Your 401k Allocations.

[beentheredonethat]

I'm sorry since I'm new to the financial stuff, but what is the benefit of adding a roth as apposed to just having a traditional 401k?

The main difference between a ROTH 401K and a regular 401K, is that the regular 401K is tax deductible NOW. So when you retire, you will be paying income taxes on the both the principal and the earnings in the 401K. In the ROTH 401K, you do NOT get a tax deduction now, but when you retire, you can withdraw from the ROTH 401K without paying any taxes. Not on the money you put in, and not on the appreciation of the account. They both have their plus and minus. If you think the tax rate for yourself will be higher now then in the future, you should use the regular 401K, if you think your tax rate will be higher in the future, then you should invest in a ROTH 401K. If you aren't sure, you should consider putting money into both.

 

[Jones]

I'm sorry since I'm new to the financial stuff, but what is the benefit of adding a roth as apposed to just having a traditional 401k?

It depends on what your tax situation is gonna be when you retire vs what it is now. If your tax rate is going to be higher in retirement then the Roth is a better bet, if your tax rate going to be lower then the traditional is the way to go. If you think that your tax rate could fluctuate in retirement (entirely possible if you live another 20-30 years) then it might be advantageous to have money in both a Roth and a Traditional so that you can withdraw from one or the other depending on the current situation.

 

[Rack em]

It depends on what your tax situation is gonna be when you retire vs what it is now. If your tax rate is going to be higher in retirement then the Roth is a better bet, if your tax rate going to be lower then the traditional is the way to go. If you think that your tax rate could fluctuate in retirement (entirely possible if you live another 20-30 years) then it might be advantageous to have money in both a Roth and a Traditional so that you can withdraw from one or the other depending on the current situation.

I'm only 28 so I hope I live at least 30 more years haha. But from what you said I think I should start a roth 401k. I am going to wait until I hit top rate though since more would be deducted from my paycheck. Right now I am only making $19.50 so I need to take home more from my checks.

 

[Rack em]

The main difference between a ROTH 401K and a regular 401K, is that the regular 401K is tax deductible NOW. So when you retire, you will be paying income taxes on the both the principal and the earnings in the 401K. In the ROTH 401K, you do NOT get a tax deduction now, but when you retire, you can withdraw from the ROTH 401K without paying any taxes. Not on the money you put in, and not on the appreciation of the account. They both have their plus and minus. If you think the tax rate for yourself will be higher now then in the future, you should use the regular 401K, if you think your tax rate will be higher in the future, then you should invest in a ROTH 401K. If you aren't sure, you should consider putting money into both.

Thanks for the response, it definitely answered what I needed.

 

[Jones]

I'm sorry since I'm new to the financial stuff, but what is the benefit of adding a roth as apposed to just having a traditional 401k?

And look at that, you got 3 posters to answer your question .

I'll just add that imho if you have to choose between the two go with the Roth as taxes are more likely to go up than down. And even if you guess wrong, it will still be nice not having to pay taxes on your 401K withdrawals.

 

[Rack em]

And look at that, you got 3 posters to answer your question .

I'll just add that imho if you have to choose between the two go with the Roth as taxes are more likely to go up than down. And even if you guess wrong, it will still be nice not having to pay taxes on your 401K withdrawals.

I suspect my taxes would go up so the roth makes sense. But as I stated previously, I am going to wait until I top rate so I won't notice as much deductions coming out of my check.

 

[Jackburton]

Remember you'll be pulling a pension, which combined with a 401k can put you in a higher income than when you were working. By choosing a Roth version, your 401k portion won't be stacked with your pension, resulting in lower taxes on your pension than if you would have done a traditional 401k. This obviously doesn't include if you were to seek employment doing something else after you retired from UPS.

 

[Rack em]

Remember you'll be pulling a pension, which combined with a 401k can put you in a higher income than when you were working. By choosing a Roth version, your 401k portion won't be stacked with your pension, resulting in lower taxes on your pension than if you would have done a traditional 401k. This obviously doesn't include if you were to seek employment doing something else after you retired from UPS.

I've been advised by many people to plan on retiring without a pension. I hope our pension is in good shape 30 years from now, but the majority believe it won't be there.

 

[Jackburton]

I've been advised by many people to plan on retiring without a pension. I hope our pension is in good shape 30 years from now, but the majority believe it won't be there.

Hopefully it will be enough to pay for the taxes on my other investments outside of retirement

 

[Jones]

I've been advised by many people to plan on retiring without a pension. I hope our pension is in good shape 30 years from now, but the majority believe it won't be there.

Hope for the best, plan for the worst.

 

[UpstateNYUPSer(Ret)]

So can we set up both a pre tax AND roth 401k?

Yes----no more than 45% combined contribution rate.

 

[UpstateNYUPSer(Ret)]

I'm sorry since I'm new to the financial stuff, but what is the benefit of adding a roth as apposed to just having a traditional 401k?

Depends upon your age. For me there would be no advantage.

 

[UpstateNYUPSer(Ret)]

I'm only 28 so I hope I live at least 30 more years haha. But from what you said I think I should start a roth 401k. I am going to wait until I hit top rate though since more would be deducted from my paycheck. Right now I am only making $19.50 so I need to take home more from my checks.

The only problem with waiting is that you will continue to find excuses and will continue to put it off and all of a sudden you are retired and have only your pension and SS.

Start with 3% and build from there. If you are concerned about maintaining the same take home you can adjust your W-4 to have less taxes taken out.

 

[MendozaJ]

The Roth also spares your beneficiary of taxes.

Don't wait, even if it's just a small %. Two more years until top rate I assume? In the last two years my 401 has gone up almost 30%.

 

[Rack em]

The only problem with waiting is that you will continue to find excuses and will continue to put it off and all of a sudden you are retired and have only your pension and SS.

Start with 3% and build from there. If you are concerned about maintaining the same take home you can adjust your W-4 to have less taxes taken out.

I already contribute 14% to me traditional 401k, but I would rather not pay more taxes now by starting to fund a roth 401k.

 

[Brownslave688]

I suspect my taxes would go up so the roth makes sense. But as I stated previously, I am going to wait until I top rate so I won't notice as much deductions coming out of my check.

Trust me set it at 20% now or 15 years from now you'll be saying I just need to pay a few things off then I'll save.

 

[Rack em]

Trust me set it at 20% now or 15 years from now you'll be saying I just need to pay a few things off then I'll save.

Can't you only put in $18,000 a year?

 

[Brownslave688]

Can't you only put in $18,000 a year?

Yes. But that'll increase every few years.


Worst case scenario you max out a little early and have some extra cash for the holidays.

 

[UpstateNYUPSer(Ret)]

I already contribute 14% to me traditional 401k, but I would rather not pay more taxes now by starting to fund a roth 401k.

It would be silly to have both a Traditional and a Roth. Stick with the Traditional and bump up your contribution every time that you get a pay raise.

 

[UpstateNYUPSer(Ret)]

Yes. But that'll increase every few years.


Worst case scenario you max out a little early and have some extra cash for the holidays.

.....or you can do a little basic math and divide the annual max by 52.....take that number and divide it in to your average gross to give you the percentage that you should have withheld each week...you may need to tweak that just a bit...