Comments on: Roth 401K Contibution Maximum Contribution & Comparisons to Traditional 401K http://20somethingfinance.com/roth-401k-contibutions-versus-traditional-401k/ Personal Finance Blog for Young Professionals Thu, 24 May 2012 00:59:02 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: G.E. Miller http://20somethingfinance.com/roth-401k-contibutions-versus-traditional-401k/comment-page-1/#comment-19421 G.E. Miller Fri, 11 Mar 2011 00:30:41 +0000 http://20somethingfinance.com/?p=3437#comment-19421 Yes, the two are totally separate. Yes, the two are totally separate.

]]> By: Mark M http://20somethingfinance.com/roth-401k-contibutions-versus-traditional-401k/comment-page-1/#comment-19407 Mark M Thu, 10 Mar 2011 18:14:35 +0000 http://20somethingfinance.com/?p=3437#comment-19407 Thanks Thanks

]]> By: Mark M http://20somethingfinance.com/roth-401k-contibutions-versus-traditional-401k/comment-page-1/#comment-19406 Mark M Thu, 10 Mar 2011 18:14:19 +0000 http://20somethingfinance.com/?p=3437#comment-19406 Also you state that you can withdraw Roth 401K money after 5 years. I was under the impression that since it was in a 401k plan I couldn't touch it till i was 59.5 years old. Its this true? Also you state that you can withdraw Roth 401K money after 5 years. I was under the impression that since it was in a 401k plan I couldn’t touch it till i was 59.5 years old. Its this true?

]]> By: Mark M http://20somethingfinance.com/roth-401k-contibutions-versus-traditional-401k/comment-page-1/#comment-19405 Mark M Thu, 10 Mar 2011 18:12:12 +0000 http://20somethingfinance.com/?p=3437#comment-19405 If I max out my Roth 401K can I open a Roth IRA through zecco or tradeking and max that out to 5K? If I max out my Roth 401K can I open a Roth IRA through zecco or tradeking and max that out to 5K?

]]> By: Frank http://20somethingfinance.com/roth-401k-contibutions-versus-traditional-401k/comment-page-1/#comment-17894 Frank Wed, 05 Jan 2011 18:57:06 +0000 http://20somethingfinance.com/?p=3437#comment-17894 Great website and interesting topic, thank you for publishing. A few alternative ideas against the Roth 401k: If you are a high wage earner living in a tax heavy state (NY, CA) it might not make sense contributing to a Roth 401k. For example, if you live in NYC and your next marginal dollar is being taxed at 33% federal + 10% local + state, why not take the tax deduction now? Especially if you plan on retiring in a much lower tax, lower cost of living location (such as FL). One last point: When you retire and take distributions from your traditional 401k, the distributions are taxed at the bottom of the tiered tax system, working your way up. Therefore, its highly doubtful your overall tax rate will be anywhere close to your current marginal tax rate (for high wage earners). At the end of the day, I contribute 15% + 3% employer match to traditional 401k while the wife (painfully) only goes 6% + 3% employer match. Great website and interesting topic, thank you for publishing.

A few alternative ideas against the Roth 401k:

If you are a high wage earner living in a tax heavy state (NY, CA) it might not make sense contributing to a Roth 401k. For example, if you live in NYC and your next marginal dollar is being taxed at 33% federal + 10% local + state, why not take the tax deduction now? Especially if you plan on retiring in a much lower tax, lower cost of living location (such as FL).

One last point: When you retire and take distributions from your traditional 401k, the distributions are taxed at the bottom of the tiered tax system, working your way up. Therefore, its highly doubtful your overall tax rate will be anywhere close to your current marginal tax rate (for high wage earners).

At the end of the day, I contribute 15% + 3% employer match to traditional 401k while the wife (painfully) only goes 6% + 3% employer match.

