Should I Contribute To Roth 401k or Traditional (Pre-Tax)?

[@hm51008]

Great content…. The software is a ‘must have’ for anyone considering early retirement, but isn’t currently working with a certified financial planner. The Roth conversion calculations are simply too complicated to create on your own, for 99% of the population.

[@earlyretirementari]

Agreed

[@FlorentGulliver]

I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.

[@AlilatTiamiyu]

I feel your pain mate, as a fellow retiree, I’d suggest you look into passive index fund investing and learn some more. For me, I had my share of ups and downs when I first started looking for a consistent passive income so I hired an expert advisor for aid, and following her advice, I poured $30k in value stocks and digital assets, Up to 200k so far and pretty sure I'm ready for whatever comes...

[@FlorentGulliver]

@@AlilatTiamiyu That's actually quite impressive, I could use some Info on your FA, I am looking to make a change on my finances this year as well

[@AlilatTiamiyu]

@@FlorentGulliver My advisor is *MARGARET MOLLI ALVEY*

[@AlilatTiamiyu]

You can look her up online

[@IfranReinfeld]

@@AlilatTiamiyu The crazy part is that those advisors are probably outperforming the market and raising good returns but some are charging fees over fees that drain your portfolio. Is this the case with yours too?

[@Hossafy]

Love when a video is perfectly timed to my life. Great analysis, Ari.

[@earlyretirementari]

So glad!

[@tatianastarcic]

Increasing tax rates are the reason I rolled over my 401k to a Roth. I don’t want to be 59 paying taxes on current income on withdrawals made from my retirement account. I'm now seeking best possible areas or ways to gain wealth in today's economy.

[@TinaJames222]

Pre-tax contributions may help reduce income taxes in your pre-retirement years while after-tax contributions may help reduce your income tax burden during retirement.

[@Vincent-j8u]

Both have their perks but you can also save for retirement outside of a retirement plan, such as in an individual investment account or employing the services of a retirement planner/investment advisor.

[@nicolasbenson009]

Private investing is the best way to go about the market right now, especially for near retirees, I've been in touch with a wealth manager, netted 370K the last downturn, made it clear there's more to the markets than we average joes know.

[@sharonwinson-m8g]

Who is this Adviser or investor you use? I lost over 35000 already this year, I’m in need of a planner going forward.

[@nicolasbenson009]

I'm cautious about giving specific recommendations as everyone's situation varies. Consider independent financial advisors like "Melissa Terri Swayne" I've worked with her since the pandemic and highly recommend her. You can check if she meets your criteria.

[@ppw8716]

Hi. This was a lot easier for me to follow. The information as usual is very valuable. It’s very helpful to my situation. Thank you. There are times when you go tangents, like my husband liked to do, and my brain stops working. Just me.👍

[@earlyretirementari]

HA!

[@MidlifeCrisisManagement]

missed this case study when you first published it, Ari, but finally watched it now. always love watching these because they give me more to think about. planning to work until approximately age 56, then using Rule of 55 + wife's pension until age 59.5 when the Roth "dividend spigot" turns on.

[@TravelingTheWorld1993]

I have been investing in the stock market since early 2000. I am 42 now. I could not invest as much back than , as I can now. But I am really glad that I did! I am now contributing 100% to the Roth 401k. And now have 40% of my entire balance in Roth , through contributions and In Plan Roth Rollovers. My plan is to have 75% of my entire 401K balance in Roth. Because having some taxable income can be beneficial financially.

[@westy44cal]

Really enjoyed this video. Much appreciated. I have been planning on retiring at 55 for 12 years now. I am 47. I'm part of a union so 55 is the earliest I can leave and qualify for medical. At 55 I'll have 31 years service and will receive about 24k a year pension (30% decrease leaving 5 years prior to 60). The pension is inflation adjusted but it never keeps up it's like 1%. Currently holding approximately 100k in a Roth IRA, 525k in regular brokerage account(mainly dividend paying stocks)and 1.5M in a 401k. Also started for first time in 2024 contributing to Roth 401k instead which is maxed out. No RMD's)..I intend to take SS at 62 as well but not sure what that will be so I use $1500 a month as a guesstimate. I'm hoping to have 12000$ a month pre tax income when I retire in 7.5 years. Lately I have been kicking myself for not starting Roth 401k earlier. I do Max out a Roth IRA using back door method. CT resides as well so state tax will always be a problem on that 401k.

