Possibly changing 401K to Roth 401k - A ?

[ziggystardust]

My company might be adding a Roth 401k as an option. Which do you prefer?

 

[rigs32]

It depends on your tax bracket and your planned level of retirement income. If you're in the lowest tax bracket now (10%) and plan to have a higher standard of living at retirement (>10% taxes), it's a better idea to have a Roth. You pay the taxes now and the money grows completely tax free so when you get it later, you pay no taxes.

BUT, if you're currently at a high tax bracket (25%?) and plan to have a low retirement income (house paid off, etc), there's less incentive to pay your taxes now rather than delay until later.

 

[nbodyhome]

If my husbands company did a Roth, I would do that. You put the money in as taxable, but the end is non-taxable. So he'd pay taxes on a smaller portion of money.

See clarkhoward.com - he has talked about them a lot.

 

[pearlieq]

ROTH all the way! You're young and have the bulk of your earning years ahead of you. If you do this right, there's no way you should be in a lower tax bracket when you retire! You definitley want your money growing tax free--time in on your side here.

 

[The Disney Bunch]

401(k) uses pre-tax dollars. Roth 401(k) uses post-tax dollars. The earnings are tax-free if you keep the money in for at least 5 years & attain age 59 1/2. I think it is a good idea to do both. Especially if you are young.

 

[dvcgirl]

My company might be adding a Roth 401k as an option. Which do you prefer?

It really depends on your tax bracket. If you are in a relatively low tax bracket, then the Roth is a very nice deal. You'll be investing after-tax dollars, but never have to pay tax again on either the initially investment or the earnings.

If you're in a higher tax bracket now and believe that there's a possibility that your tax bracket would *drop* in retirement, then a straight 401K may be the way to go.

However, historically, we are currently paying less taxes than we have in previous years. Clark Howard was just talking about that. None of us have a crystal ball and it's difficult to know what our taxes may be say, 30 years from now. The Roth takes that factor out of the equation....you pay them now and that's it...you're done.

Another way to go if your employer will allow it is to invest half into the 401K and half into a Roth 401K to cover all the bases so to speak.

 

[deide71]

Also, does your employer match your contributions in one or the other. I believe you should contribute to traditional 401k up to the amt. matched by the employer, then max out the Roth, if possible.

 

[Snoozan]

My Mom, who retired about 5 years ago, told me to get at least some savings in a ROTH 401K plan, as she's being taxed alot on all her pre-tax savings. I've got both savings plans - some pre and some post tax. Now, if I could only talk my DH into seeing a Financial planner.............................

 

[chrissyk]

I'd do the Roth. I'm presently considering paying the taxes to Roth-convert a rollover IRA that I have from my old 401K. This is a good chunk of change already, and I'm relatively young still. If I'd had the option to do a Roth 401K from the beginning, I'd have jumped at it!

 

[KelNottAt]

Does it have to be one or the other? I thought it was advisable to do both.

 

[phisigprincess]

I would talk to a financial planner about it. (And I say that not because I work in that field, but because they really can help! )

 

[waspnest]

You don't have to have an employer-sponsored Roth. You can open your own Roth at any of the discount brokerages.

I'd do your 401(k) to maximize any match given by your employer, than do a Roth after that. If you max out your Roth, go back to filling up the 401(k). Of course, if it's your employer's Roth, you may get the match there, so maybe you just start with the Roth.

 

[KelNottAt]

You don't have to have an employer-sponsored Roth. You can open your own Roth at any of the discount brokerages.

I'd do your 401(k) to maximize any match given by your employer, than do a Roth after that. If you max out your Roth, go back to filling up the 401(k). Of course, if it's your employer's Roth, you may get the match there, so maybe you just start with the Roth.

waspnest,
Are you referring to a Roth IRA, or a Roth 401(k)? Or both?

I thought I read that the Roth 401(k) was available to people who don't qualify for the Roth IRA. And, the Roth 401(k) was available in addition to a traditional 401(k).

I'd call my financial guy, but he's on vacation. Plus, it's kind of a moot point for me...my company won't be offering the Roth 401(k) in the foreseeable future. So, I'm really just curious.

Thanks,

 

[dvcgirl]

waspnest,
Are you referring to a Roth IRA, or a Roth 401(k)? Or both?

I thought I read that the Roth 401(k) was available to people who don't qualify for the Roth IRA. And, the Roth 401(k) was available in addition to a traditional 401(k).

I'd call my financial guy, but he's on vacation. Plus, it's kind of a moot point for me...my company won't be offering the Roth 401(k) in the foreseeable future. So, I'm really just curious.

Thanks,

You are correct, the Roth 401K will be available to people who don't qualify for the Roth IRA (which is why my DH is encouraging his employer to look into it). I do believe it will be offered in addition to the traditional 401K.