25 year old male, needing help to figure out which one I should put money in (and how much). I have a wife and child that is due next year. SDE1 w/ base salary of 130K. Also received a signing bonus of around 40k this year from Amazon. As far as i can tell the only difference between the two is when i want to pay taxes. is that it?
15%
I think you should look at Dave Ramseys Total Makeover book.
I’ll check that out thanks!
Also helps to pay off all debts.
Roth it out while you are young - your current tax rate is likely 15% while later in your career it may climb into the 30s. You’ll want some of each when you retire to hedge your risk and lower your reportable income.
Like gkkkfz says: max out Roth while young... you pay taxes before you put it in but never pay taxes again so all the gains are tax free. Only reason not to do Roth is if you are getting closer to retirement.
Seriously Google this. There is so much written about this.
I never understood Roth. Why would you want to invest post tax money now when you’re at a high tax bracket? Tax bracket will in all likelihood be much lower during retirement
$130K married with a child is a pretty low tax bracket, especially if you assume at some point we will likely have to have a balanced budget and/or pay down some debt.
Because you pay zero tax on earnings. Look up compound interest for a math lesson. You only pay tax once on the money you put in. On average it doubles every 7 years. So 28 years later it’s worth 16x. You paid maybe 30% on 1/16th of the money that’s effectively 2% tax rate.
Thanks so much, PM’d
If you run the numbers they both yield about the same results. The biggest factor is your predicted tax rate in retirement. If it will be substantially lower, then paying tax later with a traditional retirement account is preferred. Some caveats are that if your employer only offers matches on traditional then you will likely want to do that first. Also if your taxable income is above the Roth limit you can only do backdoor Roth’s. At the end of the day you will probably want to do both, to balance what your current tax bracket and retirement tax bracket will be. Traditional will lower your current tax bracket while Roth will lower your retirement tax bracket.
This thread is a bit confusing because you could be talking about Roth 401k or Roth IRA.
Tech Industry
Yesterday
2650
Google giving meals. Meanwhile Amazon L8 “don’t take more than one fruit”
Fitness
Yesterday
980
how can i loose 5 pounds with small changes to lifestyle
Health & Wellness
Yesterday
1446
Quitting Sugar
Working Parents
Yesterday
2733
Is it true many Indian couples are in sexless marriage?
India
2d
2874
Dating for Marriage is Hard
Always put the max into 401(k) and IRA. Next year is $19,500 max on 401(k), and $5500 on IRA. Both have pre-tax benefits and reduce your overall tax liability, since taxable income is lower. Roth is post tax and better for business owners or self employed. I've done both . Do the math and figure out what percentage of your gross income will need to be deducted to reach those limits each year.
Thanks so much
Also want to add that it's not just that you are paying taxes now vs pay taxes later. Your money now is going to grow tax free in a 401(k), and therefore more cash to invest today is more valuable than cash later.