[@cutehumor]

you need to do roth as much as possible. you are the same age as me, I'm freaking out because taxes will only go up.

[@westy44cal]

@@cutehumor I hear ya. Another way I think may combat this possible huge tax issue when RMD hits on the 401k is to take from the 401k at 55(rule of 55 no 10% penalty) and delay taking SS until later .possibly 70. Not sure what that number is though. I figure taking heavily from 401k to sustain retirement prior to when RMDs hit(75 years old I believe)then scale back when SS kicks in at 70. This way the pre tax funds don’t grow too big causing a real tax nightmare. I agree though. Need to get my Roth game up for sure.

[@fitz7896-TF]

Am in the same boat here . 2.2m in Traditional; 65K in Roth 401K and 215K in Brokerage @Age 53. Hopefully want to retire at 56. Now I only do Roth 401k and brokerage AC

[@justthebrttrk]

You ignored a hugely important detail in this video. The person doing pretax had an extra $5000+ to invest each year compared to the person doing Roth, due to the tax savings. You should redo the calculations but make the pretax person be able to save that difference. I bet pretax would end up beating Roth, as it does for most people. If all you're doing is saving $23,500 (or whatever the max is) and calling it a day, sure, Roth always wins. But these calculations usually ignore the fact that the person doing pretax has a bigger shovel for savings than the person who is doing 100% Roth. Pretax also gives far more flexibility to early retirees due to the Roth conversion ladder being a viable strategy to access funds early without penalty. Those who are 100% Roth are stuck paying the penalty or laddering SEPP accounts which are far less flexible.

[@loumanlapas5930]

I love the software Ari, it is a must if you’re planning your retirement. Thanks for this Video, my husband and I were just talking last night about doing the Roth 401K now, I wish you can take a look at our file and give suggestion. I can volunteer our info for your case study. Just change our names.

[@JustSomeRandomGuyYo]

"If your cash flow allows for it, do Roth", what exactly does that mean? If you can tough it out and do 3% Roth instead of 3% Trad, then you could have toughed it out and done 3.85% in Trad. Comparing 3% Roth to 3% Trad is not comparing apples to apples, you would need to increase the trad contribution to where the take home income (while working and contributing) is equivalent between the two comparisons. It only gets complicated when you are at the max and then need to compare max Roth to max Trad + investing the difference to a taxable brokerage. Or am I misunderstanding something you are saying?

[@ericrosenberg5844]

agree. the video seemed flawed because of that.

[@alrocky]

"If your cash flow..."It's meaningless sentiment to gently suggest to those in high tax bracket that doing Roth is okay. Someone making $100k in 22% federal tax bracket can tough out $23k to traditional or ($23k * 0.78 =) $17,940 to Roth and in either case be left with same cash flow. Both options represent 23% (of $100k salary) pretax contribution.

[@Immacu1ate]

Exactly. A lot of these videos miss the point. 20% of 100k invested is $20k pre tax. 20% of 85k (take home) is $12,750. Over the long run, the traditional account has more legs and gives you the flexibility of low income years to convert.

[@alrocky]

@@Immacu1ate "20% of 85k (take home) is ..." $17,000. For $20k pretax contribution at 15% hypothetical tax apples to apples comparison is: $20,000 pretax = $20k traditional 401(k) + $0.00 tax $20,000 pretax = (20k * 0.85 =) $17k Roth 401(k) + $3k tax

[@iamdjunc]

I needed to find Ari about 10 years ago. Anyway, can we run this program with a lot LESS money? I’d like to see it. Suggestions please.

[@keithh8591]

You act like the benefit of Roth over Trad is time horizon, but that’s completely wrong. Putting in 3% for each smuggles in the extra expense of investing in the Roth with after tax money. If you add the tax difference back into the Trad investment amount, the only difference is a change in tax rates, which you can’t predict.

[@alrocky]

9:20 3% of $115k salary = $3,450 traditional contribution. It is unclear if Roth contribution is $3,450 or post tax ($3,450 * 0.78 =) $2,691.

[@MichaelToub]

Great Video!

