# Roth 401k, or not?
**URL:** https://boards.straightdope.com/t/roth-401k-or-not/572901
**Category:** In My Humble Opinion
**Created:** [February 28, 2011, 11:02am UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901 "2011-02-28T11:02:52Z")
**Posts on this page:** 16
**Page:** 1
### Author:  [@startingover](https://boards.straightdope.com/u/startingover)
#### Post date: [February 28, 2011, 11:02am UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/1 "2011-02-28T11:02:52Z")
I am a 33 year old single male with no dependents that currently makes about $100k a year. I have full benefits, including a matching 401k up to 6%. Recently, my employer introduced a 401k that included a ROTH 401K option. As a point of reference, I have $115k in a “traditional” 401k. I contribute 12% of my salary every other week towards this fund.
What I am trying to determine is if I should take advantage of this ROTH 401K option? I do have a separate ROTH IRA, which I contribute the maximum allowed amount to each year.
The issue I have run into is tax deductions. I have mortgage interest and property taxes that I can deduct that amount to something. Unfortunately, that’s about the extent of it outside of donations to charity, etc. I realize I get the benefit of using after tax dollars NOW to fun the ROTH 401K option with the idea that when I retire, my tax bracket will be higher and I won’t then have to pay the tax on the funds I take out since I paid the tax on them now. In exchange for this, I don’t then get to deduct them on my taxes NOW like I do with the “traditional 401K” offering.
I’m trying to decide if I should contribute the full 12% to the ROTH 401K, if I should split it and put 6% there and the balance into the “traditional 401K” offering, or if I should continue to keep 12% in the “traditional 401K” offering.
What are your thoughts?
Thanks!
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### Author:  [@Balthisar](https://boards.straightdope.com/u/Balthisar)
#### Post date: [February 28, 2011, 3:37pm UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/2 "2011-02-28T15:37:02Z")
Max them both, if you’re allowed to.
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### Author:  [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)
#### Post date: [February 28, 2011, 3:58pm UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/3 "2011-02-28T15:58:37Z")
Your tax bracket might not be higher when you retire, but even if it isn’t it’s very likely that income taxes overall will be.
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### Author:  [@jacobsta811](https://boards.straightdope.com/u/jacobsta811)
#### Post date: [February 28, 2011, 3:59pm UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/4 "2011-02-28T15:59:17Z")
I probably would max out the traditional 401K before putting anything into a Roth - your current tax bracket is pretty high and being single your marginal tax rate (the amount you save) is probably 28% (single income: $83,600-$174,400 28%)- maybe 25% if you are contributing enough to your 401Ks and have enough mortgage/property tax deductions. Especially if you ultimately end up married during retirement you could end up taking out that income in what is now the 15% bracket (married: $17,000-$69,000 15%).
But like the prior poster said, if you can max out your traditional 401K and still contribute to a Roth IRA or 401K, it will only help your financial future.
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### Author:  [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)
#### Post date: [February 28, 2011, 4:11pm UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/5 "2011-02-28T16:11:31Z")
We do a combination of regular and Roth.
My thinking is this: we do need a tax break now, but I really REALLY like the idea that whatever grows in that Roth, is forever not taxed. Say it triples in the next 15 years. The same amount in a regular, would be taxed on withdrawal. Assuming we’re talking about, say, 5,000 dollars, we’ll pay income taxes on a total of 15,000.
Admittedly this is hopefully at a lower rate than our current.
If we’re at a 25% bracket and at 15% when we retire: we save 1250 now, then 15% of 15,000 (or 2250) when we retire, with a regular plan. Net taxes (2250 minus 1250) = 1000.
With a Roth: we pay the 1250 now, then nothing ever again.
So in this picture, it sounds like the regular is a better idea.
Say the deposit quadruples. Save 1250 now, pay 3000 later, net tax 1750 - versus pay 1250 now, and nothing later. net tax, 1250. So you’re better off by 500 dollars with the Roth.
I googled around some a week or so back and one person came up with an example where, if he was disciplined and saved the tax savings and invested that (the 1250) and let that grow, he’d have more money in 30 years than if he’d gone for a Roth. Of course then his nest egg was taxable.
