The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Cashflow on December 10, 2013, 02:35:36 PM
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Hey guys,
I am currently in the 15% tax bracket and am about to join the 25% tax bracket hopefully in a month. I am unsure if I should take the Roth or traditional? I have 2 young children and a home with spouse still in school. Ultimately for retirement I hope to own real estate to provide additional income and deductions along with purchasing discounted mortgages *notes*. What do you think would make the most sense?
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It is up to you but take a glance at this post from madFientist (http://www.madfientist.com/traditional-ira-vs-roth-ira/) which explains it better than I can. It is for IRA's but you can use the same logic, just slightly different numbers.
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I'm doing both because I can't decide which one is better. I switched to the Roth a few years ago, so currently I have 60% of my total retirement funds in the Roth and 40% pre-tax. If there are any years where I need to make large purchases, I could use money from the Roth. I'm currently trying to decide when to swing back to pre-tax contributions.
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This post pretty much sums up why the Traditional 401(k) is better for most people than a Roth. The main exception is for those with pensions that will put them right back into the higher tax bracket.
http://thefinancebuff.com/case-against-roth-401k.html (http://thefinancebuff.com/case-against-roth-401k.html)
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I would do Roths for you and your wife for the 2013 tax year as you are currently in the 15% tax bracket; do them this year so you don't pay the 25% tax you will have next year. In 2014 do the traditional tax deferred accounts.
Congratulations on the pay bump!
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Thanks guys.
I am a working on becoming a mustachian but still very newb. I wish I found this site years ago!
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Hey guys,
I am currently in the 15% tax bracket and am about to join the 25% tax bracket hopefully in a month. I am unsure if I should take the Roth or traditional? I have 2 young children and a home with spouse still in school. Ultimately for retirement I hope to own real estate to provide additional income and deductions along with purchasing discounted mortgages *notes*. What do you think would make the most sense?
Can you afford to do both? Many people on here strive for Maxing their 401(k) and their Roth. It's not really and either or situation. It doesn't sound like you are in a position to max both, but if you can contribute some to both. Try to max out the Roth since the limit is so low, then do as much as you can in the 401(k).
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Can you afford to do both? Many people on here strive for Maxing their 401(k) and their Roth. It's not really and either or situation. It doesn't sound like you are in a position to max both, but if you can contribute some to both. Try to max out the Roth since the limit is so low, then do as much as you can in the 401(k).
I think he means that his 401(k) has both traditional and Roth options.
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Can you afford to do both? Many people on here strive for Maxing their 401(k) and their Roth. It's not really and either or situation. It doesn't sound like you are in a position to max both, but if you can contribute some to both. Try to max out the Roth since the limit is so low, then do as much as you can in the 401(k).
I think he means that his 401(k) has both traditional and Roth options.
Ahhh , Gotcha.
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Standard for me, I like having the tax break. My Roth offers "tax diversification." I encourage you to have both once you get the pay up.
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This post pretty much sums up why the Traditional 401(k) is better for most people than a Roth. The main exception is for those with pensions that will put them right back into the higher tax bracket.
http://thefinancebuff.com/case-against-roth-401k.html (http://thefinancebuff.com/case-against-roth-401k.html)
That link highlights everything pertinent to the argument. On top of everything there, assuming that you intend to be a low-income low-expenses FI'RE'd person, then delaying taxes and having an insignificant income that is the best path.
Also, if you want to get near to maxing out your 401k, it's a lot easier to max it out pre-tax then it is post-tax(ROTH 401k). Personally I like seeing the numbers climb faster too.
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I do a traditional 401k maxed out to reduce my income to qualify for my Roth IRA. I couldn't have a roth IRA if I didn't do both. We make about 200k combined. My wife will be 50 anf I'll be 47 next year so we're going to max her 50/50 Roth 401k and traditional 401k. Also max her Roth IRA.
My 2015 outlook is:
My traditional 401k $18,000
My Roth IRA $5,500
Wife Traditional 401k $12,000
Wife Roth 401k $12,000
Wife Roth IRA $6,500
With company matching we will be looking at over 60k going into our retirement for 2015 in a tax advantage account. Do what you can to max it all out.
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I'm not an expert, and this issue has always seemed a lot more of a personal preference one than most economic questions. For me, I went with Roth mostly because I want don't want to worry about taxes when I'm retired. I want to know that I've already taken care of that. But, I'm single and 0 and plan to never change. Your changes may be vastly different.