[@nycste1982]

Do you have a video by chance on or for people with considerable pensions?! I know the answer should be simple and math but it’s really hard to get any good answers and examples and of course no one can predict the future

[@kersting13]

Oh man. I'm just a dude who was saving in his pre-tax retirement plan for years because that's what I thought I was supposed to do. Set it and forget it. I never really thought much about Roths, because those weren't part of my available plan when I started it. Now I'm less than 5 years from retirement and my wife and I will have a combined $140k of annual pensions along with $17-$20k of other income at age 57/55 when we do retire. The hammer is that we also have over $1.5 million in pre-tax accounts AND we live in a high income tax state (where we LOVE living). My recent realization was that we should NOT be contributing to the pre-tax account any longer, and now I think I might want to move to the no-income tax State 5 miles away in retirement to do Roth conversions (or withdrawals to live it up) up to the top of the 24% (28% by then) bracket for 5 years just to avoid the major RMD bomb staring us in the face when we turn 75. Those pre-tax accounts could rise to $2 million by the time we do retire. It's a 457b plan, so I won't have trouble with the 10% penalty, so I've got that going for me, which is nice. There are other weird tax rules where I live (Portland, OR) that complicate things. The problem with that plan is I really don't want to leave my current home, but it would literally be worth hundreds of thousands of dollars in tax savings to move. I really just didn't recognize how big the account balance was and connect that with the pension and other income being enough to fund our lifestyle, or at least to the point where we wouldn't be pulling more from the pre-tax account annually than it will be likely to earn. So what am I saying? I should have paid more attention to the difference between Roth and traditional accounts 10 or more years ago, especially with guaranteed income.

[@earlyretirementari]

Don’t beat yourself up!

[@GP-fw8hn]

I think your biggest problem is you live in Portland and enjoy it! Just kidding my son lives in Kelso after living in Beaverton and he loves it. I would probably move across the line. Anyway the good news is you have LOTS of money. Good luck to you

[@kersting13]

​@@GP-fw8hn Yes, there are bigger problems to have. Many people do it the way I did very intentionally BECAUSE they know they'll be moving to a lower tax state in retirement. I may have forced my own hand with the way I did it. :) IF I do that, I'd probably keep my home here, and move back after converting, renting out in the interim. I still have 3.5 years to figure it out.

[@k5sss]

I’m planning on moving to a no-tax state at 59 1/2 for exactly that reason. Even if my federal rates were the same (and they won’t be), I’d get the bonus on state taxes.

[@kersting13]

@@k5sss Between State and local taxes, traditional IRA distributions (or Roth conversions) would be taxed at a marginal rate 13.2% on income above $250,000, and that bracket is not inflation adjusted. A long-time co-worker of mine just retired to Florida recently, and I know that she was doing all traditional contributions while she was working because she knew she'd be moving to a no tax state.

[@NiranjanBendre]

We do Roth 401k and backdoor roth IRA. No debt. We are mid 40s and have been doing this since the start. We don’t want to face taxes in RMD. With discipline for 30-40 years we will have substantial amount in these accounts. We have employer contribution which would be pre tax. So outside the pre tax, post tax, we also have brokerage account.

[@edavis5451]

At the end of the video you got to my scenario. I’m 47 and a high-earner. Have been contributing for 27 years into traditional 401k, but just now learned about Roth. I set up 2% contributions to Roth because I heard something about the account needing to be open for at least 5 years to pull from it. I’m planning on retiring at 55-57. Came here to figure out of if I should stop contributing to Roth and move that 2% to traditional that is currently at 12% contribution, but not maxed out. Still don’t think I understand what to do.

[@alrocky]

2025 as default contribute $23,500 to traditional 401(k) and $7,000 to (backdoor) Roth IRA.

[@tomlee45]

what if your tax bracket while saving for Roth 401k or 401k is will above the 22% such as you are making 300k+. How does that play a role in factoring? because you are paying the same tax bracket now as you would when you require if you kept your 401k.

[@henrynguyen4132]

Am I missing something? Here is my assumption, at current working with high income and high income tax at 30%; however, at retirement, the income is lower and income tax is at 20%. With those assumptions, if I set aside $1,000 for retirement and invest with 6% return. At 20 year later, for regular 401K and $1,000 investment, I should get $3,207. At withdraw and pay 20% income tax, I would take home $2,566. If I choose Roth 401K, I have to pay 30% tax of $1,000. Therefore, I only have $700 for retirement investment. At 20 year later and 6% return, when I withdraw (with no income tax), I would get $2,245. Based on this math, it looks like Traditional 401K is better than Roth 401K ($2,566 versus $2,245). If people think that their overall income at retirement is lower and their income is lower compared to while they are working, maybe traditional 401K get a better return than Roth 401K. Am I missing something in my calculations?

