| 401k - To Roth or Not to Roth |
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hartlbb
New Member
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| 401k - To Roth or Not to Roth |
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Right now I have 6% of my income going to my traditional 401k. I am 35 years old. My plan also offers a roth 401k, should I just divert my entire 6% to a roth? I mean I have a lot of years prior to retiring so why not get the taxes out of the way now, right?
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Mon May 09, 2011 9:10 pm |
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oldguy
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The decision point is your income tax rate. If you are in a high bracket now, you want to defer the taxes until retirement when your bracket is lower. And if you are in a low bracket now, you should pay the taxes now because your bracket may be higher when you retire.
The Tax Code is everchanging so none of us can know what it will be in 30 yrs - we could even abolish income tax and switch to a federal sales tax (The Fair Tax) so you would have to pay taxes again when your spend the Roth dollars. So I would diversify your tax staus, just as you diversify your investments - ie, maybe 3% in each?
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Mon May 09, 2011 11:23 pm |
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eastmn
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There are plenty of news articles on the topic. Most that I've read say to deposit only enough to get full 401K match, and stop there; with Roth then second in line.
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Tue May 10, 2011 1:08 pm |
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hartlbb
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THanks all. The tax discussion makes a ton of sense. Who knows what it will be like and most likely when I go to retire (save the first year) I will be in a lower tax rate. If I decide to go 50% roth, how would that affect my paycheck?
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Wed May 11, 2011 4:51 pm |
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oldguy
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quote:
how would that affect my paycheck?
Your taxable income would be increased by 3% of your gross salary. Eg, if you make $50,000, your taxable income would go up by $1500. And if your bracket is 15%, you would pay an extra $225/yr in taxes - ie, your paycheck would be $225/yr lower. That's $19/m, $4.32/wk, however you want to look at it.
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Wed May 11, 2011 5:57 pm |
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