So, now you’re making good money. Should you be using a Roth 401k or a Traditional 401k? Today we’ll be diving in to see which is better. Is it a Roth 401k or a Traditional 401k?
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7,0000 monthly expenses? At 65 years of age???
The deciding factor for me is the required distributions on traditional but not on the Roth that will kill my in taxes during retirement.
Thanks Eric good advice!
Until you get to maxing out your traditional, the traditional will win. You need to understand Marginal rate tax avoidance vs average rate in retirement.
Lets' say you're in California and in the 9.3% tax bracket, and the 24% federal tax bracket. If you can put $1000 into your Roth, that means you actually paid income tax on $1500 of income that you didn't shield by putting it in your traditional 401k.
Now, if you can put the max $20,500 into both, you are actually paying tax on $30,700 of income to do that, so you could have shielded $20,500 in the traditional and taken $6800 (after tax) to fund your IRA, or (perhaps more wisely) fund taxable investments so you can bridge retirement before age 59.5
While everyone is going to have a different retirement income scenarios, high income is probably associated with high cost of living and high marginal tax rates. And it really sucks to be paying those high state and federal marginal income taxes when you'll probably escape to a lower tax jurisdiction to retire anyway.
Is there any income restriction/gross income max limit for Roth 401k?
This is what I wrestle with every month. I make about 220K married (wife "retired"). If I use the Roth 401K, I am for the entire 27,000 (20,500 normal and 6,500 catch up 52 years old) solidly in the 24% federal and 5% state tax here in Illinois. What to do? I prefer the Roth 401K and have funded it fully since 2014 but I wonder if I am shooing myself in the foot later on. There is pension income to consider so we will still be in the 22% bracket for our Roth conversions when we retire at 55 in a few years. If we go pre-tax but at least here in Illinois they don't tax 401K, IRA and Roth conversions so we might lower or taxes on the conversion money by 7% (2% federal and 5% Illinois INCOME tax) if I just take the tax break now? Thoughts??? -Always looking for answers.
I always say go Roth 401k or I.R.A. 10, 20, 30 yrs from now if you have 500k or 1M. Do u want to get taxed on that? Taxes on 1mill is way too much. Lol. I have a Roth 401k at work and a Roth IRA with my bank. Lol
I just got my Roth 401k match at 6% with Universal Studios this year. Definitely excited to do more investing.
1st one here! Thank you