Thoughts on Roth 401k

I wrote about this on my site this month.

The punchline is that this question cannot be answered without more details, such as age, current income (and tax rate), along with some SWAG as to your assets at retirement. Looking at current tax rates, it would take $849K in pretax savings to put you in the 15% bracket at retirement. So perhaps the deduction while in the 28% or 25% bracket is still worth it. Throw into the mix the phantom rate caused by gradual taxation of social security benefits and you have another variable to consider. A high enough income at retirement puts you beyond that hump with no real way to avoid it, but if you are right there, then good Rothing can be beneficial.

I agree that rates are likely to rise, but there will always be a zero bracket (the sum of standard deduction and exemptions) and some amount of low bracket(s). And the risk that Roth withdrawal, while not 'taxable', will be part of the equation that makes your social security taxable*, that would add insult to injury.

JOE

*I don't mean to start such a rumor, but it's one of the concerns of the truly cynical.

That's a common perception, but it is quite wrong. For exxample, income tax rates are much lower now than they have been at many times in the past. See

Actually, you're right:

it's for a short period, it's evident that the middle-classeffective tax rate has decreased slightly overall. Eye opener indeed.

Thanks.

This chart doesn't consider the taxes paid by the middle-class. What's telling is that it all started with only the filthy rich paying taxes, sometimes de facto confiscation, as can be seen in these charts. It doesn't show either the effective tax rate, for example accounting for the AMT that was also supposed to affect the filthy rich too, but, as always, ends up reaching the middle-class. As you can see at

45&type=0&sequence=0, the effective tax rate for the average income level is increasing,especially the middle-class. But, back to the topic, I guess that it's wise to hedge my bets and use BOTH the traditional AND the Roth 401k at 50/50.

Thanks.

Effective tax rates may be interesting, but it's one's marginal rate that matters. Since you didn't offer your age, current income (or bracket), or give any idea of the rate at which you're saving, I wouldn't argue with your conclusion. The greater the time until retirement, the more uncertainty there would be on the ideal mix. Only thing I'd continue to suggest is to continue to project how much you'd have at retirement. As long as your retirement bracket appears enough below your current bracket, some pretax savings is in order. Also - the chance that an under 30 year old work right till retirement with no period of unemployment or break of some kind is slim. That break can be used to convert to Roth. It would fit what you propose, converting the pretax during such a period. The math does get real easy right before or during retirement. JOE