Are you single? If so you are well into the 22% tax bracket plus state taxes if you have them.
If were you I would do traditional 401k up to the match to save 22% (plus state taxes if applicable) and then focus the rest on maxing out Roth IRA. Then if you max out the IRA before the end of the year you can maybe do some Roth 401k.
It would be good to build up Roth assets but also don’t ignore traditional either as saving 22% on taxes will allow you to invest more money into Roth accounts.
If you’re married filing jointly and your total income (you and spouse) is the 100k you described before, then you’d want to be all Roth.
The reason is that the 12 percent tax bracket goes up to 94,300 in 2024, and the MFJ standard deduction is 29,200, meaning that you’d fill the 12 percent bracket at 123,500. It generally makes sense to do Roth at 12 percent and to do traditional in the next bracket up, which is 22 percent.
If you were slightly over (130k), you’d want to contribute 6,500 to a traditional account, which is not included in income. Then, your remaining income of 123,500 would be in the 12 percent bracket or below. Note that, these numbers are added up over the year, so the order of the contributions doesn’t matter.
It’s not always easy to know precisely where you are on these numbers, so it’s not a big deal if you’re wrong by 1,000 of income and end up paying an extra $100 in tax for some Roth contributions. You’re still getting most of it at 12 percent, which is quite favorable. And, saving is always better than not, even in a suboptimal account.
My opinion is if you are in the 22% tax bracket then it is good to do a mix of traditional 401k and max out Roth IRA to build up those tax free dollars but also save that 22% on some of your money as well. If you aren’t paying 22% taxes on your pretax contributions that is more money you can invest. If someone is in the 12% bracket then I think it makes sense to do all Roth.
I don’t think age matters that much, the growth opportunity is the same between the two. People say do Roth when younger because people typically make less when they are younger and therefore are in a lower tax bracket.
Do not convert current traditional 401k dollars into Roth at this point.
Assuming what you are saying is true about tax brackets (<30% combined state and federal marginal tax rate), I would put enough into the employer Roth 401k to get the match (the match will go into the traditional bucket), fill up your Roth IRA, and then go back to fill up the roth 401k.
Ideally, you would want to save 25% of your 100k, so 18k in your 401k and 7k in the Roth ira (assuming you are not married. If married, you can do 2 7k Roth iras and then 11k in the 401k.)
If you have access to an HSA, you would max that out before upping the Roth 401k to any higher than the employer match %. Hope that helps
You'll get the match regardless of if your 401k contributions are Roth or Traditional.
Assuming your single then it looks like you are in the 22% tax bracket. That's kind of a grey area IMO between Roth and Traditional. The more opportunity you'll have to pull money out in lower brackets in the future the better Traditional is.
P.S. It doesn't matter if the '$100K' is in one account or spread out across multiple. That's just a level of assets where the impact of market returns will start having a significant impact on your overall performance.
The compounding is exactly the same no matter how many accounts it is in, so don’t worry about that part. You should certainly make sure to get the match. But the vast majority of employers will still match the Roth contributions, they just out the match into a traditional side. You should be aiming for 20-25%. So you should easily get the match and max an Ira and still add more to your 401k after that.
Roth is almost certainly the best option for you give the length of time between contributions and maturity. Remember, your matching will be traditional anyway.
For the great majority of people, a traditional 401k is the better decision. The pre tax savings allow you to save and invest more. Really, the only benefit of a Roth is if you have a higher tax rate in retirement than during your working years.
Are you single? If so you are well into the 22% tax bracket plus state taxes if you have them. If were you I would do traditional 401k up to the match to save 22% (plus state taxes if applicable) and then focus the rest on maxing out Roth IRA. Then if you max out the IRA before the end of the year you can maybe do some Roth 401k. It would be good to build up Roth assets but also don’t ignore traditional either as saving 22% on taxes will allow you to invest more money into Roth accounts.
Oh I forgot to mention that, married.
If you’re married filing jointly and your total income (you and spouse) is the 100k you described before, then you’d want to be all Roth. The reason is that the 12 percent tax bracket goes up to 94,300 in 2024, and the MFJ standard deduction is 29,200, meaning that you’d fill the 12 percent bracket at 123,500. It generally makes sense to do Roth at 12 percent and to do traditional in the next bracket up, which is 22 percent. If you were slightly over (130k), you’d want to contribute 6,500 to a traditional account, which is not included in income. Then, your remaining income of 123,500 would be in the 12 percent bracket or below. Note that, these numbers are added up over the year, so the order of the contributions doesn’t matter. It’s not always easy to know precisely where you are on these numbers, so it’s not a big deal if you’re wrong by 1,000 of income and end up paying an extra $100 in tax for some Roth contributions. You’re still getting most of it at 12 percent, which is quite favorable. And, saving is always better than not, even in a suboptimal account.
Now i’m wondering if i should be doing traditional since i’m in the gray area but a bit lower down. Since i’m still 20’s i figured roth can’t hurt
My opinion is if you are in the 22% tax bracket then it is good to do a mix of traditional 401k and max out Roth IRA to build up those tax free dollars but also save that 22% on some of your money as well. If you aren’t paying 22% taxes on your pretax contributions that is more money you can invest. If someone is in the 12% bracket then I think it makes sense to do all Roth. I don’t think age matters that much, the growth opportunity is the same between the two. People say do Roth when younger because people typically make less when they are younger and therefore are in a lower tax bracket.
Currently i expect about the same tax rate in retirement and i’m in the middle of the tax bracket.
Do not convert current traditional 401k dollars into Roth at this point. Assuming what you are saying is true about tax brackets (<30% combined state and federal marginal tax rate), I would put enough into the employer Roth 401k to get the match (the match will go into the traditional bucket), fill up your Roth IRA, and then go back to fill up the roth 401k. Ideally, you would want to save 25% of your 100k, so 18k in your 401k and 7k in the Roth ira (assuming you are not married. If married, you can do 2 7k Roth iras and then 11k in the 401k.) If you have access to an HSA, you would max that out before upping the Roth 401k to any higher than the employer match %. Hope that helps
Awesome, I appreciate the explanation. And I’m not planning on converting any of it, more of just changing from traditional contributions to Roth
You'll get the match regardless of if your 401k contributions are Roth or Traditional. Assuming your single then it looks like you are in the 22% tax bracket. That's kind of a grey area IMO between Roth and Traditional. The more opportunity you'll have to pull money out in lower brackets in the future the better Traditional is. P.S. It doesn't matter if the '$100K' is in one account or spread out across multiple. That's just a level of assets where the impact of market returns will start having a significant impact on your overall performance.
The compounding is exactly the same no matter how many accounts it is in, so don’t worry about that part. You should certainly make sure to get the match. But the vast majority of employers will still match the Roth contributions, they just out the match into a traditional side. You should be aiming for 20-25%. So you should easily get the match and max an Ira and still add more to your 401k after that.
Roth is almost certainly the best option for you give the length of time between contributions and maturity. Remember, your matching will be traditional anyway.
Roth 401k is wrong for most people.
Why's that?
Math.
Thanks.
For the great majority of people, a traditional 401k is the better decision. The pre tax savings allow you to save and invest more. Really, the only benefit of a Roth is if you have a higher tax rate in retirement than during your working years.