Explain like I'm 5... maxing out retirement

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For the ROTH 401(k) option, don't think about it as your tax bracket now vs later....think about the fact that all the growth of your money will be tax free. You will likely have double, triple, quadruple amount of money that will NOT be taxed. And there are no Required Minimum distributions with a ROTH.

Once again, a PP fails basic math. If you devote the same amount of money to a traditional 401k and a Roth 401k, and your tax rate remains the same, you will have exactly the same amount of money.

This is middle school stuff, people. If you want to screw up your own portfolio, fine, but don't give incorrect advice to others.

You are so confidently wrong. But not interested in debating.

Please go look up order of operations, and then get back to me using the parameters in my earlier post. Oh, but you're "not interested in debating" - translation, not quite so sure of yourself.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For the ROTH 401(k) option, don't think about it as your tax bracket now vs later....think about the fact that all the growth of your money will be tax free. You will likely have double, triple, quadruple amount of money that will NOT be taxed. And there are no Required Minimum distributions with a ROTH.

Once again, a PP fails basic math. If you devote the same amount of money to a traditional 401k and a Roth 401k, and your tax rate remains the same, you will have exactly the same amount of money.

This is middle school stuff, people. If you want to screw up your own portfolio, fine, but don't give incorrect advice to others.

That's not always true right? Additional 20.5k (if you do ROTH now) may push you up to higher tax bracket. Not sure what you are saying. Are you talking about tax rate after you retire?

I am saying that if your tax rate stays the same, and you devote the same amount of money to tax deferred savings, there is no difference in portfolio size.

There may be other reasons to choose a Roth over a traditional 401k, and of course it's rare that tax rates will be the same in retirement. But as for the amount of money you'll have after taxes, there's no difference.

[Anonymous]

Anonymous wrote:$20,500 is the maximum for the TOTAL of my traditional and Roth 401ks, right?

I'm just chiming in here to add that if you are over 50, you can make catch up contributions to your 401(k), up to an additional $6,500, bringing your total contribution limit to $27,000 in 2022.

You can also contribute an additional $1,000 to your Roth or traditional IRA.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For the ROTH 401(k) option, don't think about it as your tax bracket now vs later....think about the fact that all the growth of your money will be tax free. You will likely have double, triple, quadruple amount of money that will NOT be taxed. And there are no Required Minimum distributions with a ROTH.

Once again, a PP fails basic math. If you devote the same amount of money to a traditional 401k and a Roth 401k, and your tax rate remains the same, you will have exactly the same amount of money.

This is middle school stuff, people. If you want to screw up your own portfolio, fine, but don't give incorrect advice to others.

That's not always true right? Additional 20.5k (if you do ROTH now) may push you up to higher tax bracket. Not sure what you are saying. Are you talking about tax rate after you retire?

I am saying that if your tax rate stays the same, and you devote the same amount of money to tax deferred savings, there is no difference in portfolio size.

There may be other reasons to choose a Roth over a traditional 401k, and of course it's rare that tax rates will be the same in retirement. But as for the amount of money you'll have after taxes, there's no difference.

okay, so you have two portfolios that are same size but one owes tax and the other one doesn't. Which one is better?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For the ROTH 401(k) option, don't think about it as your tax bracket now vs later....think about the fact that all the growth of your money will be tax free. You will likely have double, triple, quadruple amount of money that will NOT be taxed. And there are no Required Minimum distributions with a ROTH.

Once again, a PP fails basic math. If you devote the same amount of money to a traditional 401k and a Roth 401k, and your tax rate remains the same, you will have exactly the same amount of money.

This is middle school stuff, people. If you want to screw up your own portfolio, fine, but don't give incorrect advice to others.

That's not always true right? Additional 20.5k (if you do ROTH now) may push you up to higher tax bracket. Not sure what you are saying. Are you talking about tax rate after you retire?

I am saying that if your tax rate stays the same, and you devote the same amount of money to tax deferred savings, there is no difference in portfolio size.

There may be other reasons to choose a Roth over a traditional 401k, and of course it's rare that tax rates will be the same in retirement. But as for the amount of money you'll have after taxes, there's no difference.

okay, so you have two portfolios that are same size but one owes tax and the other one doesn't. Which one is better?

You are changing what I said. If you have the same portfolio size, it means you devoted more to the Roth.

[Anonymous]

Anonymous wrote:I don't think Roth makes sense for me... My tax bracket is 32%, it can't possibly be any worse in retirement right? Seems like I should stick to traditional everything.

I thought that Roth wouldn't make sense for me since I expect our tax bracket will go down in retirement too, but then I realized that Required Minimum Distributions would derail that idea if we live long enough. Also that your retirement income (including those RMDs) also impacts the cost of your Medicare premiums. Roth income doesn't currently count towards your annual retirement income used to determine your Medicare premiums. (though there's no guarantee that that will always be the case--or that Roth won't also someday require RMDs too.) There are other considerations which can make Roth options more valuable in the long-term than a first glance might suggest.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For the ROTH 401(k) option, don't think about it as your tax bracket now vs later....think about the fact that all the growth of your money will be tax free. You will likely have double, triple, quadruple amount of money that will NOT be taxed. And there are no Required Minimum distributions with a ROTH.

Once again, a PP fails basic math. If you devote the same amount of money to a traditional 401k and a Roth 401k, and your tax rate remains the same, you will have exactly the same amount of money.

This is middle school stuff, people. If you want to screw up your own portfolio, fine, but don't give incorrect advice to others.

That's not always true right? Additional 20.5k (if you do ROTH now) may push you up to higher tax bracket. Not sure what you are saying. Are you talking about tax rate after you retire?

