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^^
Sure, trying to decide Roth vs. Trad 401k is always part guesswork. When 30 years old it's mostly guessing, but when 50 it's a bit less guessing. I switched entirely to Roth at age 54, based on our financial state. Of course there's no guarantee I made the right choice.
Edit:
Just to clarify, at age 54 I started directing all new 401k contributions to Roth. I have money in taxable 401k as well. (Roth 401k was not even available until 2006).
I'm not at all disagreeing that having some in each is appropriate for most people.
I've been invested only in the traditional 401k with my employer to date (~9 years). I have a small ROTH IRA. I anticipate at this point in my life staying with my employer another ~10 years to age 55.
How do I know if it would make sense to switch over to the ROTH 401k starting next year? I'm on track to max or come close to maxing out my 401k for this year which I've been doing the past few years. I was thinking if I made the switch, to proceed with starting off 2023 in the ROTH 401k going forward. If I stayed 20 years with my employer that would mean half of my years contributing to the traditional 401k and half contributing to the ROTH 401k.
I am naive about exactly 'how' to go about making this decision.
I do anticipate that my income in retirement will be much lower than in my pre-retirement years.
I have a 401k with my current job, and a separate ROTH IRA that I have been contributing to.
Last year for the first time in my 401k, I have been contributing regular (traditional) AND Roth contributions to my 401k. They show up together when I look at the totals on my 401k, but my understanding is when I leave this job, I will have two separate balances. One will be a regular balance that I can roll over to a traditional IRA and the other will be Roth money that I can roll over to the Roth IRA.
The reason I have not switched all my new 401K contributions to Roth contributions is because taxes are a major factor now, for example I currently live in New York State.
Still, I know someday I will be glad that I have more Roth money so I hope to gradually reduce the traditional 401k contribution in favor of gradually increasing the Roth contribution. I did it twice already as I got new raises.
I've been invested only in the traditional 401k with my employer to date (~9 years). I have a small ROTH IRA. I anticipate at this point in my life staying with my employer another ~10 years to age 55.
How do I know if it would make sense to switch over to the ROTH 401k starting next year? I'm on track to max or come close to maxing out my 401k for this year which I've been doing the past few years. I was thinking if I made the switch, to proceed with starting off 2023 in the ROTH 401k going forward. If I stayed 20 years with my employer that would mean half of my years contributing to the traditional 401k and half contributing to the ROTH 401k.
I am naive about exactly 'how' to go about making this decision.
I do anticipate that my income in retirement will be much lower than in my pre-retirement years.
I switched to the Roth 401K as soon as it was offered. That was many years ago, and it was the best decision I ever made. I have been retired for 8 years. I made over $600,000 profit in Apple stock, and paid zero taxes on the gain! Plus I can trade stocks without worrying about capital gains tax. I also don’t have to take RMD distributions on the money. I would never invest in a traditional IRA over a Roth, regardless of my tax bracket.
The only other reason to contribute to a ROTH 40k is to get the company match. In my case, I don't spread out my IRA contribution over 12 months and I max it out by the end of Summer. To continue receiving the company much I contribute post tax the minimum into a ROTH IRA. This way I get the company match that is usually spread out over 12 months.
That said, there is no advantage in contributing post tax dollars into a retirement account. You can do the same in a brokerage account where you will not be forced into retirement account rules such as RMD or early withdrawal penalties.
There most certainly is. Invest post tax dollars in a regular account and when you pull the money out, assuming you made money, you will pay capital gains tax on it. As hikernut points out below, put those post tax dollars in a Roth IRA and you don't pay any tax on the gains and you aren't forced to take the money out.
Quote:
Originally Posted by hikernut
Here is an enumeration of account types that are subject to RMDs:
What types of retirement plans require minimum distributions?
The RMD rules apply to all employer sponsored retirement plans, including
profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.
The RMD rules also apply to Roth 401(k) accounts. However, the RMD rules do not apply to Roth IRAs while the owner is alive.
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