ROTH vs Reg 401k, I don’t think it matters here’s why

This is my point. Many people make the assumption that when they are retired they will be in a lower tax bracket, which may or may not be true. I have no idea what tax rates will be in the future, but I look at my dad and with the taxes on his retirement plus the taxes on the mandatory distributions his tax rate is not significantly different from when he was working.

 

Are 401k/ira withdrawals taxed at capital gains or ordinary income rates?

 

Ordinary income.

 

Then the roth ira earnings being tax exempt is an advantage in the end after all.

 

So it might be cheaper tax wise to own long term stocks outside of an ira as they become capital gains rather than ordinary income like they would if held in a traditional ira.

 

I do both- max out the Roth and am putting like 15% of my salary into my 401k. I like the idea that I will have choices when I retire in 25+ years.

 

He retired in and lives in Florida. So no state income tax. He gets a military pension, he does get SS (he’s 80), plus his 401k/IRA accounts both of which require minimum distributions for over 72. He also did a few years civil service, but I don’t remember if he did that long enough to qualify for retirement.

 

This article is more about SSN benefits and taxes than 401k and ROTHs. But it touches on all of it and as @ColoradoTJ mentioned the state you live in could have an impact on your retirement income.
https://www.theepochtimes.com/brigh...me-social-security-benefits-this-year-5669812

 

While required, if he is of a charitable nature, some or all of the RMD can be used as QCDs and thus be tax free for that year and done again in all future years.

With the std deduction being so high now, itemization for the common man is virtually unheard of, so any charitable contributions not done via a QCD are worthless in terms of tax benefit. Doing a QCD gives 100% tax free.

I funded all I could for 401k and 403b during the working years, and also fully funded Roths (wife and I both) for a number of the later years. I used the tax deferred $ from the 401k and 403b to help fund the Roths. When I retired, I rolled all the employer stuff into a single IRA, getting their hands out of the pot.

The Roths are brokerage accounts, so I can trade for free within the account and profits are tax free, just like whatever your investment choices are.

Roths also have inheritance advantages over IRAs.

While they are not the only tool, or maybe not the best tool for every situation, they are an excellent tool for many of us.

Enough so that I'm funding Roths for my grands as they begin working any type of taxable job. They will have a massive jump start on retirement savings by the time they enter the work force full time.

 

This is why I try to diversify between Roth and traditional IRA - have some in both since I don't really know what will be best. I see the argument in both directions.

 

Any comparison that does not include the impact of RMDs is incomplete.

 

Right now I don't remember what the question was, so I'll assume yes...

Congrats on the retirement!

 

Invest in both....
Put IRA on autopilot...
Contribute to your 401k till it hurts,
I dont f'king care your employer doesnt contribute, do it anyway you sorry as excuse maker....
5%, 10%, 15%, 24%, 27%........
Do whatever you have to do, just do it!!!!!

Co-worker I know, service writer, 200K+ a year, has all the big govt fleet accts, sheriff, highway patrol, city, county, gas & electric, cox communications, construction accts, etc...
Pusher motorhome, dune buggies, side by sides, $170k river boat, etc...
Cant afford to send any of his kids to college, lives paycheck to paycheck....
Been there 25? years, no 401k....
making memories, is his cop-out when I call him on it....

 

Your 2 part response is is valid...as long as peeps understood you were talking about 2 different sarnarios.

Took me 2 reads to realize you were commenting on 2 different peeps.

Good post.