Thought this discussion may be worth its own thread. What is the consensus on ROTH401k vs 401k. I understand there are a lot of variables, but the most common analysis is current tax rate vs anticipated future tax rate at time of retirement. If you anticipate a higher tax rate at retirement then use ROTH - if you anticipate lower tax rate at retirement then use tax deferred 401k. It seems that there are several assumptions baked into this analysis that may not always be accurate. Most importantly, most analysis assumes a fixed amount available to contribute. That is, if you contribute to a ROTH401k you will reduce the amount of the contribution by the amount of the tax that must be paid on the dollars. This might be true for some but others will choose to pay the tax and keep their contribution amount the same. This increases the contribution and takes the present vs future tax rate issue out of the equation.
My situation
Age - 36
Income - 145,000
401k Contribution - 17,000
Employer Contribution - 23,000
Retirement Age - 59.5
Seems to me that contributing my max to the ROTH401k may be a good move - although it will cost me more out of pocket today in taxes. This is contrary to what most analysis would conclude since my tax rate will likely be lower in retirement.
Perhaps I am stating the obvious but I have asked advisors in the past and they always focus on anticipated tax rates which I think may miss the point for many investors. Or maybe I have been missing the obvious point all along...
My situation
Age - 36
Income - 145,000
401k Contribution - 17,000
Employer Contribution - 23,000
Retirement Age - 59.5
Seems to me that contributing my max to the ROTH401k may be a good move - although it will cost me more out of pocket today in taxes. This is contrary to what most analysis would conclude since my tax rate will likely be lower in retirement.
Perhaps I am stating the obvious but I have asked advisors in the past and they always focus on anticipated tax rates which I think may miss the point for many investors. Or maybe I have been missing the obvious point all along...