[@Vasinvictor1]

I see it much the same way. Everyone seems so excited about Roth but I wonder what I'm not seeing to not want to go down that path.

[@JimHubert]

This is true if you were paying taxes out of your contribution money, most people contribute to a 401K a set amount of money per week or a percentage so the amount invested in a roth or a traditional 401(k) would be identical, but your take-home pay would be less. So at the end of the 20 years if both roth and traditional earned the same return, the money in the account will be identical, but the Roth would be tax free. Now the key part no one talks about is the tax money not paid on traditional 401k also needs to also be invested, and then the traditional 401(k), for the most part becomes more tax efficient. Also The biggest downfall with traditional 401(k) is RMD’s that could cause you to go into a higher tax bracket but most the time you’re still low enough income to save money with a traditional 401(k). I think the biggest benefit for roth is from legacy planning and passing on money to children tax free.

[@alrocky]

@@JimHubert "tax money not paid on traditional 401k also needs to also be invested" that is common misconception and false as the "tax money not paid" is already inside and part of the traditional 401(k) contribution.

[@alrocky]

@@Vasinvictor1 As per henry's scenario the only relevant distinction is that traditional is paid at 20% tax and Roth paid at 30% tax so of course traditional is preferred for this specific hypothetical; better to pay 20% tax instead of 30% tax.

[@ld5714]

Great video and discussion Ari. Question - How should a pension be valued and included in a net worth statement and financial plan? Or should it not be included at all and simply treated as income, thus lowering the draw required to cover expenses?

[@earlyretirementari]

I discuss using my pension analysis tool in the academy: ari-taublieb.mykajabi.com/early-retirement-academy

[@MrKewlplayer]

Question: I have a Roth 401k at work. I also have 2 separate Roths and 1 traditional ira in a outside account at one of the major brokerages. I'm over 50. I know you can contribute 8k per year. The part that is confusing me is, doesn't the work Roth 401k fall under the 8k limit with all my OUTSIDE accounts combined? OR DOES THAT FALL UNDER SEPARATE CATEGORIES. I WAS INFORMED ALL YOUR ROTHS AND TRADITIONAL IRAS CANNOT EXCEED 8K PER YEAR. I called a tax professional they state that's true. The Irs charges a 6% penalty if you over contribute.

[@ericrosenberg5844]

401k limits are independent of IRA limits so you can max both. So if you and your spouse are both 50 you can each do $8k into IRAs and $30,500 to 401ks.

[@MrKewlplayer]

@@ericrosenberg5844 Thank you. It was hard getting and finding an answer.

[@logicalparadox2897]

I can’t tell you how many videos on the same subject I’ve watched in recent days and weeks. And all I ever see or here is about how much better roth is compared to traditional, BUT NEVER SHOWING ACTUAL CASE STUDIES TO BACK IT UP. Thanks! But what I still don’t get is how the math works. Are they actually contributing more to the roth because it’s a 3% contribution AFTER taxes? IE if they contribute $100, they are actually taking $100 of after tax money and putting it into the roth vs $100 pre-tax into traditional? Then it would make sense, because you’re paying the taxes out of pocket up front and there’s more net money going into the account. But if it’s apples to apples, I don’t understand. IE, if they actually contributing $100 pre-tax into traditional vs $100*.75=$75 into the roth. In that case it would be the same, right? Because assuming a 25% tax for simplicity, it shouldn’t matter whether you’re paying 25% of $100 now and then letting it grow for 10 years and ending up with $300 tax free at withdrawal, or if they are putting in that $100 pre-tax and letting it grow for 10 years and ending up with $400 and paying 25% on bigger number at withdrawal. One way you’re paying more to the IRS, but the net outcome for you is you have the same amount in the end. What am I missing??

[@alrocky]

10:45 Percentages here are ambiguous and difficult for viewer to determine actual dollars used for traditional vs Roth comparison: Pre-retiree's 401(k) is 3% which should be 3% of his $115k or $3,450, but is 3% Roth 401(k) of his $115k or of total $200k which is $6,000? However 11:11 shows $11,000 Planned Savings which sounds like total 401(k) 2024 contribution but $11k is only 5.5% of $220k not 6%. Video does not reveal their current 401(k) balances either which makes result suspect.

