pre tax 401k or roth 401k

**disneysteve** · 02-18-2015, 01:46 PM

It's not a totally simple question but many believe that if you qualify for a Roth, that's the better choice. I'd much rather pay my taxes today and know that I never have to pay them again.

Also, if there is a company match, that gets paid into the traditional 401k, ot the Roth, so you end up with some of both anyway.

If there is not a company match, make sure you fund a Roth IRA first and then a Roth 401k after the IRA is maxed out.

**autoxer** · 02-19-2015, 08:16 AM

Originally posted by disneysteve View Post

It's not a totally simple question but many believe that if you qualify for a Roth, that's the better choice. I'd much rather pay my taxes today and know that I never have to pay them again.

I think there are too many different situations to just say the ROTH is a better choice. Right now, I would much rather defer taxes, because there is a good chance I can realize that income in a lower tax bracket in the future.

**skives** · 02-25-2015, 01:04 AM

What I don't get is why are roth earnings not taxed but pre tax 401k earnings are taxed when you take them out at retirement?

**disneysteve** · 02-25-2015, 04:06 AM

Originally posted by skives View Post

What I don't get is why are roth earnings not taxed but pre tax 401k earnings are taxed when you take them out at retirement?

Because that's the law. That's how the plans were set up by the government.

**kork13** · 02-25-2015, 04:37 AM

In a regular 401k, you aren't taxed at ask upfront, which gives you more dollars that can be invested & can earn compounding interest over time. Then at the end (withdrawal), you're taxed on everything that has grown tax few for decades,which leaves you with a lower overall amount of money after taxes.

Comparably, a Roth 401k is taxed upfront, so your account starts with a relatively lower dollar amount to grow over time. With that lower balance, it takes longer for the compounding interest to stack up, and when you retire, there's a relatively lower dollar amount than in your regular 401k. However, it's then tax free, so after taxes, your lower Roth 401k balance evens out with the reduced (by taxes) balance of your regular 401k.

Bottom line, assuming all else is the same, a Roth 401k will roughly match a regular 401k after taxes at withdrawal. That's why they were designed the way they are.

pre tax 401k or roth 401k