Roth 401K

[sweeps]

I like to take my tax deductions now. I don't really trust delayed tax deductions. Especially if I were in the 33% tax bracket, I'd be shoving everything I could in my pre-tax 401k and wouldn't look back.

[simpletron]

it might also be advantageous to choose to put some into the roth if you are going to save more than the limit. roth always beats taxable when it comes to taxes. but normal 401k doesn't always beat roth even if you are in the 33% tax bracket, this is highly dependent on what will be your taxes during retirement.

What do you mean when you say more than the limit? I was under the impression that the limit is $16.5K per person. If we invested $16.5K into a pre-tax 401K can we invest additional money into a roth 401K?

let's say you are going to invest 16.5K in a normal 401K and 5.5K in taxable account every year for retirement. it might be better to just invest 16.5K in a roth 401K. both take the same bite out of net pay. now we compare the 5.5K taxable to 5.5K of the roth 401K, the roth wins because it doesn't have to pay capital gains taxes. next we compare the 16.5K in the 401K to the remaining 11K in a roth 401K, both will be worth the same after taxes in retirement assuming your tax rates don't change. if your tax rate does go lower, is the savings on the normal 401K enough to offset the capital gain taxes of the taxable account? if he does drop to the 15% bracket during retirement then this is a mute point, but if he is close to the same during retirement it gives an advantage to the roth.

assumptions:
1. the 401K deduction doesn't put you in a lower tax bracket
2. the 401K deduction doesn't qualify you for additional deduction/credits
3. the growth of all accounts are the same aka invested in the same things