Roth 401k or traditional 401k?

New
KEyx30

New

KEyx30
Feb 22, 2020 36 Comments

I'm 25 and am in the highest marginal tax bracket (~50% tax rate if you consider federal and state). I won't be able to use the money in my 401k until I'm ~60 years old without penalty so that means I am going to get 35 years of returns on any money I put in today.

Do the tax savings now out weigh the tax free withdrawals in retirement?

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 TOP 36 Comments
  • PubNub
    sidd219

    Go to company page PubNub

    sidd219
    I am 29 and I have gone through this situation. I choose traditional 401K and withdrawed 50% of the 401K as loan to buy a primary house after contributing to 401K for straight 4 years! So now I am paying 19K traditional 401K limit this year plus the loan amount. Which makes the contribution almost double. I don't care if I can't withdraw the money till 60 but hey that belongs to me and merely thinking this moment I save on taxes plus also increase my net worth by paying interest to myself. Not sure if that makes sense?
    Feb 22, 2020 6
    • Google
      Ksjdie88

      Go to company page Google

      Ksjdie88
      To be clear, your employer has to enable this feature. Google does. It’s a 10 year amortizing loan you pay back to yourself.
      Feb 22, 2020
    • PubNub
      sidd219

      Go to company page PubNub

      sidd219
      All the info shared above is correct. You can withdraw up to 50% of the total amount with 5-6% interest paid to your self after taxes. Plus you could go 19500 a year pre-tax as 401k contribution.
      Feb 22, 2020
  • Google
    parylage

    Go to company page Google

    parylage
    Do you want people to ask how you are in this bracket at this age? It is hilarious that no one has asked the same😜

    If you earn so much.. you would already have a financial advisor. If you don't have, you are an idiot.
    Feb 22, 2020 3
    • Equifax
      znpE81

      Go to company page Equifax

      znpE81
      Only Fee Only. Fee Only advisors are fiduciary and legally must have your best interests when making recommendations. Other types of advisors get commisions on what they sell and therefore will recommend investments that make them large commissions rather than being best for your situation. Just google only fee only.
      Feb 22, 2020
    • New
      KEyx30

      New

      KEyx30
      OP
      Ok will do. Thanks!
      Feb 22, 2020
  • Zymergen / Eng
    dummithicc

    Go to company page Zymergen Eng

     dummithicc
    Taxes now < taxes in future, unless you expect to lose money in a 401k over time
    Feb 22, 2020 3
  • Google
    Ksjdie88

    Go to company page Google

    Ksjdie88
    If poster is in top bracket, then income too high for Roth IRA contribution. Max out IRA, 401k, and 401k backdoors.

    Move to low/no/l-tax state as primary residence before you start withdrawals.
    Feb 22, 2020 1
    • New
      KEyx30

      New

      KEyx30
      OP
      Good idea in moving before withdrawals.
      Feb 22, 2020
  • I go with Roth. The reason is because the contribution limit is the same either way, so maxing out with after tax dollars effectively makes the contribution limit higher.
    Feb 22, 2020 1