ROTH 401k vs 401k

[JoshTrent]

Just to be clear, the analysis should be done using your marginal tax rate. Not your effective.

Care to explain the thinking?

 

[Animorph]

Care to explain the thinking?

When you contribute to a 401k, the dollars come off the top of your income, which is the part taxed at your highest marginal rate. Figure your taxes without the contribution and then with the contribution.

When you withdraw from a 401k then you may make full utilization of the average tax rate, providing you don't have any other taxable income sources. Combining 401k and Roth withdrawals let you control your tax level.

 

[GrayHare]

Roth 401k's have no rmd's as long as the owner is alive same as regular roths.

The IRS says r401ks do have an RMD: "The RMD rules also apply to Roth 401(k) accounts." The quote is from http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions

 

[ronocnikral]

Care to explain the thinking?

Do your taxes. Deduct $5k as if you are making a deductible IRA contribution. Note change in taxes. Do the same thing, but add the $5k into your income. Note tax liability. The difference will be approx $5000*marginal tax rate, not your effective rate. Unless the $5k falls over 2 tax rates and/or the above the line deduction allows you other deductions, (eg student loan interest deduction, child tax credit etc)

 

[youbet]

The IRS says r401ks do have an RMD: "The RMD rules also apply to Roth 401(k) accounts." The quote is from Retirement Plans FAQs regarding Required Minimum Distributions

Yes, but you can roll the Roth 401k to a Roth IRA prior to RMD age.

http://www.irs.gov/pub/irs-tege/rollover_chart.pdf

 

[mathjak107]

The IRS says r401ks do have an RMD: "The RMD rules also apply to Roth 401(k) accounts." The quote is from Retirement Plans FAQs regarding Required Minimum Distributions

all it means is you have to move it from a roth 401k to a roth ira .

they want you to start to move it away from the company at some point so that is the catalyst but it really is a non event.