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Old 09-28-2017, 12:08 PM
 
Location: Eastern Washington
14,233 posts, read 44,903,829 times
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I *think* a non-Roth 401k works better for someone who starts early, and makes a good income while working. A guy like me.

Not certain if I went back in time and the 401k had been a Roth. I would have done it, we get a match from employer - 50% on your money as a sure legal thing is not something you turn down.

But I think the tax money I would have paid, has been compounding for 26 years, and has helped me more than having this money be taxable will hurt me when I finally start withdrawing.

Not certain if making all 401k contributions Roth from now going forward, or just making all new 401k accounts Roth would do policy-wise.
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Old 09-28-2017, 12:50 PM
 
Location: Silicon Valley, CA
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I believe that one should have a choice between going Roth or not for a 401k, depending on one's needs and circumstances.

It's going to depend a lot on one's income level while contributing to the 401k - if it's a higher income, it's not advantageous to do a Roth. OTOH, sometimes if you've seen a dip or drop in income while shy of retirement age - some folks will do a Roth conversion.

In any event, I doubt there is going to be much change in how the 401k is going to be administered - stakeholders like the financial services industry and AARP are likely to weigh in against any drastic changes.
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Old 09-28-2017, 12:59 PM
 
Location: Gilbert, AZ
3,180 posts, read 1,957,944 times
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Quote:
Originally Posted by bigbear99 View Post
This idea would work well for the wealthy, and terribly for people who are already cash flow challenged - normal folks with kids still at home.
Probably the opposite. It does depend somewhat on one's definition of "wealthy", but someone who earns enough to get into the >30% Federal category likely does best with a deductible 401k, assuming they are not going to also be getting a big pension.

The "challenged" family may typically be in the 10% or 15% bracket. When they pay taxes in retirement on their 401k withdrawals and SS checks they might find they are paying a higher rate than while working.
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Old 09-28-2017, 02:35 PM
 
2,675 posts, read 1,539,886 times
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The things that attracted me to 401K, and what led me to make heavy contributions once daughter was done with college, were the immediate reduction in income tax - felt like supercharging my contributions, where every dollar saved was a 25% or more reduction in taxes and the prospect of a lower tax rate when I was retired.

A few years before retirement, I ran the numbers and saw that my marginal tax rate would be higher in retirement than while working, so we started saving post tax. Was not eligible for a Roth. Fortunately we don't need to withdraw much now, and can deal with RMD when the problem comes up.
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Old 09-28-2017, 02:46 PM
 
Location: Florida -
8,763 posts, read 10,840,630 times
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For now, I believe the conversion of 401K's/IRA's to Roths is more speculative than real. The 35-year purpose of 401K's (encouraging American's to save toward retirement) has been well served over many years. Over 33 million workers are today covered by 401K's, representing more than $3-trillion in savings ... and the largest source of retirement funds (7-figures average) for long-term savers approaching retirement.

Beyond editorial rhetoric, it's unclear what advantages a Roth conversion would provide, even if it were seriously considered. Serious tax reform could change that situation. But, given the political climate in Washington, anything favored or put forward by the GOP, will be violently opposed by Dems and their minion media. I think the big battles will be waged in areas with clearer political capital at stake.
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Old 09-28-2017, 02:48 PM
 
Location: WA
5,394 posts, read 21,393,457 times
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Quote:
Originally Posted by jghorton View Post
The primary difference is only when taxes are paid.
...
Not really. The primary difference is whether you pay tax on gains or not. With a Roth you only pay tax on the initial amount but without Roth you pay tax on withdrawals, often far greater.

Unfortunately most of my retirement investments were made before Roth's were available so now as a retiree living off my investments my largest expense is income tax. If I had been able to use Roth for investments I would have hundreds of thousands that I must now send to the IRS.
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Old 09-28-2017, 02:51 PM
 
Location: Gilbert, AZ
3,180 posts, read 1,957,944 times
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Quote:
Originally Posted by jghorton View Post
Beyond editorial rhetoric, it's unclear what advantages such a conversion would provide even if it were seriously considered.

Um.... increase tax revenue TODAY.
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Old 09-28-2017, 03:46 PM
DKM
 
Location: Thousand Oaks, CA
2,825 posts, read 1,007,799 times
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Quote:
Originally Posted by hikernut View Post
Um.... increase tax revenue TODAY.
By decreasing tax revenue in the future. Same as adding to the national debt.
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Old 09-28-2017, 04:59 PM
 
1,208 posts, read 706,913 times
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Quote:
Originally Posted by oldsoldier1976 View Post
I know this is somewhat political but it is also very retirement centric. POTUS is expected to release his tax structure proposal soon and this is one of the ideas that is rumored to be in the proposal. It has good and bad results. One you would loose the pre-tax income reduction allowing taxes to be collected at the time of earning but the withdrawal of the funds in retirement would be federal tax exempt like Roth IRA's are.


Morningstar asks these questions.



It goes on to answer.



I for one think it is a good idea and worthy of investigation. It gives the federal government the current income it needs and allows the employee the future tax exempt income they surely can use.

What does everyone else think?


Will 401(k) Plans Be 'Rothed'?
I think there is always someone who thinks it's a good idea to eliminate or reduce a benefit that helps those who are not wealthy climb out of poverty or those, not quite poor, climb up just a little higher from the bottom edge of middle class. It's not enough for those who have more, they still want others to have less. That's what I think.
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Old 09-28-2017, 05:15 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,558 posts, read 39,944,045 times
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Quote:
Originally Posted by cdelena View Post
Not really. The primary difference is whether you pay tax on gains or not. With a Roth you only pay tax on the initial amount but without Roth you pay tax on withdrawals, often far greater.
.... If I had been able to use Roth for investments I would have hundreds of thousands that I must now send to the IRS.
Agreed with above. Paying taxes on gains is not the favorite thing to do with my investment earnings...

I have enjoyed the benefit of having both; Roth and Non- Roth 401k (as well as IRAs)
They are each appropriate.

I'm all for getting rid of the 'allusive' deductions, (deferred medical, retirement investments, contributions, home mortgage interest) tho it would put a lot of accountants and realtors out of business.
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