]]> By: Natalie http://20somethingfinance.com/roth-401k-contibutions-versus-traditional-401k/comment-page-1/#comment-17841 Natalie Sun, 02 Jan 2011 23:20:59 +0000 http://20somethingfinance.com/?p=3437#comment-17841 My husband's employer started offering a Roth 401k last year and we are certainly taking advantage of it. I'm very excited to have this option. We are currently contributing 9% and the company match is coming back this year for an additional 2.5%. We are working toward contributing 15% of income for a total of 17.5% with matching funds. Even though a Roth 401k is great, 401ks have much less flexible withdrawal rules than IRAs. For example, the first time home-buyer exemption only applies to IRA funds, not 401k funds. So if you want to avoid penalties for certain withdrawals, contribute just enough to the 401 k to get the company match, then contribute to an IRA up to the maximum, and then contribute any additional funds to the 401k again because they have a higher limit on contributions. I actually like the withdrawal penalties because is discourages me from using my retirement funds for anything but retirement. I don't want the option to use it. I also like the mutual fund options available in my plan and I like having to just manage one account. So I contribute everything I save for retirement into my husband's Roth 401k. I'm very excited about the new Small Business Act which allow for active conversions of traditional funds to Roth. As soon as my plan allow, I will convert and happily pay income tax on the amount today for tax free withdrawals in retirement. My husband’s employer started offering a Roth 401k last year and we are certainly taking advantage of it. I’m very excited to have this option. We are currently contributing 9% and the company match is coming back this year for an additional 2.5%. We are working toward contributing 15% of income for a total of 17.5% with matching funds.

Even though a Roth 401k is great, 401ks have much less flexible withdrawal rules than IRAs. For example, the first time home-buyer exemption only applies to IRA funds, not 401k funds. So if you want to avoid penalties for certain withdrawals, contribute just enough to the 401 k to get the company match, then contribute to an IRA up to the maximum, and then contribute any additional funds to the 401k again because they have a higher limit on contributions.

I actually like the withdrawal penalties because is discourages me from using my retirement funds for anything but retirement. I don’t want the option to use it. I also like the mutual fund options available in my plan and I like having to just manage one account. So I contribute everything I save for retirement into my husband’s Roth 401k.

I’m very excited about the new Small Business Act which allow for active conversions of traditional funds to Roth. As soon as my plan allow, I will convert and happily pay income tax on the amount today for tax free withdrawals in retirement.

]]> By: mgoblue255 http://20somethingfinance.com/roth-401k-contibutions-versus-traditional-401k/comment-page-1/#comment-15726 mgoblue255 Tue, 28 Sep 2010 22:53:22 +0000 http://20somethingfinance.com/?p=3437#comment-15726 M Denis: Traditional and Roth IRAs have a provision for first-time homebuyers to make penalty-free withdrawals from their accounts up to $10,000 to help with getting that first down payment together (the idea being that non-first time home buyers have equity in their current home as their down payment). It isn't necessarily a bad financial decision at all, unlike buying a home when you fall under the "financial hardship" criteria, because there is no requirement other than if you dig into your earnings, you must have had your account for at least 5 years. M Denis: Traditional and Roth IRAs have a provision for first-time homebuyers to make penalty-free withdrawals from their accounts up to $10,000 to help with getting that first down payment together (the idea being that non-first time home buyers have equity in their current home as their down payment). It isn’t necessarily a bad financial decision at all, unlike buying a home when you fall under the “financial hardship” criteria, because there is no requirement other than if you dig into your earnings, you must have had your account for at least 5 years.

]]> By: Ralph http://20somethingfinance.com/roth-401k-contibutions-versus-traditional-401k/comment-page-1/#comment-15004 Ralph Thu, 12 Aug 2010 20:02:48 +0000 http://20somethingfinance.com/?p=3437#comment-15004 Thanks for answering questions pertaining to investing in a Roth 401K. The part about rolling over to a Roth IRA is important info for those of us in the workforce. Good post. Thanks for answering questions pertaining to investing in a Roth 401K. The part about rolling over to a Roth IRA is important info for those of us in the workforce. Good post.

]]> By: Budgeting in the Fun Stuff http://20somethingfinance.com/roth-401k-contibutions-versus-traditional-401k/comment-page-1/#comment-11573 Budgeting in the Fun Stuff Wed, 19 May 2010 18:23:57 +0000 http://20somethingfinance.com/?p=3437#comment-11573 My employer doesn't offer a Roth 401k plan, so I contribute the minimum to get max employer match (6% to get 6%) and also fully fund a Roth IRA for $5000 a year. I figure this works okay since we can take withdrawals from both in a way to minimize our taxes in retirement. My employer doesn’t offer a Roth 401k plan, so I contribute the minimum to get max employer match (6% to get 6%) and also fully fund a Roth IRA for $5000 a year. I figure this works okay since we can take withdrawals from both in a way to minimize our taxes in retirement.

]]> By: Julie http://20somethingfinance.com/roth-401k-contibutions-versus-traditional-401k/comment-page-1/#comment-11566 Julie Wed, 19 May 2010 16:09:50 +0000 http://20somethingfinance.com/?p=3437#comment-11566 I contribute to both, 6% in my regular and 19% in my roth. I contribute to both, 6% in my regular and 19% in my roth.

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