Roth 401k vs 401k? Which is going to be better for you? There are a few different things you need to think about before you decide where to invest your money. One of the biggest deciding factors is what tax bracket you think you’ll fall into when you retire. The problem is that it’s tough to project that far into the future since there are going to be a lot of things that happen to you between now and when you’re able to access this 401k money.
Join the Private Financial Independence Community here:
💰 M1 FINANCE – Get A Free $30 and Invest In Fractional Shares when you open an account using this link (where I invest my Roth IRA)
———-
🏠 FUNDRISE – Start Investing In Real Estate The Easy Way! (I have money invested here)
———-
💎 WEBULL – Free Stock Investing Platform (Get 2 FREE stocks worth up to $1400 when you deposit $100 upon opening your account)
———-
💵 ROBINHOOD – Free Investing Platform (FREE stock worth up to $200 when you open an account and fund it)
———-
💡 Get your free investing app guide here:
———-
YOU’LL FIND THESE PLAYLISTS HELPFUL:
🏆 Financial Independence Retire Early Playlist:
💸 Side Hustle Playlist To Help You Make More Money:
💵 All Things Investing Playlist:
📈 M1 Finance Playlist:
📕 Learn How To Budget Playlist:
📲 Follow me on Instagram:
Affiliate Disclaimer: Some of the above may affiliate links. Support the channel by signing up or purchasing through those links at no additional cost to you. I appreciate you for helping me keep this channel running
Disclaimer: This video is for educational purposes only. Please take all of my suggestions/recommendations and do your own research before making any decisions with your money. Contact a professional before trying anything that I talk about. I know you’re smart and you’ll use that big brain of yours 🙂
#roth401k #401k #401kmillionaire…(read more)
LEARN MORE ABOUT: 401k Plans
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
Since you don't pay on the gains, your effective tax rate is 0 on that part. If you invest in your 20s your Roth would be 6 times or more what you put into it. That is a lot of money with 0 taxes.
You need to take RMD into account.
Hi Jarrad. I'm currently enrolled in my employers Roth 401k and plan to invest the maximum limit but I just find out that they charge 0.9% for contract asset charges that's on top of the expense ratio of the plan fund I chose (vanguard institutional total stock market index 0.04%). Would it still be smart to maximize my 401k or just invest in taxable account. Also my employer has a discretionary matching so I don't even know how much they'll match or if ever they will match it. I'm over the limit for a Roth IRA so sadly it's not an option and backdoor will probably be regulated soon.
You touched on the unpredictability of where will tax rates be in 10, 20, or even 40 years being key to this choice. You failed to mention the biggest risk with the Roth, will the government honor that 'No tax at withdraw' when the time comes.
Not sure why anyone would want to pay taxes on the growth.
What about backdoor Roth IRA
Hello everyone, what do you recommend if my wife and me have both, Roth 401k's and traditional 401k's but without company matching ?
Jared, am now retired and so thankful I did 30 years of Roth. Tax free is always better than tax deferred and I don't ever have to deal with RMD's. Your vid's are excellent, excellent info!
I have the option for both were i work. I currently put more in the traditional and am steadily increasing my roth contribution.
The company match still has to be taxed whats point of roth just to not pay taxes on half of it
Great video. My employer lets us do both the roth 401K and traditional 401K. So i actually do both but i put a little more in the traditional 401K to help lower my taxable income every year.
Tax bracket only affect the dollar amounts in those brackets
Sitting here at 18 years old like I can’t afford to pay taxes or how to for Roth 401k …
You need to analyze the effects of marginal tax rates when you contribute vs effective tax rates on withdrawals. Also need to consider the potential loss or reduction of AGI based tax credits/deductions into your tax rate if you choose Roth over traditional. For those reasons, I’m 100% traditional. May be different for someone else but tax rates now vs future is too simplistic.
Everything I put in trad 401k. Now it’s 3.5 million. So majority of my life I will be in highest tax bracket. I thought I would be lower like most say.
Really informative. I am 23 and want to reach FI and want to retire early. My employer offers both options of contributing to my 401K pre-tax or ROTH. I'm still not sure I understand but, would you recommend splitting it 50/50? In this video, you said that if you are trying to reach FIRE then, it might make more sense to do pre-tax. Can you explain that more? or do you have another video that touches on that closely?
I have question, I use my company 401k program and they match 6%. I know they only match with pretax dollars. If I contribute 6% in ROTH 401K, do they match my exact contribution, or do they match 6% of my pretax gross?
So how much should I put in 15 percent or 20
This is simple math based on tax bracket. Really, it’s your retirement horizon. I was hoping to find guidance.
National Debt is over $28,000,000,000,000. Make no mistake. Tax rates will rise for everyone. Its inevitable. Pay taxes now and put your money in Roths.
So the answer is "I don't know". Great, thanks for playing! J/K Jarrad, love your vids.
I calculated that if you are doing 15% of your income and you plan on retiring 26+ years you should do roth.
