December 29, 2013 Admin | December 29, 2013 Why would someone consider investing in a Roth 401(k) vs. a Traditional 401(k)?
5 thoughts on “December 29, 2013”
It’s related to taxes – Roth Accounts are usually post-tax, meaning the taxes have already come out of them, and they can be borrowed against without penalty (see terms and conditions), making them versatile enough to be used for short-term (house payment) and mid-term savings (college fund for (grand)children), as well as retirement.
The Roth IRA is more versatile. You can use it as a retirement account (its main purpose), to pay for your children’s college, as a down payment for your new home, or in case of an emergency. The money you put into the account goes in after tax. This allows you to withdraw your contributions at any time in the future without paying a penalty or taxes. You always want to minimize the expense ratio and a good place to do this is at vanguard.com.
You made many fine points. Let’s review.
Your workplace may offer you a traditional 401(k) or a Roth 401(k), which is not the same as a Roth IRA (outside of work at a place like Vanguard). The main thing to keep in mind with any Roth retirement account is to understand that the money goes in after tax and will grow in the account without being taxed at the present time or in the future if you follow the rules.
A person might select the Roth version over the traditional based on their perception of being taxed at a higher rate now or into the future. If you think you will pay more taxes now, you would probably consider the traditional. If you thought you would pay more taxes later (higher paycheck and/or higher tax rate) you would probably consider the Roth version and pay your taxes now. When in doubt, it is generally wiser to go with the Roth version. The compounding affect over time will probably make it the right move for most people.
…Jesus is Risen. Jesus will come again. Can we move on now?***Except that the money is NOT “free”, Doug.It’s borrowed from China and Saudi Arabia, and such.My feileng: can Our New Global Overlords PLEASE take our multi-millionaires/billionaires off our hands, PHYSICALLY TOO? I’d love to see our hedge-fund managers and investment bankers, oh, say, sewing underwear in a Chinese sweatshop!
Thank you for that review! I have read the book seearvl years ago and Bill and I liked the concept so much we bought the game Cash Flow and a set of tapes, etc.