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my company offers both a 401(k) (4% match) and what they call a Roth 401(K)
i contribute 8% of each check into the 401(k) and 8% into the Roth 401(K).
first question, is that Roth the same as a Roth IRA? if not, what is the difference and why is it not offered? would it make sense to transfer this money over to a Roth IRA (again, assuming they're different)
lastly, do i seem to be saving an OK percentage for a 28 year old?
Max out the Roth 401k, that money won't be taxed in retirement. Any employer contributions have to be put into a regular 401k, so you'd have both accounts either way.
So, for instance, if you put 10% into the roth 401k, your 4% match from the employer would go into your regular 401k. The growth in the roth is not taxable when withdrawn in retirement, but the regular 401k withdraws would be, so it's advantageous to utilize that Roth to minimize your future tax burden.
There are a lot of other factors that go into which you should choose, but for most people, the Roth is the best option.
Max out the Roth 401k, that money won't be taxed in retirement. Any employer contributions have to be put into a regular 401k, so you'd have both accounts either way.
So, for instance, if you put 10% into the roth 401k, your 4% match from the employer would go into your regular 401k. The growth in the roth is not taxable when withdrawn in retirement, but the regular 401k withdraws would be, so it's advantageous to utilize that Roth to minimize your future tax burden.
There are a lot of other factors that go into which you should choose, but for most people, the Roth is the best option.
You really can't tell someone a Roth is more advantageous without knowing a host of other details some of which would also amount to guessing.
No, but you can say the Roth is the right option for MOST people, which is what I said, and I believe to be true.
You also don't know that Roth's will not be taxed in retirement. They already tried to go after 529s. I wouldn't be certain Roth's will be cap gains tax free forever.
I don't think Roth's are the right option for most people, they are for some. I think if you are in the 25% tax bracket or higher Roth's are typically not a good idea. It also depends on where you plan to retire. For example, let's say I choose the Roth over the traditional. I live in a state with a state tax of about 7%. I may retire in Florida (already have family property down there) which does not have a state income tax. If I choose the Roth route I pay 25% federal taxes and an additional 7% on state income taxes. When I retire what if my taxable income is only in the 15% tax bracket and I pay no state income tax? I just saved 17% on taxes.
Max out the Roth 401k, that money won't be taxed in retirement. Any employer contributions have to be put into a regular 401k, so you'd have both accounts either way.
So, for instance, if you put 10% into the roth 401k, your 4% match from the employer would go into your regular 401k. The growth in the roth is not taxable when withdrawn in retirement, but the regular 401k withdraws would be, so it's advantageous to utilize that Roth to minimize your future tax burden.
There are a lot of other factors that go into which you should choose, but for most people, the Roth is the best option.
wait, so if i put all of my contributions into the Roth ONLY they'll still match up to 4% but just into the traditional?
i was under the impression that i had to contribute to the traditional in order to get the 4% match.
lastly, should i open a separate Vanguard Roth IRA and if so would it make sense/is it possible to roll over the cash in the Roth 401(K) into the IRA?
I think if you are in the 25% tax bracket or higher Roth's are typically not a good idea. It also depends on where you plan to retire. For example, let's say I choose the Roth over the traditional. I live in a state with a state tax of about 7%. I may retire in Florida (already have family property down there) which does not have a state income tax. If I choose the Roth route I pay 25% federal taxes and an additional 7% on state income taxes. When I retire what if my taxable income is only in the 15% tax bracket and I pay no state income tax? I just saved 17% on taxes.
If you were planning on not needing the funds from your 401k and were planning on passing it on to your heirs, how would that affect the traditional 401k vs. Roth 401k comparison?
wait, so if i put all of my contributions into the Roth ONLY they'll still match up to 4% but just into the traditional?
i was under the impression that i had to contribute to the traditional in order to get the 4% match.
lastly, should i open a separate Vanguard Roth IRA and if so would it make sense/is it possible to roll over the cash in the Roth 401(K) into the IRA?
You have to check with your company. Some companies won't allow rollovers while you are still employed. Yes, they will still match 4% in the traditional IRA if you only contribute to the roth.
Quote:
Originally Posted by Mr. Zero
If you were planning on not needing the funds from your 401k and were planning on passing it on to your heirs, how would that affect the traditional 401k vs. Roth 401k comparison?
That's a good question I think it follows the same laws. If you didn't want your heirs to have to worry about any taxes on the money the Roth would likely be the better option but that means you will be taxing on that money you will never even use.
I used the Roth 401k extensively when my earnings were substantially less. For example, with my career salaries typically start really low (mid 20's) and after a decade you are well over a 100k. So for me, I put all my savings into a Roth account when earnings were less and now that earnings are more I put it all in a traditional acct.
For you, if the 8% toward the Roth account is <$5,500, I would open a Roth IRA as the investment choices will be better and most likely with much lower fees.
You can always fund a Roth IRA up to $5500 and then also fund a Roth 401k assuming you keep total contributions below the maximum limits.
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