Everyone talks about how great ROTH IRA is , but it seems like everyone still contribute to traditional 401k For those who are able to contribute to a roth 401k but choose to contribute to a traditional 401k why?
Traditional provides tax relief now- so instant relief Not every one takes a very long view on investments
Because when I withdraw from my 401k I'm not going to have an income other than a small amount of capital gains. So I can save on the marginal 40% tax rate today and pay probably 10% when I withdraw it by going the traditional route.
Roth 401k if you just started your career making under 100k because you’ll be in lower tax bracket so pay your taxes upfront. Traditional 401k when you are in the higher tax bracket and then MBDR up to whatever you can afford
What is MBDR?
Mega Back Door Roth
Most people on Blind can't contribute to traditional IRA so there is no choice for IRA, then also a lot of people live in California where it makes sense to use traditional and save the 45 or even 50% tax rate so they choose it for their 401k. It is also good to have a mix of the two because the first bit you draw from the traditional 401k has no/low taxes as well.
Can you share references on the no taxes part please ‘…first bit you draw from the traditional 401k has no/low taxes as well’
That's just how progressive taxes work, there is no fica on 401k withdrawal so if you withdraw 50k of traditional with no other income then under married filing jointly you would only pay like $2500 in taxes effective rate ~5%. You can withdraw an additional 50k from Roth and pay only 2500 on 100k total. If you think you will have lots of income from other sources then this won't necessarily work.
Roth is the better financial option if you have more to invest than the cap and assume taxes stay the same or get higher. If you have more to invest than the limit, taxes need to go down non-trivially for traditional to be better.
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Traditional 401k + Backdoor Roth is best combo
I am Roth everywhere now Though in the past only chose traditional, since most articles said ‘chances are you will earn less in retirement and hence pay less tax ‘. Buggers never said - it’s tax also on gains, not just contributions
why is traditional 401k + backdoor roth better than roth 401k + backdoor roth ? in your opinion