Roth 401k vs. Normal 401k
Looking for advice on whether to max a Roth 401k or a normal 401k. No company match, already maxing a backdoor Roth IRA. I live in NYC and my marginal tax rate is ~40%. I understand the tax implications of both, but dont’t know how to figure out which one is best for my situation. Base: 160k Bonus: ~23k Equity: hard to value YOE: 1
I’ve always been told do a Roth if you’re younger than 40 and expect to be in a higher tax bracket when you retire. Pay as you go ends up being cheaper than pay at the end.
How about both? 50/50, 60/40, however you want to divvy the edge...There’s nothing that says it has to be one or the other, you could have both!
I prefer Roth but hopefully USA doesn’t pull a France in the long term future and say actually we need more taxes to save SSN and start trying to dig into peoples Roth earnings when they withdrawal at qualifying age
Normal for sure. Save money on taxes now and invest it for more earnings
But why is this better than Roth?
Because you save taxes on it today. Wouldn’t know what the tax laws or withdrawal rules would be 20, 30 or 40 years into the future.
If you’re in NYC only do Roth if you think you will retire there.
Regular is better - when you are old your income is 0 your tax bracket is low
If you are thinking of 401K I think most likely you will still be in higher bracket. If you are worried go with with 50/50.
It's tricky to figure out which would end up saving you on taxes on the long term, it is beneficial to have both in this case you need to figure out how much to put on each. In my last company that was private with no match I did mostly Roth, and in my last year I did some traditional 401k. It was like a 3:1 distribution Roth: traditional overall. I like Roth because the gains are tax free in the future, and you are trading off short term tax benefits over long term.