[@johndelagarza361]

I've heard Roth 401k isnt great for folks who want to retire early since it cant be tapped early penalty free unlike a Roth IRA.

[@earlyretirementari]

I would hope you don’t touch your Roth first since it’s the best account for long term tax free growth.

[@MidlifeCrisisManagement]

"I've heard"? do some research on Rule of 55 and Rule 72T. it's totally possible to withdraw from 401k before age 59.5 without tax penalties. 🤓

[@cutehumor]

Taxes will be going up. I'm at the top of the 22 percent tax bracket, wife just got a 20 percent raise, when the trump tax cuts expire end of 2025, we will be in the bottom of the 28% old tax bracket. We started doing roth 401k a few months ago and will stay there. retiring in 7 years and 4 months with irs rule of 55. I'm retiring due to health reasons plus the longer I work the more taxes we will have to pay!

[@ericrosenberg5844]

If you are retiring at 55 you will have a long time to potentially pull from your tax deferred accounts in the 10% and 15% brackets. Why do Roth when your in the 28% bracket today?

[@cutehumor]

@@ericrosenberg5844 wife will be in 39 percent tax bracket after I die. She will be taking rmd from my 401k and her 401k, capital gains from brokerage accounts, ss income, irmaa taxes, niit taxes, Rightcapital software has her in 33 percent tax bracket after I die if I do Roth now. That is if the tax brackets stay the same for the next 40 years which it will not. Taxes going up across the board. This is with 7 percent returns for the next 40 years. If I had to do it all over again, I would done Roth because I’m a saver not a spender. The secure act 2.0 makes my kids pay taxes in ten years after we die off

[@skyeology]

Can someone who's already retired and subject to RMD, and doesn't already have a Roth IRA, still be allowed open a new Roth IRA to do Roth conversions? I always thought you must already have a Roth IRA set up prior to retirement, otherwise there is no "income" for you to establish one.

[@alrocky]

You may convert money from your traditional 401(k) and money from your traditional IRA to a Roth IRA. You do no need an existing Roth IRA balance to do so.

[@grcigar9911]

Making a mental bookmark. Will this current day thought exercise be the same 10+ years from now?

[@richvillacres2793]

Would you still suggest doing a Roth 401k when in the 37% income tax bracket? I’m 57 and plan on working another 7 years. My plan was to have my wife and I contribute the max each to our solo 401k’s and then do Roth conversions when retired and in a lower tax bracket. This does bring up the dilemma of IRMAA though from these conversions. I have 2.7mill in my current 401k and have been debating wether to do Roth for at least one of our 401k’s this last seven years.

[@earlyretirementari]

How long will you be in a lower tax bracket in the future?

[@alrocky]

37% is highest federal tax bracket so you should favor traditional 401(k) as default. For tax diversification contribute $8k to his Roth IRA and $8k to her Roth IRA.

[@LonghornsRule1331]

Great Case study that is giving me a lot to think about. However I'm curious why you didn't talk about tax brackets as part of the decision making. If I heard what you were suggesting correctly if you have additional cash flow you should consider contributing to Roth 401k. What is that true regardless of your tax bracket?

[@BDK42-i9z]

If one has a large amount of contributions to Roth IRAs and is planning on retiring around 57, is there any reason that person should save in a brokerage account rather than a Roth 401k?

[@pearleelife]

No tax on gains in a ROTH

[@gbski43]

Yes better access to funds prior to 59.5

[@martinlord8837]

@@gbski43 Yes the 59.5 rule is the main reason, Another reason would be if you don't have enough cash in your emergency fund or if you plan to buy real estate, gold bullion or some other asset that you cannot or do not want to hold in your retirement account.

[@fitz7896-TF]

good content. Can you retire at 55 and do Roth Conversion on pre tax 401k without paying the 10% penality. Or you would still have to pay the penality since your age is under 59 1/2

[@alrocky]

use outside money to pay conversion tax. don't pay tax from traditional 401(k)

[@fitz7896-TF]

@ thank you. I think I can start doing a little from this year and pay the tax from the brokerage ac

[@jqx7743]

Does your analysis include assumptions that tax brackets would change in the future?

[@earlyretirementari]

Yes.

[@martinlord8837]

Anyone who has reviewed the USA public debt and unfunded liabilities knows that higher tax rates in the future are a certainty. Inflating the debt isn't going to solve the problem as most entitlements are indexed for inflation.

