Traditional vs. Roth 401k | Why I Chose Traditional (Pre-Tax)

[@summerjoy247]

Keep in mind that a major benefit of the Roth is that the earnings are tax free. Imagine what your earnings will be over 20-30 years. That’s a significant advantage over a Traditional 401k in my opinion.

[@jmmccrary]

I started a 401K about 30 years ago and so wish now that I had the option to do a Roth. I am now have a nice size IRA that I will have to pay a very large tax bill on when I start my mandatory withdrawals. I know its seems a long way in the future but the 401 K turned has turned into a huge tax burden i have to worry about. Seriously looking at options for doing Roth conversions to take money out of IRA and convert them to a Roth and pay tax before retirement income starts. Good luck to you. Very much enjoy your videos. Trying to get my kids to watch and learn from your tips.

[@PersonalFinancewithLeila]

Thank you for sharing and for the insight! Did you also contribute to a Roth IRA at all? I may change my plan in the future but for now I'm OK with pretax

[@inea-fijourney22]

Great explanation, I started my 401k in 2018, and yes went through the same thoughts. And decided the same route. Pretax 401k. and on the side roth ira... Also, I wanted to let you know there is a really good video on Our Rich Journey channel about Roth Conversion Ladder if you are interested in knowing about it. Great video like always. keep sharing! 🔥

[@PersonalFinancewithLeila]

Thank you!!

[@MidwestMoneyMindset]

Great video & explanations :) I also choose to contribute solely pre tax in my 401k for now. It works for me since I also have a roth ira.

[@PersonalFinancewithLeila]

Thank you! Looks like we think alike!

[@denorrisd]

Great video as usual, always good to watch and see you explain your thoughts and processes.

[@bigshoe84]

This is a tough decision but given all the “free” money that’s being handed out lately I would bet that the tax rates will never be lower than they are currently.

[@neelrastardust3052]

Yes, I believe taxes will be higher in the future. I’m low income so it doesn’t make sense to do pre-tax contributions.

[@PersonalFinancewithLeila]

Yeah I agree, I may change my contribution plan later but I think either way is OK

[@03c5z]

Taxes likley wont be lower or much higher. They will collect more tax through inflation. Either way its draining you of more dollars

[@Donkeyearsa]

@@03c5z They have already decided to rase taxes by not extending Trump's temporary tax rate reductions.

[@danielford2369]

When you do the rollover to convert it to Roth you have to pay the taxes up front.

[@its.rachel.hickey]

Fantastic! I love how you always provide so much food for thought and your whole process!

[@PersonalFinancewithLeila]

Thank you Rachel!

[@devonbudgets2023]

I never understood the difference between the two...now I do! Thanks for the excellent explanation!!

[@PersonalFinancewithLeila]

Thanks Devon!

[@Donkeyearsa]

You are only saving $15.23 a week in taxes going with Traditional over ROTH. Going with Dave Ramsey's advice all you have to do is not eat out twice a month to save that amount.

[@alrocky]

The Math: $300 monthly or $3,600 yr * 0.06 match = $60k annual salary or 22% Federal Tax Bracket. $3,600 / 52 weeks * 0.22 = *$15.23* deferred Federal tax per week. @ 10:05 "with those tax savings... I can invest elsewhere" All too common misconception as the _"tax savings"_ for contributing to traditional 401(k) cannot be invested elsewhere as it resides in and is part of traditional 401(k).

[@melissarodriguez4531]

I agree with you. I also do the pre-tax traditional 401K

[@bilquisoyekan5480]

😂. LOVE that last disclaimer Yo!!!! I am doing what I want to do personally cause… finance is personal!

[@jaeade4885]

Personal Finance is personal - I like that❤️

[@mariaquintanilla570]

Best and most clear explanation then the professional financial advisors!’ Thank you!

[@PersonalFinancewithLeila]

Glad it was helpful! Thank you!

[@debtfreeF]

traditional 401k is such a great way to reduce your taxable income and invest!

[@cletokings4302]

My strategy is traditional 401k, HSA for tax savings (6k per year) and a ROTH IRA for emergency account which I only put 2k per year.

[@supaguhh]

Love your videos! You really motivate me to pay off my debt, invest, work towards money, goals and work towards switching my career. You are similar age (29) , with the same goals and we live in the same city..so your budgets are very realistic for me! I did the exact same thing. Initially, I decided Roth 401k due to not being able to contribute to my personal Roth then, split, then went completely to traditional 🙃 with the same reason, I wanted to reduce my tax bracket. My main goal is also, to tackle my debt so I wanted as much money in my pocket while being able to still invest and take advantage of the free money!! Hope you are doing great!! 🤗

[@PersonalFinancewithLeila]

Thank you so much! Love that your right process was similar to mine 😅 It sounds like you're on a good path

[@amendezmuniz]

Hola Leila! Thanks for sharing!

