Mark Bole wrote: > This is the original point
Mark, maybe I am being dense here. Can you give this one more shot?
Roth 401(k) words. Post tax money goes in. Grows, say 5X over time. Comes out tax free.
401(k) words. Pretax money goes in. Grows, say 5X over time. Taxed upon withdrawal.Since both accounts are not taxed while in the account, I don't need to consider the reinvesting, and can just assume '5X' over whatever time frame. I also believe it obfuscates the matter to say that one starts with $20K and continue from that premise, since the limit for either account is $15,000 in 06. There's an awful lot I get to ignore given I'm not comparing not retirement accounts and the issues that come with favorable tax on dividends or cap gain, etc. One can certainly discuss the other choices, but for this question, I was strictly trying to stick to "401(k) vs Roth 401(k)" and my conclusion was that the only difference would be the tax rate differential. And I agree that it's not knowable what rate you will be in five years hence let alone 10 or 20, and diversifying among the two types would make sense.
To your point above, I think that you are right for the wrong reason. Any 20 year old choosing among a Roth or plain 401(k) would likely be an aggressive saver, one who risks a higher rate at retirement more than the average Joe. And given the state of the economy is unknown, the risk is more that income tax rates will rise, not to mention that the 20 year old is likely in the lower bracket just for the fact that he's just starting to work.
JOE