401k Traditional vs. Roth

My company offers 401k now and thinking about which option I should go with. Roth is attractive because tax now is probably less than when I take it out in 40 years and then I don't have to think about it. I'm making around 150k/year and Traditional doesn't really lower my tax bracket but pretax is nice.


Curious to hear everyone's thoughts and what you considered when you chose your options.


Thanks!

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10
Tres
Politicker
3
Account Executive
I do a blended approach - usually you can put a little in each and you can adjust based on @poweredbycaffeine 's comment on tax
SaaSsy
Politicker
1
AE
I do both as well. Definitely take full advantage of any match for 401k first and just set aside $6k for a Roth like it's a planned cost already - then it's an easy habit to contribute every year.
CaneWolf
Politicker
2
Call me what you want, just sign the damn contract
Oh boy, some incorrect information here. PLEASE VERIFY what you read.

-The maximum annual for a Roth 401k is NOT $6,000. For 2021 it is $19,500. That is also the same for traditional 401ks. That number excludes corporate match. So if your company matches 1%, that doesn't impact your contribution.
-IRAs have a maximum contribution of $6,000 for 2021 if you're below the age of 50.
-If you're single and make $124k or less in modified gross adjusted income, you can use a Roth IRA. Otherwise, you need to use a traditional. At $150k pre-tax, I'm guessing you'll be right over the line.
-Taxes are historically low and we have a shitload of debt. Rates are gonna go up. I'd recommend paying at least some of the tax now. I personally split 50/50 between traditional and Roth.

kelun8
Politicker
0
AE
I have to re-read everything multiple times because it's confusing and there's so many different options, thanks for verifying!
poweredbycaffeine
WR Lieutenant
1
☕️
If you plan to make more down the road, then you might choose a Roth due to the tax implications after you retire. Great article here that breaks it down:

"As a general rule, employees who expect to be in a lower marginal tax bracket after they retire might want to opt for a traditional 401(k) and take advantage of the immediate tax break. On the other hand, employees who expect to be in a higher bracket might opt for the Roth so that they can avoid taxes later. For example, a Roth might be the right choice for a younger worker whose salary is relatively low now but likely to rise substantially over time."

Source:  https://www.investopedia.com/terms/1/401kplan.asp#traditional-401k-vs-roth-401k
PipeSmokingBanker
Fire Starter
1
Programming Director
At the very least, if your company matches contributions (usually in the Traditional) I’d contribute up to their match limit.  It’s free money...taxes or not.  Now, typically, it’s better to pay now and avoid tax later to minimize the tax hit on the growth when you start distributions which would mean lean to ROTH.  If Traditional is not going to be help you on the tax bracket side now, I would match my employees contributions in the Traditional and then go ROTH.   (all of that is assuming the investments are comparable in both plans).

Thanks for the tag @CuriousFox 
WCK
Notorious Answer
0
Padre de Tequila, General of the Coors Knights
I'm big on Roth due to pre-tax options and it not being hit down the line, but if I remember correctly there's a limit on Roth?
DrunkenArt
Politicker
2
Sales Representative
$6k per year is the max contribution for a Roth
SADNES5
Politicker
0
down voters are marketing spies
Not American... but why pre-pay taxes...? 

Let em tax you later, you never know when you're going to be hit by a bus, or take the one personal trip that ends up landing you the job of your dreams because you had the cash now to buy the plane ticket. 

Who knows, you might wake up dead.
kelun8
Politicker
1
AE
Sadly doesn't work that way. If I pay taxes now, it would be taxed on my current income bracket rather than what that would be in ~40 years (assuming I will make more money by then). 

It's an investment account for when you retire, so I can't take money out until I believe 59 so even if I did get hit by a bus, I still wouldn't benefit from it. But yes I would get more in my paycheck because it's untax'd for now if I decide on a traditional 401k.
Justatitle
Politicker
0
Mid Market AE
The value of the money now is far greater than the penalty you will pay in 40 years. For that reason I always like the 401k option better. Roth has its advantages but the 20% you pay now is a lot nicer in the 401 and accruing interest for 40 years… 
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