I personally think that doing a mix helps hedge the bets somewhat. If we’re in a higher bracket (or even the same bracket) in retirement as we are now, the Roth looks a lot better. If we’re in a lower, it’s less clear-cut.
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### Author:  [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)
#### Post date: [February 28, 2011, 4:25pm UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/6 "2011-02-28T16:25:48Z")
> [@jacobsta811](#):
>
> I probably would max out the traditional 401K before putting anything into a Roth - your current tax bracket is pretty high and being single your marginal tax rate (the amount you save) is probably 28% (single income: $83,600-$174,400 28%)- maybe 25% if you are contributing enough to your 401Ks and have enough mortgage/property tax deductions. Especially if you ultimately end up married during retirement you could end up taking out that income in what is now the 15% bracket (married: $17,000-$69,000 15%).
> But like the prior poster said, if you can max out your traditional 401K and still contribute to a Roth IRA or 401K, it will only help your financial future.
Maxing out the regular 401(k) can also help bring you down into the tax bracket where you _can_ contribute to a Roth IRA.
If the cutoff for regular is, say, 90,000 - and you’re earning 100,000, then putting 10K into a regular 401(k) would allow you to save 5K into a Roth IRA. Putting less than that would mean losing some or all of the Roth IRA-ability.
Roth 401(k)s don’t have the income restrictions - anyone can save in them, and they’re subject to the same annual limit as regular 401(k) (16,500 or whatever). That’s a combined limit - you can’t save more than that total in the regular + the Roth.
As an aside: has anyone else here taken that 2% Social Security cut and put it right into the 401(k)? When I realized that’s what was happening, I bumped my withholding immediately. I will have to remember to stop it at the end of the year (or continue it if we can manage with the reduction).
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### Author:  [@ptr2void](https://boards.straightdope.com/u/ptr2void)
#### Post date: [February 28, 2011, 6:20pm UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/7 "2011-02-28T18:20:10Z")
Pardon the sort-of hijack but this is relevant to my interests, so perhaps I could get some help & opinions as well.
I have no 401k plan through my employer, and have not been contributing a dime to my retirement for the past two years as a result. I want to start saving some now, so do I just do the max into a Roth (I do in fact qualify)? I guess there’s a fixed limit between Traditional and Roth, and the tax advantage lies in the Roth from what I understand. Are there any other retirement savings options for those without an available 401k?
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### Author:  [@jacobsta811](https://boards.straightdope.com/u/jacobsta811)
#### Post date: [February 28, 2011, 6:31pm UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/8 "2011-02-28T18:31:18Z")
If you don’t have a 401K available, you can do a traditional IRA (up to $5000 a year unless you meet certain age criteria), or a Roth IRA, depending on your income. Roth IRA has no up-front tax savings, while a tradition IRA is 100% tax deductible (if you meet the income requirements). Roth IRA money is non-taxable coming out while traditional IRA is taxable. So basically Roth IRA is taxable now and Traditional IRA taxable later. So the higher your tax bracket now the better a traditional IRA, while if your tax bracket is higher later a Roth IRA is best. IE for example a med student should be pumping up a Roth IRA while in residency, if they can (their tax bracket is likely to be a lot higher later). While say a Police chief in their last year before retirement probably should be putting it into a Traditional IRA or 401K (assuming a large income drop after retirement).
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### Author:  [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)
#### Post date: [February 28, 2011, 6:37pm UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/9 "2011-02-28T18:37:54Z")
> [@jacobsta811](#):
>
> If you don’t have a 401K available…
Minor nitpick: 401(k) \*or other employer-sponsored retirement plan
-
- there might be an employer-paid defined benefits plan or other employer-paid defined contribution plan aside from the 401(k).
Other than that, I agree with you 100%.
My example further back shows one scenario where the Roth is better and one where it isn’t.
Oh - and an interesting aside: apparently, while there are income limits to _contibute_ to a Roth IRA, there are NOT income limits to _convert_ from a regular to a Roth IRA. So if you’re above the income limit, you could put cash into a non-deductible IRA, then immediately convert that (plus its earnings) to a Roth. We seriously considered doing that for last year… then decided to just plug the cash into the Roth 401(k) as there’s less paperwork.
