Taxman59
Full time employment: Posting here.
- Joined
- Sep 15, 2014
- Messages
- 645
My oldest son asked me a question about the after tax contributions to a 401K. He makes about $120k, and his savings plan is to put about 50K into savings a year , (not including the employer $7k match). He has a Roth IRA and about a years worth of after tax savings (plus funds for a ring and a house). He is 26 years old and single (though that may change in a couple of years). He is going to put $18k into the ROTH 401k, max his HSA and continue to add to his after tax account. He wants to put about $10-20k into the 401k as an after tax contribution. He understands that the contribution can be rolled out to a ROTH IRA when he leaves, and the earnings are part of the regular 401k.
His question is this - When he withdraws the earnings on the after-tax 401k, they will be taxed as ordinary income at ordinary rates. Is he better off just increasing the after-tax account and paying taxes currently on any earnings , but at the cap gain and dividend rates or is the deferral worth the potential extra taxes? Is there some breakeven point ?
Any help on this is appreciated.
His question is this - When he withdraws the earnings on the after-tax 401k, they will be taxed as ordinary income at ordinary rates. Is he better off just increasing the after-tax account and paying taxes currently on any earnings , but at the cap gain and dividend rates or is the deferral worth the potential extra taxes? Is there some breakeven point ?
Any help on this is appreciated.