Good 7

Av8or,

Thanks for putting how you did it up. I'm away from home for a few more weeks and wouldn't know how to change it if you didn't put it up. Thanks.

⌐ AV8OR WANNABE

You bet ya, Roth 401K is good stuff!

Good 7

Anyone have any idea if we can roll the traditional part of our 401k over into a Roth IRA (to get the taxes out of the way now) and continue with the Roth 401k alone in the future? I'm not sure if terminating the traditional component of the 401K would terminate all 401K involvement.

⌐ AV8OR WANNABE

It would not terminate "all 401K involvement" as you will still have a 401K involvement but in a post-tax status (Roth 401K) versus a pre-tax status (regular 401K).

However, there is no option to "roll over" regular 401K into Roth 401K, I checked that with UPS benefits and with Fidelity. Once you start saving in the Roth version, whenever you click on the "source" link on your Netbenefits website, the Basic Roth "piece of pie" will keep getting larger comparing to the regular 401K "piece of pie." In the future (when you retire) you'll be able to decide if you want to start withdrawing your post or pre-tax savings first or maybe even both at the same time.

brewster

You guys better talk to a "real" tax advisor before thinking the Roth 401k is the next greatest thing. While it does have its advantages, it only benefits those who expect to be at the same or higher tax bracket while in retirement. If you expect to be in a lower tax bracket when you retire, you would benefit from the tax savings you get while contributing to a traditional IRA more.

Here is an example with tax rates used only for rounding and a clear example:
If your current tax rate is 35% and you expect your tax bracket to put you at 25% during retirement, you would NOT benefit from a Roth 401k. Your "tax free" withdrawals cost you 10% when it comes time to take payments, when they could have saved you 35% off your salary when you were contributing. And the 35% you deferred on your salary while contributing to the traditional 401k only costs you 25% in taxes now that you are taking out money.

You need to know where you expect to be during retirement and how much money you will require to know if you will benefit from a traditional or Roth the most. Unless you just like giving more to the IRS.

⌐ AV8OR WANNABE

I agree, you should talk to your tax advisor; I have talked to mine and I even followed it up with a visit to a different tax accountant just in case. Both looked at my "assumed" income for the next 20-25 years based on our current contract; about 8 years from now I might split my 401K savings between Roth and regular 401K to lower my tax brackets, but for now Roth makes absolute sense.

Additionally, your assumption is that our tax rates will remain the same or even lower 25 years from now. My assumption is that we have 12-25 million illegal aliens in this country that soon will be eligible for social security benefits which will add to our already strained-beyond-belief system. I personally do not think that 10-20 years down the road our income taxes will be as "low" as they are today - I think we'll see a Europisation (I’m pretty sure this is not a word but it sounds good to me!) of our tax rates in order to pay our health care and social security bills. Hope I’m wrong, but this is what I believe…

So in a way, I am pre-paying Hillary-taxes, Chelsey-taxes, etc now...

brewster

You do not have to take my advice. You seem to be pretty young and many years until you retire. But IF you were to ask me what you should do without knowing your financials I would tell you:

that most company Roth 401k's do not have a company match. So ALWAYS take out a traditional 401k and put in the max to get full advantage of the compan match. If you don't, you are leaving money on the table and not taking full advantage of the company benefits. The remainder of what you would contribute you can put into the Roth 401k. Then you should open up a traditional IRA. Many people do this with a rollover from a 401k left at a previous employer. It allows you more freedom to invest in options your company plan may not offer. When you find you have an extra 2k at anytime during the year, put it in the IRA and take the additional 2k write-off on that years taxes which currently the max allowed unless you are self employed.

Just my advice for what its worth.

Buck92

Amen, brother!

⌐ AV8OR WANNABE

Your advice is very similar to what my tax advisors gave me. They asked if my company matched our 401k but since they do not – I was told to focus on Roth 401k instead. If we had a 401K match, they recommended I save in the regular 401K at least what the match would have been – no reason to be giving up "free money."

Like I said, every person might have very different circumstances and they should definitely double-, and triple-check their retirement plans with their tax advisors.

In my case, I think Roth 401k is the way to go - it's my way of “tax-hedging.” Heck, "fuel hedging" got SWA through some rough times in the airline business when most major airlines went bankrupt.

Maybe my “tax-hedging” will get me and my family through some tough times when our government can’t make payments on some of the promised health care and social security benefits? Who knows...
But I’m glad we have a choice…

UASIT

Sorry to bring back an old thread...But, can you max out the Roth 401K ($16,500) and still max out a Roth IRA ($5,000) in one year?

I'm going to ask my company / Vanguard in the morning. But I was hoping someone may know from their experience...

Thanks...