Author Topic: Invest in 401K vs. Roth 401K?  (Read 234 times)

frozen

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Invest in 401K vs. Roth 401K?
« on: January 11, 2019, 01:12:57 PM »
I recently joined a new company that offers a regular 401K and a Roth 401K. Is there advice somewhere on the site on how to choose between the two? Is it ever worth investing in both?

I am over 50 and intend to max out my 401k and catch up contribution this year.

Boofinator

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Re: Invest in 401K vs. Roth 401K?
« Reply #1 on: January 11, 2019, 01:59:10 PM »
Depends on expected marginal tax bracket now versus retirement. If expected to be higher now, go traditional; if expected to be higher in retirement, go Roth. (They have exactly equal expected values if you assume the same tax brackets.*) Most people on this site expect to retire early and draw down their retirement savings, which would under the current tax structure result in hardly any taxes at all. So for most Mustachians, traditional is the way to go.

There's also the game theory element. If you don't know whether you are going to retire early or not, here's how the investment options shape up:

Retire Early:  Traditional has a huge advantage over Roth and allows you to retire years earlier.
Don't Retire Early: Roth might (or might not) have a slight advantage over Traditional, but who cares because you have more money than you know what to do with.

So I've strongly recommended Traditional over Roth in the 401k.

*Sort of. Roth would actually be slightly better if you had extra money available since you could invest more (since it's after-tax dollars).

MDM

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Re: Invest in 401K vs. Roth 401K?
« Reply #2 on: January 11, 2019, 04:29:03 PM »
I recently joined a new company that offers a regular 401K and a Roth 401K. Is there advice somewhere on the site on how to choose between the two? Is it ever worth investing in both?

I am over 50 and intend to max out my 401k and catch up contribution this year.
See Investment Order and links therein.