choice on paper; but in reality people have just dropped dead before the ripe age of retirement. In my opinion, because you don't know what life will throw at you: The best option for me is to split it 50/50 Traditional IRA/Roth IRA.
Love the video! I'm 25 years old and have my entire Roth IRA (over $45K) invested in leveraged ETFs TQQQ and TMF. Using a 55%, 45% allocation respectively and rebalancing every three months. I'm absolutely convinced that this is the best long-term strategy out there. Results on my channel
Great video, I can watch this all day, well I have to say having multiple sources of income is the best peace of mind anyone can get. I have a construction firm that deals on repairs and renovations on buildings, I also decided to go into investment in stock. The firm however for some months has gone down revenue wise, I just manage to pay my workers from the little that comes in. Luckily for me I have my stock to fall back to, thanks to my stock broker Suzanne Stephens Ellis, I do not have to do anything, and I get my returns in due time. Get her valid information and contact online.
The max you can put in a 401k is the same for Roth and Traditional.
If you put 10k in to Traditional you pay taxes on all that growth.
With a roth you pay taxes now, but you do not pay taxes on all that growth.
Also you can Roll a Roth401k into a Roth IRA with out paying taxes.
I like 50% Roth 50% traditional. So you can take a little from each bucket and be in a lower tax bracket
This is not correct. This is misleading. Both the Roth and the Pre-Tax contributions are based off the gross amount. Example: $100,000 salary and 10% contribution. $10,000 goes in to either the Roth or Pre-tax. Not a lesser amount. The difference is the Roth contribution goes in after taxes are paid. So there is no compounding off a “smaller amount” within the 401k.
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Couple things to consider is if you max out your accounts – things change big time – even if you use the extra money you save with traditions to invest in a brokerage, Roth wins big time in the long run. Also – using both is key
I plan on building the passive income to replace my current high income so I am sticking with the Roth 401K.
Question: Johnnie pays 10% tax on 100$ and Jimmy pays 10% on 500$. Who pays more taxes?
Now you can beat around the bush in another video with 6 ads in total, ie. your dream job.
IMO it's a mistake to contribute pre-tax money when you are early in your career. Do Roth and put any extra in a taxable brokerage. If you're late in your career and making lots of money – that's when you do pre-tax. You should assume that you'll make more money as you go and you should assume that tax rates will probably go up. Don't forget about RMDs
Roth is better. All the growth over the time of investment is tax free. The growth far exceeds the taxes that are paid when contributing and/or the taxes you don't pay in a traditional plan. It's a no brainier to me…roth is better regardless of tax brackets.
I though asians were good at math lmao you never even considered the majority of your retirement account will be from growth and with a roth you dont have to pay any taxes on that growth. It is only close if you live like a peasant in a poverty tax rate in retirement
Aren't the gains in the Roth 401k taxed?