I think law enforcement can withdrawl as early as 51 ?
So you only pay taxes on a 401k at retirement,when you pull it out,or while the whole thing is still in the account??
I keep hearing how I need a Roth when I’m older because I will have a higher income. Higher income and I will likely nit need to tap into my retirement, I keep both Roths and 401k / traditional IRA’s.
At the end of the day the amount of taxes you pay on your contribution now will be less even if you live in a high state income tax place such as California because the interest youll gain will be more than triple than the amount you put in. And that interest amount you dont have to pay a single tax on it when you put it in a roth 401k or roth ira. In a 30 year investment span, looking at sp 500 average return of 9%, make it 8% after all the fees
A few other things to consider: If you are going to try to retire early, health insurance is a major factor. Right now, we have Obamacare which sets premium credit based on income and household size. It's like a hidden tax all the way until age 65 at which point you would sign up for Medicare. Medicare also has income based premium for Part B and drug coverage. If you have a house, many places have reduction in property tax or frozen assessment based on household income. That's effectively another cost consideration if you were planning on converting to a Roth after you stop working because with these other factors, your effective cost to convert to a Roth are often cheaper to do so while your still working than afterwards even with the income drop. Once you start collecting Social Security, recall the obscure formula on calculating how much of that is taxable? Well Roth income doesn't count for that. Effectively, many relatively low income people end up benefiting the most with a Roth over a Traditional. It is completely counter-intuitive and you'll never guess that until you look beyond just the tax bracket. It is interesting that you wanted to split the allocation between the two 50/50 for now because you don't want to think about it now. I'm telling you to not put it off. It's like Agatha Christie's novel, you write the ending first and work backwards to figure out which way you need to lean. It's a lot easier to convert a small balance rather than a larger one down the line. Tax brackets will seem smaller as time progresses as your retirement account grows.
if we are going for FAT Fire, would income from our investments dictate what tax bracket we are in?
ROTH: If you are not reinvesting the tax savings or don't know if you will, ROTH that's all you need to know. With the same amount of money invested in one or the other you would have to go from one of the upper part of the top 3 tax brackets down to the zero tax bracket in retirement for traditional to make sence. Basically 20% of $1 vs 20% of $4.99 is 0.89 cents for every dollar you have to make up.
(assumptions: 8% growth 20 years taxed at .20%)
Traditional: If you are reinvesting the tax savings you get traditional will be better, not significantly better unless you are saving $1200 or more in taxes to reinvest. Even at this amount there is about $560 difference over 50 years between the 2 in my situation. 20 years of investing and paying taxes and 30 years of retirement and paying taxes.
(assumptions: 94K yr income 10K invested a year, 60K taxable retirement income, 20 yr investing 8%, tax brackets don't change)
Both: If you are REINVESTING TAX savings, then you invest in traditional until you zero out your taxes then any tax savings leftover that won't lower your taxes any more you put in ROTH. This is for those that are already investing a large percentage of your income <15% generally. For instance at 95K a year investing $15,600($17628 rolling in tax savings) a year you would only be putting $721 into the roth portion. In the end only getting netting you about 7.3K over the 30 years in retirement, or about $20 a month.
Fed taxes only considered I don't pay state. These assumptions hold true from about 70K up from what I looked at. In the end the difference isn't going to generally be huge and the only way you can really go wrong is to do nothing. Even if it "costs" you $500K more over 50 years its still going to be better than doing nothing and costing yourself EVERYTHING.
Hey Uncle Jarrad, great video! I know you have some videos on strategies to pay off debt, but I don't remember your philosophy on investing before you're debt free. My wife and I will graduate this fall with 150k in student loans and will earn about 150k a year (pre-tax). We are also early 30's with not a lot saved for retirement. Should we focus all of our efforts on paying off debt (maybe 3 years of hard work) or put some money into 401k and savings as well? Kind of debating our strategy at this point. Thanks for your input and great vids!
well said. Keep it up
I can’t afford to max out my 401(k) with just the Roth option. So, I do a mix of both. I am able to fully max out my 401(k) with this method. Doing so also allows me to max out my Roth IRA and I’m still able to pay my bills, invest, and save for things I want.
I invested in a Roth 401k but the employer match needed to be traditional. Now I want to do a rollover and not too sure how to do this without some tax consequences. Good vid though.
I do want to say that looking at only federal income taxes might not give a full picture, especially if you are in a high state income tax state, but plan to retire in a no state income tax state. Traditional saves you from paying state income taxes on a Roth on the front end, while not paying state income taxes on the withdrawal side. Just something to consider, especially in states like California, where the state income tax is 9%. I will invest in Roth when I move from Virginia to Texas.
I invest in a ROTH right now. I max it out every year, and then save the rest for real estate investing. Awesome video man I learned a lot!
Love all of your videos, they are so informative! I am maxing out traditional 401k this year, I sold a rental property and trying to soften the blow when it's time to pay Capital Gains tax.