401k vs Roth 401k

Amazon
zerotc

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zerotc
Jan 14, 2021 14 Comments

Is there a reason why I shouldn't choose Roth 401k?

Assuming I contribute 25k/year (max out + employer contribution), with an 8% annual roi, for 35 years, it will turn to 5mil.

I will be able to take out 400k (8% of 5mil) every year, which is more than what I make now. If it is a Roth 401k, I would not be taxed on the 400k I take out a year.

I also max out my Roth IRA if that matters. Can someone explain the benefit of having a regular 401k instead?

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  • This comment was deleted by original commenter.

    • Amazon
      zerotc

      Go to company page Amazon

      zerotc
      OP
      i actually pay 35% in taxes. i end up saving 6.5k/yr.

      im already contributing 2k/month to an individual brokerage account separately. if i contribute that 6.5k/yr as well (so 2.5k/month) for 30yrs, i will end up paying more in taxes.
      Jan 14, 2021
    • Amazon
      zerotc

      Go to company page Amazon

      zerotc
      OP
      the extra 500/month for 30yrs will make my brokerage account 5mil instead of 4mil.

      401k route would mean 4mil in 401k + 5mil in brokerage => taxed on 9mil

      roth 401k route would mean 4mil in 401k, 4mil in brokerage => only taxed on 4mil
      Jan 14, 2021
  • New
    Gfph77

    Go to company page New

    Gfph77
    Regardless of what party wins future elections we're getting more liberal as a country. That is going to lead to more programs and taxes to pay for them. I expect to be paying similar or more taxes by the time I retire.
    Jan 15, 2021 0
  • Micron
    deking

    Go to company page Micron

    deking
    Although everyone says that it depends on tax rates now vs retirement, please remember the other huge advantage of a Roth 401k. No taxes in your earnings from returns! Right now, federal income taxes are the lowest they've been in a long time. Couple that with large growth in the stock market. It's almost always better to go with a Roth. https://www.daveramsey.com/blog/traditional-401k-vs-roth-401k
    Jan 14, 2021 0
  • BYTON
    BYTOFF

    Go to company page BYTON

    BYTOFF
    Roth limit is 6k a year vs 19.5k (in 2021) for 401k.
    Contributions to Roth is post tax, regular 401k is pre tax
    Jan 14, 2021 2
    • Amazon
      zerotc

      Go to company page Amazon

      zerotc
      OP
      yes i understand that roth is post tax and regular is pre tax. i make less than 400k now so wouldn't it make more sense to make a roth 401k contribution instead?

      i have a separate roth ira that i contribute 6k to every year.
      Jan 14, 2021
    • BYTON
      BYTOFF

      Go to company page BYTON

      BYTOFF
      Oh sorry I got confused between Roth IRA and Roth 401k
      Jan 14, 2021
  • McAfee
    yqPg21

    Go to company page McAfee

    yqPg21
    Just contribute the maximum you can legally do each year and tuck it into the S&P 500 fund and make sure it is a low cost fund. When you change jobs roll that money into an IRA and you can now invest it however you want. The more you do earlier the more you will have.
    Jan 14, 2021 1