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Update: Traditional 401(k), Roth IRA, Roth 401(k) – Oh My! April 6, 2007

Posted by pf in Expenses and Savings, Taxes.

In a previous post, I had discussed my newly available Roth 401(k). You may recall that I had decided to basically do nothing right now and continue to ponder my options. I came across this article from one of my readers which has caused me to re-evaulate my thinking about both the new Roth 401(k) as well as my overall contribution strategy between my existing 401(k) and Roth IRA. The article is:

Lone wolf – “Meet one dissenter from Roth 401(k) rah-rah chorus”

Up to this point, I have been very much of the belief that balancing out my retirement funds with more in the Roth was the way to go.  Now, I am thinking I should always at least max out my 401(k) and then contribute whatever I have left over to the Roth.  Sigh…I could really use something more definitive, everything I read makes it seem like  a crapshoot…either I’ll look like a financial genius or be lamenting my foolish choice. 

 If anyone feels strongly about this topic, I’d love to hear your opinions (I can’t possibly be the only one going through this).



1. TFB - April 12, 2007

I think your decision for staying with Traditional 401(k) plus Roth IRA is the right one. The push toward Roth 401(k) is for increasing current tax revenue at the cost of future tax revenue — future government be damned, “not my problem.” It wouldn’t surprise me if Roth money gets indirectly taxed in the future.

If someone is currently in a low tax bracket, Roth 401(k) makes some sense because there’s not much tax savings from Traditional 401(k) anyway. Sounds like you earn enough which makes the tax savings from Traditional 401(k) contributions worth something. Another consideration is state income tax. If you are in a high state income tax state, but you may not be when you retire, you escape state income tax if you contribute to Traditional 401(k).

Great blog, by the way. Subscribed.

2. pf - April 13, 2007

A quick update – I’ve actually taken this a step further and decided to fully fund my 401(k). I’ll use whatever I have left over for the Roth IRA. I’m still a little bummed since I had initially been so excited about having the option to really diversify my portfolio from a tax standpoint, but nonetheless, think it’s for the best…for now.

Thanks for your comments and kind words!

3. Livingalmostlarge - April 16, 2007

I wouldn’t do a Roth 401k if DH had it offered. Our tax bracket makes it questionable. Maybe if we drop in income, definitely not as we increase.

Depends on how much you make really. If you are married making the MAGI of $160k or above to qualify for a Roth IRA you are 28%. And when you retire will you really need that much? Or if you are making $200-300k why would you do it if you are heading to the 35% federal bracket? Our friends are there and a Roth 401k is crazy. Plus you aren’t even couting high state income taxes. So you might be paying something like 40-45% when all is said and done to draw on an account that you might have only had to pay 20% in retirement?

4. Traditional or Roth 401(k)? « My Personal Finance Odyssey - November 10, 2007

[…] Traditional or Roth 401(k)? November 10, 2007 Posted by pf in Expenses and Savings. trackback This topic just won’t seem to go away for me.  You may recall my posts sometime ago where my company had introduced the Roth 401(k) and I could not decide how to take advantage of it:  Update: Traditional 401(k), Roth IRA, Roth 401(k) – Oh My! […]

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