[USER]

If the gross salary is 85,000USD is it better to select Roth 401k or traditional 401k. Which one would be beneficial?

I’m currently earning an annual salary of $85,000 and anticipate receiving raises in the coming years.

I’m trying to decide whether to contribute to a Roth 401(k) or a Traditional 401(k).

I’m aware that each option has its own tax implications, with the Roth 401(k) offering tax-free withdrawals in retirement but requiring after-tax contributions now, while the Traditional 401(k) allows for pre-tax contributions, resulting in tax-deferred growth, with taxes due upon withdrawal.

Given my current income and the expectation of higher earnings in the future, I’m curious to know which retirement savings option might be more beneficial in the long run.

Would the tax advantages of a Roth 401(k) outweigh those of a Traditional 401(k) as my income increases, or would the immediate tax deduction of a Traditional 401(k) provide more value?

Any insights or personal experiences would be greatly appreciated!

[Scott]

Roth for the win! Our government is borrowing over 2 trillion a year, tax rates will likely go up in the future.

Pay taxes now with the Roth and be done.

[Tom]

If you file single then that’s 22% Federal plus State tax paid for a Roth.

I you go traditional IRA then either marry and file jointly or retire early with a reduced taxable income you may be able to convert to a Roth at 12 or 15% in the future.

That’s just one scenario.

We retired in 2019 with everything in tax deferred accounts, so we have been filling out our lower tax bracket each year doing Roth conversions.

There is no one size fits all answer as there are many variables.

[Andy]

Roth Roth IRA for the win. Pay your tax on the money now. Invest in stocks and in 20 years retire owing no taxes. No-brainer

[Davidd]

It’s kind of confusing. If you’re in a lower tax bracket now than you intend to be at retirement (who knows what rate that will be) you would contribute to a Roth so you will not have to pay the higher rate in the future

[Stacy]

Roth is tax now on what you contribute. Traditional is tax later at rate unknown on contribution AND earnings AND required distributions.

[Victor]

If you expect your income to rise significantly and your tax rate to be higher in retirement, the Roth 401(k) is generally considered the better option.

However, if you expect to be in a lower tax bracket in retirement, the traditional 401(k) might be better.

[Tom]

The main takeaway is tax rate now vs tax rate later. If the tax rate never changes and you start with the same dollars a Roth and traditional account yield the exact same amount to the penny.

Let’s say you only had 10k in your budget to invest and your return is 8% annually for 20 years.

You would have

$46,609.57 in a t401k. Your after tax (12%) withdrawal is $41,016.42.

For a Roth 401k your 10k after taxes is $8,800 times 8% annually for 20 years is, $41,016.42 which you can withdraw tax free.

Now if you have more money to pay the taxes separately then yes you can say a Roth allows you to dedicate more towards your future.

[Author]

Posts