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Old 02-28-2013, 06:09 PM
 
24,488 posts, read 40,990,659 times
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Quote:
Originally Posted by yoyoma02 View Post
So if they are the exact same, then why do more people contribute to a 401k?
401k assumes that you plan on living a cashflow poor life when you get old.

ROTH IRA assumes that you plan on living a cashflow rich life when you are old.

Surely oversimplified. You have to estimate where your tax burden will be when you are old.
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Old 02-28-2013, 08:08 PM
 
1,784 posts, read 3,446,935 times
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Quote:
Originally Posted by yoyoma02 View Post
So if they are the exact same, then why do more people contribute to a 401k?
Well you should definitely choose the 401k until max out your employer match. Instant 100% return.

After the match expires it's a matter of tax situation now vs. at retirement. That was the whole point of my last sentence in my previous post.

Quote:
Originally Posted by snowdenscold
You can see from the bolded underline parts that your tax bracket now and later affect which one returns a higher number (or possibly the same).
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Old 02-28-2013, 08:38 PM
 
105,720 posts, read 107,717,837 times
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Quote:
Originally Posted by yoyoma02 View Post
So if they are the exact same, then why do more people contribute to a 401k?
employer matching and the fact you can put away much much more. also because they may not have the discipline to contribute on their own unless it comes out of their check.
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Old 02-28-2013, 08:39 PM
 
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Quote:
Originally Posted by NJBest View Post
401k assumes that you plan on living a cashflow poor life when you get old.

ROTH IRA assumes that you plan on living a cashflow rich life when you are old.

Surely oversimplified. You have to estimate where your tax burden will be when you are old.
i would not agree at all. it has nothing at all to do with that. in fact i have no roths ,only 401k and traditional ira's and i can tell you there is no assumption of having a cashflow poor life at all.
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Old 02-28-2013, 08:41 PM
 
30,856 posts, read 36,754,153 times
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Quote:
Originally Posted by yoyoma02 View Post
I mean, if you don’t have a company match, why would you rather invest in your 401k rather than a Roth IRA? Wouldn’t you rather pay the taxes now and have it grow tax free, rather than having to pay a higher tax rate at 65?

I don’t understand why some people max out their 401k and don’t even think about maxing out their Roth.

Please educate me, thanks!
I don't get a match because I have a separate defined benefit pension plan (We'll see if I actually get it).
I have a 457 Deferred Compensation Plan, which is similar to 401ks in most respects (and this is true for the sake of this thread).

I do have a Roth IRA, but I invest primarily in my deferred comp plan because:

--I like getting the tax benefit now. The short term tax savings allows me to save more in the plan than I would otherwise be able to do. That extra money saved compounds!

--I like the funds offered in my plan. Many of the funds I have in the plan would have very high minimums that I couldn't afford or would charge "sales loads" if I tried to invest in them outside my plan. Inside the plan, those charges don't apply. Some people really do have crappy funds in their 401ks...but I have good, in some cases, very good, funds in the plan.

--I don't trust the government. Just because Roth IRA withdrawals aren't taxed now doesn't mean they won't be later.

--I have a 457 deferred comp plan, and I can take the money out of the plan without penalty if I leave my employer. This is one of the rules that's different from 401ks, 403bs, and regular IRAs.

--If my income is low due to job loss, taking extended time off, etc....I may be able to convert my Regular IRA or 457 Plan into a Roth IRA at that time, while my income and corresponding tax rates are low.
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Old 03-01-2013, 12:22 AM
 
24,488 posts, read 40,990,659 times
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Quote:
Originally Posted by mathjak107 View Post
i would not agree at all. it has nothing at all to do with that. in fact i have no roths ,only 401k and traditional ira's and i can tell you there is no assumption of having a cashflow poor life at all.
What is your strategy? Do you expect to have a higher cashflow and lower taxes in the future?
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Old 03-01-2013, 02:24 AM
 
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whether i used a roth or traditional my income will be my income. they are both a means to the same end. tax brackets ,not just tax rates would have to be higher before a roth would pan out.

no question with 2 pay checks and 6 figures less income from the loss of them our income will be lower when we retire.

which vehicle we use ,be it a roth or traditional will have nothing to do with our expenses that need to be payed.

your statement

"Originally Posted by NJBest
401k assumes that you plan on living a cashflow poor life when you get old.

ROTH IRA assumes that you plan on living a cashflow rich life when you are old."

has nothing to do with what your retirement expenses will be and hense your income needs.
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Old 03-01-2013, 07:34 AM
bUU
 
Location: Florida
12,077 posts, read 10,651,100 times
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There does appear to be a lot of effort, today, to get the general public to drink the Roth Kool-Aid, and regard Roth IRAs as something akin to the second-coming. The reality is that 401(k)s, Roth 401(k)s, tIRAs and Roth IRAs each have their benefits, depending on circumstances. The most significant aspect of 401(k)s, that none of the other options grant, is the ability to reduce my family's taxable income by $46k a year. Given how close we are to retirement, and the fact that we're in a higher tax bracket now, it's going to be better to wait until we're in a lower tax bracket before we pay tax on that money. Another major advantage it afforded my family was eligibility to contribute to a Roth IRA in 2012 - something that we couldn't do without having maxed-out our 401(k) contributions. In the absence of eligibility for a 401(k), a tIRA affords similar advantages, though to a lesser degree (due to the lower contribution limits).

There are good reason to consider Roth contributions as well, but it won't be the best decision for everyone.
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Old 03-01-2013, 08:17 AM
 
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Think back to two years ago. They opened up roth conversions to no income limits and gave you en extra 2 years totaling 3 years to pay the taxes.


They know most americans will not be in higher tax brackets with no pay checks.

They also know many will relocate to low or no state income tax states cutting out the state taxes too later on if you defer.

there are extra bonus deductions thrown in at 65 too that reduce things. in fact 35k from a deferred plan will be taxed at only 1500.00 bucks for a 65 year old couple
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Old 03-01-2013, 10:08 AM
 
Location: NJ
31,771 posts, read 40,472,612 times
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Quote:
Originally Posted by yoyoma02 View Post
I mean, if you don’t have a company match, why would you rather invest in your 401k rather than a Roth IRA? Wouldn’t you rather pay the taxes now and have it grow tax free, rather than having to pay a higher tax rate at 65?

I don’t understand why some people max out their 401k and don’t even think about maxing out their Roth.

Please educate me, thanks!
the roth ira is clearly the better choice. it doesnt offer tax deferral, its offers tax free money.
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