Originally Posted by
gliderguider
This may be an outrageously stupid question, but why not use the 401k to defer tax til retirement when the income will be less? In other words, why have all the tax liability now during high income earning years?
I had the same question recently, and it was basically explained to me like this:
You shelter $18.5k from tax liability today via 401k, and it grows (for round numbers) to $200k...and you'll pay tax on the entire $200k as you make distributions from the account.
If you pay tax on the same $18.5k today and invest it via Roth 401k, and it grows to $200k...all you'll ever pay tax on is the initial $18.5k.
In "dumb pilot/round numbers" speak...35% of $18.5k is a LOT less than 25% of $200k.