[@JaniVMD]

This was super helpful since I too will start contributing to a 401k!

[@Hup8y4]

Hello baby i have roth 401k. Should i do traditional 401k as well?

[@turtlescanfly7]

I’m not sure if my employer offers a Roth 403b, but I decided to contribute to a traditional one. I max out my Roth IRA so I feel like there’s balance. I’m also pursuing PSLF for my student loans and my employer will reimburse up to $500 a month in student loan payments, so I’m trying to keep my taxable income low enough that my monthly payment won’t be over $500. I won’t be able to do that forever but the longer I can have my employer pay back my law degree the better

[@abbyc.4215]

That is awesome! What line of work do you do if you don't mind my asking?

[@turtlescanfly7]

@@abbyc.4215 Hi, I work for a legal aid (free legal services for low income individuals) in California. I’m an attorney now but was hired right out of law school before I passed the bar. I think the student loan reimbursement is a benefit offered to all employees. There’s also a California legal aid grant for student loan reimbursement.

[@PersonalFinancewithLeila]

That's awesome!! That reimbursement will help soo much, I'm glad they offer that.

[@dudefromlaveenaz]

What my wife and I have decided to do is 1. Max out our HSA. 2. Contribute to our 401K's until we max out our match 3. Max out our Roth IRA. 4. Anything left goes into the 401k to cut our taxes for the current year.

[@PersonalFinancewithLeila]

Awesome plan!!

[@PracticalPolecat]

HSA is one of the best tax advantaged accounts and can help soften medical expenses in retirement. We are maxing that out too. I max my 401k out but my wife has a 403b with high fees so we've decided not to max it out. I wish her school system provided a better 403b plan. :( For better or worse, we are no longer eligible to contribute to a ROTH IRA. I'm glad I contributed a lot when I was younger and recommend those earlier in their careers try to max out the ROTH IRA because, if they have good career success, they may no longer be eligible in their higher earning years.

[@dudefromlaveenaz]

@@PracticalPolecat have you looked into doing a backdoor roth?

[@PracticalPolecat]

@@dudefromlaveenaz I've been looking at it. I have traditional IRAs and rollover IRAs from previous 401Ks and I'm worried about the pro-rata rule for backdoor Roths and how it will impact the taxes from any conversion. Maybe if I did the math it wouldn't be as bad as I think. That's the only wrinkle in an otherwise good idea.

[@adriancanning1783]

Not sure what this would be in the UK, I have a cash ISA account which is tax free.

[@parthivc6353]

Currently, are you still continuing with 6% contribution to Traditional 401k or splitting it with Roth 401k? If splitting, what is the reason for that?

[@PersonalFinancewithLeila]

Still all in Traditional!

[@DM-zh7xn]

I’m 50 and this is the first time investing in retirement plan. To start should I go for traditional or Roth? Tfs

[@PersonalFinancewithLeila]

Honestly I don't feel comfortable recommending either/or since I'm not an expert! I would look into what you expect your income to look like in 15 years and decide from there!

[@alrocky]

If your 401(k) will be your prime source of income for retirement and the amount of money you've set aside for retirement is on the low side, your priority is to contribute as much into your 401(k) as your budget and income allows up to $27,000 for 2022 and $7,000 in IRA.

[@misaelhdez5162]

I have 32 years old I have 70 on my pre tax 401k and 40 on my roth 401k and do hsa You think I should stop putting money into the pre 401k and start putting money into the Roth 401k

[@protzmafia]

Guideline is the shit. Some months I'll drop my % if I know I have a big purchase coming up then increase it afterwards. Also changing between roth and trad on the fly on a per check basis is so nice.

[@PersonalFinancewithLeila]

Yeah I was surprised I could change things up so often!

[@charmcrypto824]

Thanks for this insightful video, Layla! Choosing between traditional and Roth 401k plans can be tricky. On another note, if you're into exploring new investment avenues, My Digital Money might pique your interest. Just saying, diversifying with crypto could be the move for securing that bag in the long run!

[@alrocky]

While contributing to traditional 401(k) you will reduce taxes paid that does not translate to mean you have that the taxes you did not pay ends up in your pocket to fund your Roth IRA. The amount of taxes saved or deferred is instead inside the traditional 401(k).

[@meedpelayo9915]

Secure Act 2.0 will now put company match into ROTH 401k and employee pays for the taxes. Starts 2023 I believe.

[@alrocky]

Employer plan will have option to _allow_ company 401(k) match to go toward either traditional or Roth 401(k). Employee will pay tax on employer Roth 401(k) match.