Roth in-plan conversion
What are the advantages of converting after-tax contributions in the 401k to Roth vs. leaving them as-is?
If you don't move your after-tax money to Roth, you'll be taxed when you widhtdraw that money in retirement. Essentially double taxation.
Regular after-tax You’ll only be taxed on profits when you withdraw. Not on principal. By converting to Roth, the whole withdrawal will be tax free during retirement.
Thanks for the clarification.
At the same time if you are super young, it is possible that the money you are hodling pre-tax will make you more and paying the taxes later will be worth it
Especially if you will not be working at that time, so your overall income might be less than now.
Can someone help understand why anyone would want to pay tax now instead of later. 1. You increase the investable asset by deferring taxes 2. You can control income at retirement via multiple strategies to limit taxes then
If your tax bracket is the same now as in the future, then there is no difference between Roth (pay taxes now) and Traditional (pay taxes later). Say you're just beginning your career, it's likely your tax rate is lower than what it will be in the future so Roth makes sense. There are other advantages with Roth. Like no mandatory minimum widhtdrawals in retirement (aka RMDs). And it's a good idea to end up in retirement with different "buckets" of money - tax-deferred accounts, Roth accounts, taxable accounts, etc. That will give you the most flexibility to minimize your taxes later.
There are income limits for Roth contribution. Phase-out starts at $118,000; ineligible at $133,000 for single filers.
No income limit for Roth 401k contributions though. And the Roth IRA income limit is easily and legacy bypassed with the Roth backdoor.
Type your post in google and you’ll know :)
I never found .. too confusing