However, as we will see in the following questions, the contribution limit to the after-tax 401(k) is much higher than that of the Roth 401(k)/IRA. Traditional 401k to employer match. There are 2 different types of 401k account: Roth and Traditional 401k – each gives you different benefits. This means that the after-tax 401(k) essentially becomes equal to the Roth 401(k)/IRA. There are generally two primary sources to save money within a company-sponsored retirement plan—401(k) or 403(b). Below are examples using a compounding interest formula, the way your money grows in a stock market. Sounds simple right? A Roth IRA is an individual retirement account that can provide you with tax-free income in retirement. That aside, I think the traditional 401k typically wins out if you decide to retire earlier and live on less in retirement than you did during life. The best option depends on your future income and your future marginal tax … Roth: Roth IRAs do not have a mandatory distribution or withdrawal at any age. If your employer's plan allows it, you may even be able to split your contributions between the two types of accounts. However, my question is about which actually lets you protect more money from taxation. The $16k of income from your traditional retirement accounts would cover the standard deduction and personal exemption for a … July 29, 2013 at 10:43 pm. Reply. Investors make … Unsure of what state I would FIRE. I'm not a FIRE guy but for me personally, I can see myself waking up one day with 5-6 million in the the traditional and then just calling it quits and retiring/or part time and living a more simplistic life style. You … Kim@Eyesonthedollar says. I would recommend that most people invest in this order: 1. The Roth convention allows you to defer your compensation tax-free, as a … That’s a great idea to switch over your contributions from a Roth 401(k) to a Traditional 401(k) in order to help pay off your wife’s student loans faster. In the case of a backdoor IRA, you send post-tax money to the IRA. $3M in a 401K does not equal $3M in a Roth IRA. This calculator compares employee contributions to a Roth 401(k) and a traditional 401(k). You get more money today to invest when you use a traditional 401k compared to roth, ... FIRE in 5-10yr, etc So yeah in your situation of working 30yr, go roth. For most, especially those seeking FIRE, a Traditional 401k makes more sense than a Roth 401k. I am deciding between traditional and Roth 401k contributions. Your contributions and earnings grow tax-deferred until you begin taking withdrawals, which will be taxed at your ordinary tax rate. Just a few variables with relatively high uncertainty to consider given my time horizon (and probably others I'm missing since I don't know how best to model this). Continue put as much as possible in 401k up to limit. Then you would be withdrawing $16k from traditional, $16k from taxable, and $8k from Roth. First of all, there is a high chance your company will match up to a certain percentage of your contribution. But remember: In most cases, you won’t be able to withdraw money from your 401(k) or IRA without facing an early withdrawal penalty until you hit age 59 1/2. However, I wanted to seek validation here before I update my 401k account. The main difference between a Roth 401(k) and … [+] traditional 401(k) is the tax treatment of your contributions. You may be able to have both, and decide year-by-year where you want to make your contributions. Consistently making Mega Backdoor Roth contributions would have an enormous impact on a young person pursing FIRE! By contributing to a Traditional 401(k)/IRA and then doing either a Roth Conversion Ladder or SEPP 72(t) distributions, she could have almost 15 extra years of elevated income (when compared to simply investing in a taxable account)! Robo-Advisors vs. Discount Brokers; Retirement. Right or wrong, most doctors have a lot of money in traditional IRAs and 401K. Conversions & Recharacterizations Traditional to Roth. Essentially the same calculation as with the Roth 401(k). Roth … I would disagree with the assertion that the Roth v. traditional is the same in the end. Comments. Roth IRA vs. Second, there are tax benefits. An 8% match is great. New Gfph77 Regardless of what party wins future elections we're getting more liberal as a country. Re: Roth 401k and IRA vs Traditional? 3. Generally when you convert a traditional IRA to a Roth IRA you pay income taxes on the amount converted, because most people send pre-tax money to a traditional IRA. PoF@physicianonfire.com. January 29, 2017 at 1:13 pm . In my 401K I can actually divide up between Roth vs traditional contributions, so this question was an even bigger deal for me. If your tax bracket is the same now as it will be in retirement Roth vs traditional doesn’t matter – you end up with the same amount of money in either. If your plan allows this, then you are able to contribute money to the after-tax 401(k) and then immediately convert it to Roth 401(k) or a Roth IRA. If early retirement is the goal it seems that using traditional 401k save taxes now, performing a Roth conversion ladder once retired (minimize taxes later and allow access to money earlier), and tax gain harvesting (essentially free step up in basis later) would make a lot more sense than a roth option now. 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