Author Topic: 401K vs. Roth 401K  (Read 3890 times)


  • 5 O'Clock Shadow
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401K vs. Roth 401K
« on: September 24, 2014, 08:51:22 AM »
My work offers both a 401K and a Roth 401K option.  They match at 4%, the matched portion will always be within the regular 401K option.  Obviously the 401K contributions are pre tax and Roth 401K are post tax...  I'm not sure what to do.  I just got married a couple months ago and the wife and I are starting to get some things going on auto pilot.  We opened up a Roth IRA up for her in August since she didn't have one.  I did not contribute to mine the first half of this year as I was piling up money for a down payment on our home and saving for our un mustachian honeymoon to Alaska.  It was awesome by the way :)   We decided to max out both Roth's in the last 5 months of the year (aug - dec).  So that is taking $2200 per month at this time.  Next year we can spread that shit out over 12 months.  I'm wanting to start maxing out my retirement account at work.. Struggling on whether to do the 401K or the Roth 401K option.  I do have the option to participate in both as long as I don't go over the $17,500 total amount.  Base salary for me is about $65K so I'm look at a 27% contribution.  Would it make sense to contribute about $8,750 in each account? 

I'm 30 years old.  Only debt is our mortgage which is $69K.  The house is worth $90K.  It's on a 15 year note at 3.375%.  House was bought in June of this year..   
Wife is 24 years old.  She is a public school teacher making about $49K.  I'm still not completely familiar with the ins and outs of the teacher retirement program, but I think it's pretty good.  I aslo believe its mandatory to participate in.. 

We are set up to do some pretty good saving in the next few years if we don't screw it up.  She is not a reader of the forums.  Generally gets tired of hearing me talk about saving money.  However, she is pretty frugal on a lot of things.  We could do better, but we could be doing a hell of a lot worse as well. 
« Last Edit: September 24, 2014, 09:18:34 AM by rjbf65 »

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Re: 401K vs. Roth 401K
« Reply #1 on: September 24, 2014, 09:48:14 AM »
Like Knaak said, you need to manage your tax bracket.  Especially if you plan on early retirement.  If you do it right, you can use an IRA ladder Knaak linked above to almost eliminate your tax liability during retirement.   Go Curry Cracker nails it here:

I contributed to a Roth 401(k) for the last several years and managed to stay right under the 25% bracket, because I thought 15% wasn't too bad, until this year...

I got a nice bonus, then a nice raise in the spring throwing me solidly into the 25% bracket.  I was front loading my Roth 401(k) so I had already contributed quite a bit, then it took HR another month to change my contribution back to pre-tax.  401(k) contributions can not generally be recharacterized like IRA contributions can, so what is done is done.  Sad part is I might even lose the ability to deduct my Traditional IRA. First world problems, I know, but if I had read the two articles above a few months earlier, I would have been several thousand ahead.

Now, if you plan on working your entire life and expect to be continually reaching higher and higher tax brackets I believe the Roth 401(k) makes a lot of sense especially when you are early in your career.   
« Last Edit: September 24, 2014, 09:54:00 AM by So Close »


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Re: 401K vs. Roth 401K
« Reply #2 on: September 24, 2014, 09:53:43 AM »
It depends on your tax situation. If you think you will be in a higher tax bracket in retirement, go for the Roth 401k and pay the tax now. Otherwise, enjoy deferring the taxes until later. I got the Roth 401k option in 2012, so I have money in both. Since no one knows what Congress will be taxing 10, 25, 35 years from now, I usually say it's good to have some tax-deferred and some tax-free money in retirement. Your situation in retirement could change, too, so it would be nice to have various pots of money to choose from depending on the year. If you contribute to a Roth IRA, too, you are making headway there, too. I try to have a few options to choose from. If you want to retire early, though, stop contributing past your matching money once you have enough to sustain you after 65, and you can divert that extra money to taxable investments and extra mortgage payments.


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Re: 401K vs. Roth 401K
« Reply #3 on: September 24, 2014, 10:24:01 AM »
easy 401k 

i used to do Roth 401k before i found this MMM ... also read this ...

you will be in the 15% tax bracket when you retire.  and may choose to move to a no income tax state assuming you dont live in one now.  so save the income taxes now.  its a 10% swing


  • Pencil Stache
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Re: 401K vs. Roth 401K
« Reply #4 on: September 24, 2014, 06:39:33 PM »
When I am in the marginal 25% tax bracket, I contribute to my 401k or Traditional IRA. Once I get under that I contribute to my Roth 401k or Roth IRA. I manage my estimated taxes throughout the year to where I am making sure my contributions put me exactly where I want to be in relation to the 15%/25% marginal tax bracket break.


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Re: 401K vs. Roth 401K
« Reply #5 on: September 24, 2014, 06:48:53 PM »
401(k) to dodge Califnornia taxes, and avoid taxes altogether through Roth Rollovers after FIRE.

Once I FIRE, I will change my residency to a no-income tax state and move abroad.