[@julieannharrison]

I’m 24 and very interested in personal finance. I’ve listened to your podcast/channel for the past couple of months. Are there any discount codes to your course materials?

[@earlyretirementari]

Send me an email [e-mail] explaining the reason you deserve a discount.

[@johnburnett1974]

Since I do have a 401k and a Roth 401k do I need to start a Roth IRA ? Or can I just raise my Roth 401k contribution to the max.

[@earlyretirementari]

Raise

[@alrocky]

Generally speaking since Roth IRA offers more investment options at lower costs and greater accessibility, you should contributing $7,000 to Roth IRA before considering contributing to Roth 401(k).

[@Cr1mson_Ghost]

Why don’t you address how to fully fund a Roth 401k requires approximately an additional $7k dollars than a traditional 401k? This extra money could also be invested?

[@alrocky]

For those wondering what Adam is referencing, $23,000 401(k) contribution at 22% federal tax bracket requires: $23,000 pretax income = $23,000 traditional 401(k) + $0.00 federal tax but $23k Roth 401(k) contribution requires ($23k / 0.78 =) $29,487.18 pretax income so $29,487.18 pretax income = ($23k * 0.78 =) $23k Roth 401(k) + $6,487.18 federal tax so proper balanced apples to apples traditional 401(k) vs Roth 401(k) comparison is: $29,487.18 pretax income = ($23k * 0.78 =) $23k Roth 401(k) + $6,487.18 tax $29,487.18 pretax income = $23k t-401(k) + $6,487.18 traditional IRA + $0.00 tax

[@Cr1mson_Ghost]

@@alrockythanks for the breakdown, i realize i worded that horribly . It’s of my opinion roth 401k would only ever make sense if you plan to make more in retirement than your taxable income in the current calendar year. Not that it’s a bad idea to have a healthy mix, but leveraging a roth 401k wouldn’t make sense as your salary grows.

[@ImperialZhouTai]

I've been subscribed for a couple months now. Love your content and the look of this tool. Have a question, and I don't mean to devalue the software you've created (it looks incredible)... but when might you offer a coupon code to reduce the cost? As a young(er) investor every dollar I put into retirement accounts is working very hard for me right now :)

[@earlyretirementari]

Shoot me an email [e-mail]

[@ironjustice3067]

Is this tool free to use

[@earlyretirementari]

No - ari-taublieb.mykajabi.com/early-retirement-academy

[@xlavahott4547]

Tax increases are the third rail of politics. Trickle down economics doesn't work but America is now handcuffed to it now and deficits will continue until they break the back of the US. Congress would rather cut benefits than make the very rich pay anything. Those who don't have enough money to pay for tax avoidance strategies are going to pay the burden.

[@pierre0227]

3:25 you said it’s illegal to have a Roth and traditional 401k maxed out. My job at Costco offers me both but if I’m not mistaken a Roth account has no limit so it can’t be maxed out.

[@SClarkPharmD]

You can have a traditional 401k and roth 401k but the contribution limit is the total including both accounts. From IRS website "You can split your annual elective deferrals between designated Roth contributions and traditional pre-tax contributions, but your combined contributions can’t exceed the deferral limit - $23,000 in 2024." You can't put $23k in traditional 401k and another $23k in your roth 401k. But you can do something like $10k traditional 401k + $13k roth 401k.

[@pierre0227]

@@SClarkPharmD Is it true the Roth contributions aren't tax deductible?

[@SClarkPharmD]

@@pierre0227 correct

[@alrocky]

@@pierre0227 Traditional 401(k) contributions aren't tax deductible either as there is no line on Tax Form 1040 for which you enter t-401(k) amount to claim deduction. Contribution to t-401(k) results in tax *_reduction_* but is not tax deductible.

[@pierre0227]

@ I mean it lowers your taxable income so that means you pay less taxes. It’s less money in your pocket in your pocket because its put away.

[@ericrosenberg5844]

Its not entirely clear but in your scenarios you appear to be contributing an equal amount to Roth or Traditional which would naturally tend to favor Roth contributions. Since a Traditional contribution would impact your after tax pay less then a Roth contribution for a better comparison shouldn't you increase your Traditional contribution so the net effect on your after tax pay is the same? Meaning if you are in the 32% tax bracket and want to contribute 5% to your 401, putting 5% in Roth would be equivalent to 7.35% in Traditional with respect to your net pay.

