Questions regarding Traditional or Roth 401k

[Gooch03]

Hey guys, first of all its good to be back. Since my last visit I've landed a job as an Operator at an oil refinery. We have a 401k program and right now I use the after tax Roth contribution. I was investing 2% of my pay and the company was matching 8%. Right now I'm investing 18% with the company match and some people say I need to go the traditional route so I don't get taxed so hard. We have another retirement fund that the company handles but as far as my ESIP contribution it all goes into company stock. My question is should I stay with that after tax roth or go to a traditional? I appreciate all the help up front.

Also I have a side fund set aside for a SVT vehicle (Raptor, Cobra, GT500) just gotta make up my mind which one I want the most :thumbsup:

 

[Jbstang87]

If you dont owe the gov any money at the end of the year, why do you need to go traditional? Open the roth and get a tax free income growth

 

[Gooch03]

That was my line of thought as well. I understand his point, do it before tax so you see more on each paycheck. Makes sense, but the downside is I'm sure you will get hit pretty hard when it comes time to collect. You have a great point, thanks for your input!

 

[ON D BIT]

That was my line of thought as well. I understand his point, do it before tax so you see more on each paycheck. Makes sense, but the downside is I'm sure you will get hit pretty hard when it comes time to collect. You have a great point, thanks for your input!

Roth all the way as the law states now. To my understanding you will only be taxed on the income you put into the Roth 401k.
10k starting investment 500 a month for 20 years ave 6% return ~ 266k
130k investment and 136k in interest.

With this example the Roth 401k you would be taxed only the 130 original investment and your 136k interest earned would be tax free.
With a traditional 401k the entire $266k would be taxed as income. :bash:

 

[RedRocketMike]

Roth all day every day.

 

[Crimson2v]

I would rather have it taxed now rather than when I pull it out come retirement time. There is no telling what the tax rate will be then.

 

[03 KB Sonic Blue]

Pay the taxes now. That way you know exactly what you are getting when you are able to pull it out. You know the tax rate now. You don't know the future tax rate.
At least that's what my advisor told me because of my age.

 

[POPPAJ]

I would rather have it taxed now rather than when I pull it out come retirement time. There is no telling what the tax rate will be then.

Pay the taxes now. That way you know exactly what you are getting when you are able to pull it out. You know the tax rate now. You don't know the future tax rate.
At least that's what my advisor told me because of my age.

Good advice! Tax rates will never be lower than they are today. Paying taxes on 401-k withdrawals sucks big time.

 

[SpectorV]

you can only invest 5500 a year on a roth ira, thats where the issue is, so you need the traditional or some other form for more investment as 5500 a year may not cut it at retirement.

 

[Willie2]

you can only invest 5500 a year on a roth ira, thats where the issue is, so you need the traditional or some other form for more investment as 5500 a year may not cut it at retirement.

Ok, but OP isn't talking about a IRA. He has a Roth 401K which has a max of 17500 I believe.

 

[black92]

Thanks for the post as I am in the same boat! I think I need to meet with someone before I fill out anything to know what's the best course of action...

For me:
-Traditional Roth 401K: I get 4% salary match invested weekly
-Roth 401K: Post tax deduction

 

[EatonEggbeater]

One thing that bit my tail as far as the IRA business goes.

I'd been told to stuff as much in as you could to avoid taxes, so I did that.

Then comes time to buy a house, and all my extra money had been going to the (regular, not roth) IRA.

I had to cash in a bunch of those investments for the down payment for the house, and lost 10% off the top. Still paid income tax on it, which is fair.

But, if I had it to do again, I'd hold some liquid cash in an interest bearing account/investment specifically for a house downpayment.

Yes, you can get a loan that you pay back to yourself, but I couldn't afford to pay a loan and a mortgage. You only have 5 years on the loan anyway.

What I'm saying is take other expenditures into account, this is the one that got me.

 

[IH8GM]

At the very least put in the max on what you company matches that’s almost free money.
I was trying to do the math for this as far as at what point will pre or post tax make the difference. .Using 2012 tax rates i think it comes down to if you make more then $140k a year (and will retire around that income) as a single person roth does not make much sense I used 4% year over year interest. otherwise Roth is the way to go. People say you dont know what tax rates in the future will be and that is true you can still make some pretty educated guesses and look at historical trends. and a point to that is if you end up with 1 million in your traditional 401k will you take it all out at once? Common sense should dictate no. you will do $50k for 20 years and that tax rate will be much lower.
Even though I am nowhere near $140k I still like traditional better as a starting point you want to take advantage of the compounding interest as soon as possible so id say put as much as you can into traditional till you have a nice nest egg working for you and then go roth if you like. Sure the money is post tax but to build up that nest egg will take much longer


My numbers can be all wrong and probably are im no mathematician

 

[Gooch03]

All valid points. I think I will continue with my Roth 401k. I'm just trying to get in a good financial position. I'm 26 and I like stuff, so it's hard for me to buckle down and commit to putting in what I do but I keep telling myself I'll be glad later on. Today I refinanced my truck to save interest and cut back on length of loan (went from having 68 months to 48). It is costing me a little under 200 more a month but I easily spend that on stupid stuff I don't need. Not to mention I think since my fiance and I quit smoking that explains the extra cash each month!:rockon:

 

[Fast99Snake]

either traditional or roth a nice benefit to tucking as much in an IRA as possible is that it's protected if unforeseen events happen (getting sued, bankruptcy, etc.) You just never know!