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But you would have paid taxes on the Roth contributions. Lets say you contributed $5,000 and paid $1,000 in taxes. Thus your net pay would be reduced by $6,000.
For the tax deferred 401k you contributed $5,000 and paid $1,000 less in taxes. Thus your net pay was reduced by $4,000.
I would contribute as much as you can to the plan and I would use both types as you can not predict the future tax picture.
In your Roth example, "net pay" has already accounted for the tax payment. Said another way, it does not matter how much was taken out in taxes, a Roth contribution reduces the net pay by the amount of the contribution. If he bought a $5,000 boat instead, it would reduce his net pay by $5,000. Same thing
Anything you do from your checking account is with net monies but that ignores how much income it takes to put 5k in a Roth vs 5k in a deductible Ira or 401k
Anything you do from your checking account is with net monies but that ignores how much income it takes to put 5k in a Roth vs 5k in a deductible Ira or 401k
One takes 6k as does the boat and the other 4k
He didn't say the $5,000 Roth cost him $6,000, which might be true. He said the $5,000 Roth reduced his net pay by $6,000, which is not true.
I realized after I posted that I would get in some silly argument which is why deleted it. I am not going to continue this
But you would have paid taxes on the Roth contributions. Lets say you contributed $5,000 and paid $1,000 in taxes. Thus your net pay would be reduced by $6,000.
For the tax deferred 401k you contributed $5,000 and paid $1,000 less in taxes. Thus your net pay was reduced by $4,000.
I would contribute as much as you can to the plan and I would use both types as you can not predict the future tax picture.
Okay, now I'm getting confused, but my question was pretty simple and Lowerexpectations answered it. $18,000 in contributions to either 401k types.
I'll let my tax advisor figure out the rest. My concentration is putting as much money as I can into those accounts.. and yes, we do a combination because it's too hard right now to figure out where we'll be in the future. I'm certainly not where I thought I would be now.
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