[@jacobkowski7705]

I totally agree with you. Pretax will have more balance than Roth. Assuming they are in the same tax rate, pretax and Roth will give them exactly the same amount of money after tax

[@mack73]

100% agree. I keep doing the math and based on my calculation it keeps coming out with traditional is slightly better in my situation. Did roth for a while but when I shot up into the 35%/37% brackets reducing the tax liability through pre-tax was a better long term play as I can still do the roth conversion when I retire early so benefit now of tax reduction and benefit later through the roth conversion when I drop out of the very high brackets

[@rajeshamara]

Your analysis is good but you missed one point. Its not apples to apples. When you are doing Roth you are investing more than vs pre tax. 3% 401K is not same as 3% Roth 401K. 3% Roth 401K is equivalent to traditional 401K + (tax paid) on Roth 401K. I feel most of the advisors miss these. To do apples to apples, you need to add the taxes paid on Roth 401K to be invested (may be in brokerage or may be Roth IRA to avoid Long term capital gains). for ex: assume a person in 25% tax bracket and they are contributing 10K in 401K For apples to applies 401K 10K + 2500 (after tax) (brokerage or Roth IRA) => 12500 Roth 401K 10K So technically you will be contributing 25% more in the traditional 401K scenario. I did my analysis you always come ahead by contributing to pre tax. Also since your tax wage base increases all the time, your more pre-tax dollars will be taxed at lower rate. Another way to think is instead of giving 25% to Federal govt, you invest the same 25% in a Roth IRA to grow tax free which can be used to pay for the taxes on pre tax during RMD

[@alrocky]

Your math is wrong. $10k Roth 401(k) balance requires ($10,000 / 0.75 =) $13,333,33 pretax income thus ($13.3k -$10k =) $3,333,33 tax in 25% tax bracket. Proper apples to apples comparison: $13,333.33 pretax income = $13,3333 traditional 401(k) $13,333.33 pretax income = ($13,333.33 * 0.75 =) $10k Roth 401(k) + $3,333.33 tax so $13,333 33 t-401(k) vs $10k Roth 401(k)

[@lindalealphamale]

Better advice…1. Max out the company match on 401k. 2. Max out HSA every year 3. Then Roth IRA

[@JB-kx9bx]

You will earn a lot more from compound growth putting in more pretax dollars. Unless your tax rate is 50% in retirement you’ll make out better doing traditional.

[@richardjohnson218]

What…no mention of the widows penalty? You could be in a way higher tax bracket if one spouse passes away…always do Roth 😁

[@richvillacres2793]

My plan is to pull out 300k per year after taxes in retirement

[@earlyretirementari]

Enjoy it!

[@martinlord8837]

It would be a challenge for me to even reach the $25K a month spending required to need 300K. You don't mention your age so if you're 20, $300K in 45 years isn't going to be worth the same as now and may be the typical retirement income in 2070.

[@enonknives5449]

I've noticed that in all these examples, that no one ever has children.

[@earlyretirementari]

2 kids in this one! kzbin.info/www/bejne/gmbFmXStm7urpposi=kJ9lkeNT13QxH-Gb

[@enonknives5449]

@@earlyretirementari -- Thanks. I didn't mean that there were literally none; just that it was true the vast majority of the ones I'd seen. On the other hand, I wonder if the percentage of couples without children is associated with them having portfolios over $2M. That wouldn't surprise me.

[@lindsaynewell6319]

@@enonknives5449 agree - I have 2 in high school and covering their college costs and their health insurance are definitely a big consideration as I plan for retirement. A lot of people will still have 'adult' dependents all the way up to medicare, given that ACA doesn't age them out until 26. I've never seen a case study on any channel that included dependent adult kids as part of the healthcare equation. It's usually a quick "they have 529s so everything is good" and move on.

[@enonknives5449]

@@lindsaynewell6319 -- My kids are out of college, but still on our healthcare a bit longer. I don't expect them to need any other support. One has already paid off all student loans, and the other is getting close. They are starting to invest younger than I was when I started. They'll probably be better off than my wife and me when their retirement rolls around.

[@kersting13]

@@lindsaynewell6319 True. I intend to retire a.) before medicare, b.) while my kids are ages 19 and 21. Healthcare costs for the kids under 26 is going to be a concern. I think Ari is one of the best at showing these case studies, but it seems that dependent health insurance is often glossed over/ignored by everyone.

[@DillDough4u]

Yellow teeth