401k, Pre-tax or Roth? (inheritance, IRAs, dividends, investment)
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no one can answer that for you. there are advantages and disadvantages of all the vehicles. each situation is unique.
actually a study done by carnegie mellon showed by utilizing taxable accounts, roths and traditional iras in a mix there can be as much as a 20% difference in your after tax balance.its all about putting the right investment in the right account.
We are currently doing 50/50. What do you think? Should we try to get to 100% Roth instead? Or the other way around?
401K first because it saves you taxes now, especially 401K because if the employer is matching up to certain amount then put as much as you can in Roth IRA.
401K first because it saves you taxes now, especially 401K because if the employer is matching up to certain amount then put as much as you can in Roth IRA.
Sorry if my question was confusing. I was asking if we should do more Roth 401k OR more Pre-tax 401k.
I believe there's a high probability that we will be at a higher tax bracket within the next 5 yrs. At retirement way in the future, who knows. I'm not even thnking about leaving any inheritances. lol. I'm more concerned about having enough at retirement.
Based on your comments you are young (at least 30 years left to retirement) and relatively successful (or are smart about your expenses and saving).
Either way, you're already off to a good start.
To answer your question you have to take a look at your federal and state taxes. If your state taxes income on distributions, dividends, and returns when you go to sell, it might make more sense to put more in your 401(k) traditional. Defer the taxes and reduce your tax bracket is the best because in your situation being taxed at both the state and federal level it makes more sense.
If you live in a low tax or no tax state, like Texas or Washington state, it makes more sense to put some more into your Roth. Put as much as you can into your 401(k) to matching at least, reduce your taxes, and then put more money away into your Roth.
Then it goes into personal tastes and expectations. If you're like me and think that the Feds are going to steal 70%+ your money in the future because of the irrational and stupid actions of our leaders indebting us forever, it makes more sense to only contribute to company match in your 401(k) and put the rest into a Roth or other taxed accounts.
If you think the government won't increase taxes significantly in the future to pay off the $14 trillion in debt we owe ... well, then it makes more sense to put more into your 401(k).
I think having both is a smart decision, personally. You can borrow against both to buy a house or college tuition, and with a Roth you can take out money whenever you see fit.
On that note, if you think you're the type that will take money out of a retirement account like a Roth account, then it may make more sense to simply open a traditional Roth account if you can, or just use the 401(k) because let's face it, it's a cookie jar that gets bigger over time. More temptation to eat the cookies for that dream vacation, splurge on that car, buy a house you don't need or can't afford, etc. Having a closed account (for all intents and purposes) like a 401(k) is beneficial because you're saving yourself from yourself.
These are all the sorts of things you need to think about and NOBODY here has a silver bullet for all scenarios. Only YOU can figure out what is best for YOU.
Eskercurve. Thanks! We definitely prioritize saving. To us, more savings mean more options.
Very good point on the state taxes. I thought about it at one point. Not sure why I forgot and did not dig deeper about it.
We live in a state with no state income tax. I think I should find out more about state tax on retirement incomes since I hope to live somewhere else in the future. More to a Roth 401k may be a good idea after considering state tax.
Sorry if my question was confusing. I was asking if we should do more Roth 401k OR more Pre-tax 401k.
I would do the full matching first on 401K and then max out on Roth IRA.
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