The Most Common Roth 401K Misconception
The Roth 401K Match Misconception
Why would anyone choose a Traditional 401K over a Roth 401K?? After all, your company paid match is equivalent and if it’s post tax with a Roth, you’re really getting more money from your employer.
WRONG!
Your employer’s match on Traditional 401K’s AND Roth 401K’s is pre-taxed and always automatically put into a separate Traditional 401K account. Your match will be worth the same amount today and in the future, whether you contribute to the Traditional or the Roth. If you thought you were being clever by going with the Roth to get more of a match, well…. sorry.
401k Match Discussion:
Did you think that by contributing to a Roth 401K you were getting a bigger match?
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Roth IRA Guide
IRS 401K Maximum Contribution Limits
5 Benefits of Using a Traditional IRA
so, wait, if you had a 401(K) Roth, then you would be investing in both a ROTH account & a traditional 401(k) account at the same time?
That’s awesome! takes the effort out of trying to split your money into two separate accounts… _IF_ i’m reading that right.
Not that it matters right now, for me, seeing as I am unemployed & all.
@ Allen – That’s correct.
My 401K investment strategy was simple, I moved my money to a safe haven, the stable value bond fund. After the market stopped bottoming out and I saw what I considered a sustained leveling off and some signs of life out there, I started incrementally moving money back into the stock index funds.
Thank you for your great article.
You can add this misconception also.
Don’t think that once you leave your former employer that it will be so easy to transfer your 401k.
My former employer was so upset that I left the company that they gave me a hard time and stalled on purpose when I asked them to transfer my funds into my new employers plan.
They help out for almost 1 full year before I got my money.
And not only that, but Roth 401k contributions are NOT tax deductible like regular 401k contributions, so you could end up keeping yourself in a higher tax bracket than might have been the case otherwise. Again, whether or not it makes sense to contribute to any given retirement account really depends on the individual financial circumstances of the person in question…
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