Investing in a Roth 401k vs Traditional 401k is not always an easy decision. To help make the right decision for you, this video goes through what a Roth and Traditional 401k are and takes a look at what could be the better option. Instead of doing basic math to give you an idea, I take a financial planning approach and go through my financial planning software and share the details, looking at what whether your chances of retirement are better with the Roth 401k or the Traditional 401k.
*This video is intended solely for entertainment and educational purposes. All content provided are opinions of Eric W. Powell and are not to be considered tax and or financial advice*
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0:00 Intro TheFutureMill.com
1:00 Tax Rates
1:20 Roth 401k and Traditional 401k explained
3:25 Employer contribution is tax deferred
4:00 Financial Planning tax deferred Traditional 401k
5:00 Invested vs no invested retirement success percentage
5:45 Today’s dollars vs future dollars
6:30 Inflation projections
7:00 Roth 401k contributions
7:30 Tax savings explanation
8:05 Roth 401k probability of success in retirement
8:35 Tax rate on income
9:00 Reduce Roth 401k due to tax cost
9:35 How the Roth 401k was affected with less contributions due to tax
10:15 What if taxes rise in retirement
11:45 What is the best based on the financial plan
11:55 Inherited money tax
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Hi! Can a traditional IRA possible offset a state tax bill as it can for a federal tax bill given everything is in place?
Hi Eric,
Thank you! This is so helpful!
If we withdrawal money from the traditional IRA acount, in the same year it would be 10% under 9.6k as it is seen as income. However if we withdraw over 9.6k such as 15k will this be considered as the same years income and be charged 12% as it hits the next bracket?
If this is how it works, then it won’t matter if you are long term invested or short term invested in the traditional IRA account.
When you withdraw any amount in the same year, it will be all counted as the yearly income that year.
I hope you can understand what I am trying ask. Thanks very much!
Two individuals at full retirement age. They both apply for social security and Medicare benefits. One have 3 million in a traditional 401K and the other have 3 million in a Roth 401k. Will they be taxed the same on their social security and will their Medicare payments be the same? Than
@ 5:20 15% traditional 401(k) was 92% prob sucess
@ 8:11 15% Roth 401(k) was 96% prob sucess
@ 9:45 11.7% Roth 401(k) was 93% prob sucess
Paying "so-called" less tax with 11.7% Roth 401(k) barely beat out t-401(k). Your stated reason that 11.7% $3.7m Roth 401(k) better than $4.3m t-401(k) is vague and wishy-washy; reason should be because Roth 401(k) amount is tax free at withdrawal.
You are confusing today's dollars with future dollars @ 5:45 and stated $766k and $4.225k both left to heirs …
Well, if we are uncertain of what taxes will be like in the future, we are also unsure what Democrats might do to Roth accounts in the future. In such uncertainty, there is nothing really stopping politicians from saying that growth is taxable in the future, and that only the money you put in can be withdrawn tax free. The only actual guarantee is the tax savings you get now with the traditional IRA/401K. Also not taken into consideration is the taxes some people pay on state income taxes. If you live in a high tax state like NY, NJ, IL, or CA, you get savings on those percentages as well. So that 22% can suddenly grow to 32%. Traditional really starts looking better…especially if Social Security gets hit hard in the future, because the marginal rates you pay on the taxes withdrawn from traditional will be less at lower incomes you would have in retirement. This comes out even bigger if you retire to a state that has no state income taxes. You would have saved on the taxes on the contribution, but benefited on the withdrawal by not having any state income tax. It really can be situational.
I did like the video though, and for those not making high income or that don't live in high state income tax states, Roth is a clear winner.
if he has about 2 million even in retirement years Elon will have money that is still invested and is still growing. whatever amount he takes subtracts from it….. but elon will still have lots of dollars working for him compounded every month
Nice informational video bro, just wanna ask what the age you can start savings for Roth 401k, I have a aunt can she start Roth 401k she is right now 58 yrs old..
Great video man, love the software