401k vs Roth 401k
 

Ok, I need some help from you smart guys. Does anyone have a good link to a comparison calculator for these two options we now have? I found a couple good ones, but they will only calculate if you "accumulate" until you begin to withdraw. I'd assume for most of us our goal is to contribute until we retire and then hopefully not withdraw until we hit mandatory withdrawals at 70 1/2.

I'm trying to figure out which to do. Any help or thoughts would also be helpful. Vanguard can't seem to decide what we are doing and even less sure what would be best for us based on our age.

If you already built a spreadsheet for the calculation that would be great to share also. :D

401Roth
 

If you are not in AMT then the he Roth IRA is a no brained. If in AMT then you need to try and determine what your taxable income might be when you retire. If you are at UPS or Fedex and still have a pension you could easily hit AMT with withdrawals from your 401K and BFund plus pension. So it would be nice to withdraw from a Roth tax free to keep your taxable income down during retirement.

The biggest guess is what will the market do and how are you invested .I am a pilot and my advice is free!

How high are our tax rates today versus where will they be when you retire? With the national debt spiraling out of control (regardless of which party controls the White House) I'm betting that by the time I retire taxes will be higher than they're today (Roth).. so I'd rather pay them today.

However, I'm a pilot so I'm probably wrong..

The Vanguard site gives options for pre-tax 401(k) and ROTH. [They don't say ROTH 401(k)]. I assume they were just not as explicit with the wording as they should have been, and it's really a ROTH 401(k) election one is making?

Also, I just assume that the 2017 $18,000 limit for non-catch-up 401(k) applies to the total between "normal" 401(k) and ROTH 401(k)? One could put $9000 in each version I assume, not $18k in each version?

Last, they mimic the warning the R&I committee put out about more than 5% in after tax contributions and the 415c limit, but that was in addition to maximizing the 401(k). The way this is displayed, it might confuse or discourage people from filling a ROTH 401(k) AND making a 5% after tax contribution?

With us now having the option of 401K v. Roth 401K, or a combination of the two, what's the benefit of our third option, which is straight contribution with after tax dollars to our 401K. Is it convertible down the road to a Roth? Is it subject to the 54K limit?

Yes we now have either or both. You can convert zero to all of your previously accrued 401k money into a new Roth 401k. Any money you convert (to include gains) will be taxed as income.

I'm trying to see which option is better. On the one hand you gain a apx 8000 tax break now, but you will pay taxes on that money later at best case 28% tax rate (assuming no changes in rates). To compare apples to apples you really have to take into account the time value or gains on the 8000 also. So most on-line calculators have you make an after tax contribution of $8000 back into your 401k (that cannot go into your Roth 401k). The extra 8k is to account for the taxes you paid in order to max your Roth 401k.

Then you track forward the gains. For the Roth, the gains are tax free. Also you do not have to begin withdrawing Roth 401k money at 70 1/2. You will have to start withdrawing your 401k at 70 1/2. The current mandatory withdrawal number at 70 is apx 27. So divide your balance at 70 by 27 and that is the amount you must withdraw every year. Roth money can go to your dependents without ever being taxed (not including death tax if applicable)

There looks to be a break point at which one is better than the other based on your current age and rate of returns, I just cannot figure out how to get the delay (65-70) to work on the on-line calculators. My spreadsheet is really looking nasty to make this workout for me to calculate on my own. Just being lazy hoping someone already did this work.

I asked and Vanguard said we cannot convert the after tax contributions into the Roth 401k. Don't know if that's right, they've given me a whole bunch of wrong info the last week or so. But it sounds right.

That's not exactly correct. It's a sliding scale, so that at 70&1/2 your required minimum distribution is (as you've mentioned) 27.4. When you're 71, it's 26.5. When 72, it's 25.6. When 73, it's 24.7. etc. Here's a link to RMD's: IRA Required Minimum Distributions Table | Bankrate.com And NO. That's not my picture.

Other than that, a very nice post.

Here's a decent calculator to help figure out if you should convert it or not.

Roth 401k conversion calculator

I have a short timeframe until retirement and high bracket so best to stay 401k; no big advantage for me.