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### Author:  [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)
#### Post date: [February 28, 2011, 7:01pm UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/10 "2011-02-28T19:01:40Z")
Startingover - I had another thought. You’re only putting 12% of your income aside right now. With your salary as stated, you won’t hit the annual limit for contributions. If you can afford to save another 3% of your income, why not leave the 12% in the regular and put the 3% in your 401(k)?
Oh yeah: another thing that nobody has mentioned yet in this thread: With a Roth, there are situations in which you can access your money, without tax or penalty, even before you turn 59 1/2 years old. I think (but don’t quote me) that it refers only to contributions (as opposed to earnings) and you can’t touch it until 5 years after you open the account. Since it was already taxed, you don’t have to pay tax, and there’s no penalty either as long as you follow the rules.
While it’s still in the 401(k) you still couldn’t touch it but if you leave that employer and roll it over into an IRA, you could.
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### Author:  [@Nars\_Glinley](https://boards.straightdope.com/u/Nars_Glinley)
#### Post date: [February 28, 2011, 7:22pm UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/11 "2011-02-28T19:22:47Z")
I put a small percentage of my income into a Roth 401k and the remainder of my retirement savings into my traditional 401k. Although I realize that strictly from a monetary standpoint that it might not make sense to do so as I do not expect to be in a higher tax bracket after I retire, I do so simply for psychological reasons. When I retire, I want to be able to blow my Roth money on silly things (such as an around the world cruise) without worrying about the tax hit.
To the OP, if you are considering the Roth 401k, I’d go ahead and put **something** in it just to get the 5 year clock rolling that **Mama Zappa** mentions. You don’t have to keep contributing to keep the clock going. It’s based solely upon the date of your first contribution.
(IANAA and this is based entirely upon what I was told by my HR department.)
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### Author:  [@UltraVires](https://boards.straightdope.com/u/UltraVires)
#### Post date: [March 1, 2011, 12:16am UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/12 "2011-03-01T00:16:55Z")
> [@Mama\_Zappa](#):
>
> Oh yeah: another thing that nobody has mentioned yet in this thread: With a Roth, there are situations in which you can access your money, without tax or penalty, even before you turn 59 1/2 years old. I think (but don’t quote me) that it refers only to contributions (as opposed to earnings) and you can’t touch it until 5 years after you open the account. Since it was already taxed, you don’t have to pay tax, and there’s no penalty either as long as you follow the rules.
Correct. After 5 years, you can withdraw the principle from your Roth tax and penalty free, however you must pay any capital gains taxes (which you don’t pay if you are past 59 1/2)
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### Author:  [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)
#### Post date: [March 1, 2011, 1:16am UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/13 "2011-03-01T01:16:02Z")
> [@jtgain](#):
>
> Correct. After 5 years, you can withdraw the principle from your Roth tax and penalty free, however you must pay any capital gains taxes (which you don’t pay if you are past 59 1/2)
Cite on the capital gains? You might be right, this is just the first I’d heard of that.
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### Author:  [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)
#### Post date: [March 1, 2011, 3:22am UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/14 "2011-03-01T03:22:35Z")
Capital gains = earnings, for the purposes of this discussion.
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### Author:  [@startingover](https://boards.straightdope.com/u/startingover)
#### Post date: [March 1, 2011, 11:44am UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/15 "2011-03-01T11:44:00Z")
Thanks for so many replies. I haven’t had the chance to go through them all - I will later this week when work settles down. I just wanted to say thanks!
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### Author:  [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)
#### Post date: [March 1, 2011, 1:06pm UTC](https://boards.straightdope.com/t/roth-401k-or-not/572901/16 "2011-03-01T13:06:53Z")
> [@Really\_Not\_All\_That\_Bright](#):
>
> Capital gains = earnings, for the purposes of this discussion.
OK, that makes more sense. Usually when “they” say you can withdraw your contributions, the caveat is that you can take out only what you put in, you have to leave the earnings in there. I had assumed those were subject to a penalty, didn’t think about whether they were taxable as well.
In any case, one shouldn’t use a Roth while _planning_ to do this - like any early withdrawal it should be viewed as an option of last resort (unless you _like_ Alpo and cardboard-box living :p).