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Roth 401k

Old 01-05-2018, 04:25 PM
  #11  
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Another advantage of Roths is no RMDs
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Old 01-05-2018, 05:06 PM
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It may be a technicality, but Roth 401K's do have RMD's at age 70 1/2.
It can be avoided by rolling the Roth 401 into a Roth IRA upon termination of employment.
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Old 01-05-2018, 08:07 PM
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The issue when comparing Roth 401k and regular 401k is you must compare apples to apples. The only way to make that comparison is IF you are saving ALL the tax money you saved by using a regular 401k. If you are not setting aside the equivalent amount of taxes you saved then Roth 401k destroys a regular 401k. If you do set aside all the tax money saved, then the differences are very small. I built a big spreadsheet (yes I'm a geek) and tracked the comparisons over 25 years breaking down by variable tax rates, and returns and mandatory withdrawals. The most I ever got in a difference, either way, was a couple hundred $$ per year. Most differences were in the tens of dollars per year. In essence, the tax savings of apx $7000 per year when invested back overcame the tax savings over the long term. As previously mentioned, we really will not gain any tax advantage in the future with the regular 401k. We will make too much in retirement to get a much lower tax bracket.

If you are closer to 55 then there is less return time for the Roth. If you are younger than 50, then the Roth kills. As mentioned there are other non-actual dollar factors like mandatory withdrawals that can factor into your decision. But now you're into crystal ball forecasting and that's all on you.
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Old 01-05-2018, 09:09 PM
  #14  
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Excellent discussion. I did some research.

I have been using the traditional 401k, but I think this year I will switch to Roth 401k. I have also been doing the back door Roth IRA for both my wife and I, since 2012. If you are not doing this, you should.

Why am I going to do the Roth 401K?

For one reason only...

At 70.5, you must take mandatory withdrawals from your 401K, even a Roth 401K.

But, you can convert your Roth 401K to a Roth IRA, and then you don't have mandatory withdrawals.

I read in the WSJ, that people smarter than I are not leaving their Roth IRA's to their kids. They are leaving them to their grandchildren and great grandchildren, if they are able.

Your heirs get the money tax free, and must take mandatory distributions based on their lifespan. So, giving it to a 5 year old is smarter than giving it to their parents. Smaller distributions, and longer time to gain interest.

I have instructed my wife to spend the Roth money last, and only if necessary. If she can, I want her to leave it to our grandchildren.

Sometimes, it pays to think long range, like a forester.

Thanks for all of your thoughts.
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Old 01-05-2018, 09:31 PM
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Originally Posted by Nightflyer View Post
Excellent discussion. I did some research.

I have been using the traditional 401k, but I think this year I will switch to Roth 401k. I have also been doing the back door Roth IRA for both my wife and I, since 2012. If you are not doing this, you should.

Why am I going to do the Roth 401K?

For one reason only...

At 70.5, you must take mandatory withdrawals from your 401K, even a Roth 401K.

But, you can convert your Roth 401K to a Roth IRA, and then you don't have mandatory withdrawals.

I read in the WSJ, that people smarter than I are not leaving their Roth IRA's to their kids. They are leaving them to their grandchildren and great grandchildren, if they are able.

Your heirs get the money tax free, and must take mandatory distributions based on their lifespan. So, giving it to a 5 year old is smarter than giving it to their parents. Smaller distributions, and longer time to gain interest.

I have instructed my wife to spend the Roth money last, and only if necessary. If she can, I want her to leave it to our grandchildren.

Sometimes, it pays to think long range, like a forester.

Thanks for all of your thoughts.

The current estate tax exemption is $10 million. If you and the spouse die before 2025, assuming you have a properly written trust, you can exempt $20 million from any estate taxes. After 2025, they go back to a $5 million exemption allowing you to exempt $10 million. Those are adjusted for inflation, so it’ll be higher in the future.
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Old 01-05-2018, 10:13 PM
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I am not concerned about estate taxes.

If I pass on a Roth IRA to my youngest heirs, it can continue to grow tax free long after my death, and my heirs will benefit from my generosity.

If I just left them a wad of cash, they would be taxed on the interest if they invest it. Leaving them a Roth gives them a long time to have a tax free income stream.
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Old 01-06-2018, 05:17 AM
  #17  
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Originally Posted by NotMrNiceGuy View Post
https://www.kiplinger.com/article/in...f-you-can.html

Just to avoid confusion, there are no income limits for the Roth 401(k). Income limits only impact the Roth IRA.
Sorry for the confusion!
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Old 01-06-2018, 09:00 AM
  #18  
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Originally Posted by kwri10s View Post
The issue when comparing Roth 401k and regular 401k is you must compare apples to apples. The only way to make that comparison is IF you are saving ALL the tax money you saved by using a regular 401k. If you are not setting aside the equivalent amount of taxes you saved then Roth 401k destroys a regular 401k. If you do set aside all the tax money saved, then the differences are very small. I built a big spreadsheet (yes I'm a geek) and tracked the comparisons over 25 years breaking down by variable tax rates, and returns and mandatory withdrawals. The most I ever got in a difference, either way, was a couple hundred $$ per year. Most differences were in the tens of dollars per year. In essence, the tax savings of apx $7000 per year when invested back overcame the tax savings over the long term. As previously mentioned, we really will not gain any tax advantage in the future with the regular 401k. We will make too much in retirement to get a much lower tax bracket.

If you are closer to 55 then there is less return time for the Roth. If you are younger than 50, then the Roth kills. As mentioned there are other non-actual dollar factors like mandatory withdrawals that can factor into your decision. But now you're into crystal ball forecasting and that's all on you.
This is all true if Income Taxes remain the same correct? One of the reason I have diversified to Roth 401 for my remaining years is because I think taxes will rise. I could be wrong but Income and retirement inequity is all the rage now.
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Old 01-06-2018, 10:29 AM
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You are correct. If tax rates increase in the future, then a Roth will increase its advantage.
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Old 01-06-2018, 10:42 AM
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Originally Posted by HIFLYR View Post
This is all true if Income Taxes remain the same correct? One of the reason I have diversified to Roth 401 for my remaining years is because I think taxes will rise. I could be wrong but Income and retirement inequity is all the rage now.
Oh yeah, it's the rage now....and wait until the other side gets in control. I don't think taxes will be going down. Take your retirement income and your spouses, add RMD's and you could be talking some seriously high tax rates.
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