Hi Guys
I am researching the Roth 401k (not Roth IRA) which I can contribute to in 2008. I read about it and understand the tradeoffs between paying taxes now VS defering them to later. I am making an assumption that future tax rates will be the same as current tax rates(adj. for Inflation) (I understand this is a big IF). What do you thing about the 4 stages below (think of them as where one is in life)? Also I can allocate some % to Roth & rest to Trad. 401(k). Below is a just a cheatsheet to start the analysis - Am i on the right track with this. Also I get the same investment options in both
1. Young & Low income
- Your tax bracket is low - pay the taxes now;
- Roth 401k
2. Young & High income
- No kids & no house
- Your tax bracket is high - defer the taxes;
- Trad. 401k
3. Middle age & High income
- You have dependents; You own house - interest deductions;
- All the above already lowers your tax bracket;
- Once the kids leave and you paid off the mortgage, your tax bracket will be high
- Roth 401k
4. Middle/Old age & High income
- No kids & no interest deductions
- Tax bracket is high
- Traditional 401k
Am I on the right track here?
thanks
-h
I am researching the Roth 401k (not Roth IRA) which I can contribute to in 2008. I read about it and understand the tradeoffs between paying taxes now VS defering them to later. I am making an assumption that future tax rates will be the same as current tax rates(adj. for Inflation) (I understand this is a big IF). What do you thing about the 4 stages below (think of them as where one is in life)? Also I can allocate some % to Roth & rest to Trad. 401(k). Below is a just a cheatsheet to start the analysis - Am i on the right track with this. Also I get the same investment options in both
1. Young & Low income
- Your tax bracket is low - pay the taxes now;
- Roth 401k
2. Young & High income
- No kids & no house
- Your tax bracket is high - defer the taxes;
- Trad. 401k
3. Middle age & High income
- You have dependents; You own house - interest deductions;
- All the above already lowers your tax bracket;
- Once the kids leave and you paid off the mortgage, your tax bracket will be high
- Roth 401k
4. Middle/Old age & High income
- No kids & no interest deductions
- Tax bracket is high
- Traditional 401k
Am I on the right track here?
thanks
-h