auggyf
Full Member
Cash: $ 19.90
Posts: 97
Joined: 24 Sep 2005
Location: San Francisco
|
| Roth 401K |
 |
|
What are people's opinions on this new kind of retirement account in 2006?
I personally find it very difficult to decide between the regular 401K and the Roth 401K.
- I know what my marginal tax rate is now
- I have no idea what the tax rate OR my income will be @ retirement ... assuming my regular 401K is well funded + appreciated at retirement, my income can potentially be pretty high even though I might not be working. Also, I really don't know what the tax structure will be like 35-40 years from now. (But today we are near historical lows for the marginal federal rate for the higher tax brackets)
I'm leaning towards the Roth 401k, only because it allows more money (effectively) to go into it, since you can put $15K after tax into it, as opposed to $15K before tax.
OTOH, the regular 401K was nice for putting in income-producing instruments (ie bonds and REITs), so I could avoid paying ordinary taxes on it now. I would most likely put capital appreciating assets (such as stocks) into the roth 401K since the appreciation will be tax free.
|
Wed Dec 28, 2005 3:15 am |
|
|
Rolo
Yo' Daddy
Cash: $ 309.70
Posts: 1551
Joined: 13 Mar 2005
Location: Colorado/Florida
|
Roth: TAX-FREE PROFITS!!! (which will be the bulk of the account) 
Regular: EVERYTHING taxed. 
"Expect me when you see me."
|
|
Wed Dec 28, 2005 3:53 am |
|
|
auggyf
Full Member
Cash: $ 19.90
Posts: 97
Joined: 24 Sep 2005
Location: San Francisco
|
That's not convincing to me ... Let's assume the tax rate and my income stay the same now and in retirement. If I'm putting $1000 into the plan, whether the tax is before capital appreciation or after would make no difference.
P = principal (contribution)
t = time (40 years lets say)
r = return
x = tax rate = fed + state + medicare
before (roth):
(1 - x)p(1 - r)^t
after (traditional):
p(1 - r)^t * (1 - x)
It's just as bad to take out a chunk of money in the beginning, before the exponential growth, as it is to take out the same percent chunk at the end, after exponential growth.
I'm also assuming here that you're putting in the same effective contribution, which is p for the traditional or (1-x)p for the roth, since they both end up costing the same. As I mentioned earlier, the government is actually allowing us to put more effective money in the Roth, since they are letting us put in up to p instead of (1-x)p, where p = $15,000.
|
|
Wed Dec 28, 2005 6:53 am |
|
|
Rolo
Yo' Daddy
Cash: $ 309.70
Posts: 1551
Joined: 13 Mar 2005
Location: Colorado/Florida
|
Your (1 - r) should be (1 + r).
"Expect me when you see me."
|
|
Thu Dec 29, 2005 2:04 am |
|
|
Antler
First Time Poster
Cash: $ 0.20
Posts: 1
Joined: 22 Jan 2006
Location: Texas
|
quote:
What are people's opinions on this new kind of retirement account in 2006
My thoughts are, go with the Roth as long as you can qualify for it. I am rapidly approaching retirement and am very distressed at the amount of tax I will be paying.
To maintain my current standard of living I will have to take money out of my retirement account at a rate that will cause my tax rate to be over 30%. This tax rate BTW, is using the 72T option for the under 59 year old crowd.
Good luck.
|
|
Sun Jan 22, 2006 1:50 pm |
|
|
Kirby
Contributing Member
Cash: $ 5.40
Posts: 26
Joined: 25 Jan 2006
Location: Atlanta, GA
|
I'm torn on this one as well, but then again i've always been torn betwen the Roth and the regular IRA . . . I just can't make up my mind!
|
|
Wed Jan 25, 2006 5:50 am |
|
|
|