I am saying that if your tax rate stays the same, and you devote the same amount of money to tax deferred savings, there is no difference in portfolio size.

There may be other reasons to choose a Roth over a traditional 401k, and of course it's rare that tax rates will be the same in retirement. But as for the amount of money you'll have after taxes, there's no difference.

But there will be a difference in which bucket you want to draw from to minimize your taxable income in any given year, so whether the rate is the same or lower or higher, it’s tax-beneficial to have a bucket of Roth money around that doesn’t drive up your AGI when you draw on it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For the ROTH 401(k) option, don't think about it as your tax bracket now vs later....think about the fact that all the growth of your money will be tax free. You will likely have double, triple, quadruple amount of money that will NOT be taxed. And there are no Required Minimum distributions with a ROTH.

Once again, a PP fails basic math. If you devote the same amount of money to a traditional 401k and a Roth 401k, and your tax rate remains the same, you will have exactly the same amount of money.

This is middle school stuff, people. If you want to screw up your own portfolio, fine, but don't give incorrect advice to others.

You are so confidently wrong. But not interested in debating.

Please go look up order of operations, and then get back to me using the parameters in my earlier post. Oh, but you're "not interested in debating" - translation, not quite so sure of yourself.

Lol @ order of operations. Thanks for your concern but I am sure of myself. Anyone who thinks there is only one right answer is wrong 99% of time.

[Anonymous]

Anonymous wrote:I feel like I am smarter than this post will make me sound, but I cannot figure out what maxing out retirement means.

Let's say I have access to four retirement vehicles:
Traditional 401k through work
Roth 401k through work
Roth IRA
Traditional IRA

My income puts me out of the running for a Roth IRA, so I'm down to three options.

I can put $6k into my Traditional IRA, right? Regardless of any 401k investments?

Now where I'm really stuck... $20,500 is the maximum for the TOTAL of my traditional and Roth 401ks, right? Or can I contribute that in EACH?

So if I'm understanding correctly, the absolute maximum I can contribute in a given year is $26,500?

(for the sake of this question let's ignore Backdoors, that feels like a problem for another day...)

- 401K - $20,500 is the max you can contribute to a 401K - Regular or Roth. If you are over 50, you can contribute another $6500. At your income level, a Roth 401K does not make sense.
- 401K - Check if your company has a mega-401K. This allows you to contribute after-tax $$ in addition to the 20,500 to your 401K and convert that to a Roth (aka mega-backdoor Roth).
- IRA - You can contribute to either a traditional or Roth IRA. At your income level, you can contribute to a Traditional IRA and convert that to a Roth (backdoor Roth). $1000 more if you are over 50. You cannot deduct contributions to a Traditional IRA so kinda pointless unless you do plan on converting to a Roth.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I feel like I am smarter than this post will make me sound, but I cannot figure out what maxing out retirement means.

Let's say I have access to four retirement vehicles:
Traditional 401k through work
Roth 401k through work
Roth IRA
Traditional IRA

My income puts me out of the running for a Roth IRA, so I'm down to three options.

I can put $6k into my Traditional IRA, right? Regardless of any 401k investments?

Now where I'm really stuck... $20,500 is the maximum for the TOTAL of my traditional and Roth 401ks, right? Or can I contribute that in EACH?

So if I'm understanding correctly, the absolute maximum I can contribute in a given year is $26,500?

(for the sake of this question let's ignore Backdoors, that feels like a problem for another day...)

- 401K - $20,500 is the max you can contribute to a 401K - Regular or Roth. If you are over 50, you can contribute another $6500. At your income level, a Roth 401K does not make sense.
- 401K - Check if your company has a mega-401K. This allows you to contribute after-tax $$ in addition to the 20,500 to your 401K and convert that to a Roth (aka mega-backdoor Roth).
- IRA - You can contribute to either a traditional or Roth IRA. At your income level, you can contribute to a Traditional IRA and convert that to a Roth (backdoor Roth). $1000 more if you are over 50. You cannot deduct contributions to a Traditional IRA so kinda pointless unless you do plan on converting to a Roth.

This is a good explanation. The recommendation if you can afford to do this is max out: traditional 401k, HSA (if eligible), back door Roth IRA, and mega back door Roth IRA (if available to you).

Most people are eligible for 20,500 (401k), 6000 (back door Roth IRA).
Some are married so can double that number
Some are over 55 so can contribute additional catch up amounts
Some have access to HSA and mega-back door Roth IRA so can contribute more after tax up to 61,000 total in each 401k.

It depends on your situation, maxing means putting the most you can in all of the available options you have.

[Anonymous]

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For the ROTH 401(k) option, don't think about it as your tax bracket now vs later....think about the fact that all the growth of your money will be tax free. You will likely have double, triple, quadruple amount of money that will NOT be taxed. And there are no Required Minimum distributions with a ROTH.

Once again, a PP fails basic math. If you devote the same amount of money to a traditional 401k and a Roth 401k, and your tax rate remains the same, you will have exactly the same amount of money.

This is middle school stuff, people. If you want to screw up your own portfolio, fine, but don't give incorrect advice to others.

That's not always true right? Additional 20.5k (if you do ROTH now) may push you up to higher tax bracket. Not sure what you are saying. Are you talking about tax rate after you retire?

I am saying that if your tax rate stays the same, and you devote the same amount of money to tax deferred savings, there is no difference in portfolio size.

There may be other reasons to choose a Roth over a traditional 401k, and of course it's rare that tax rates will be the same in retirement. But as for the amount of money you'll have after taxes, there's no difference.

But there will be a difference in which bucket you want to draw from to minimize your taxable income in any given year, so whether the rate is the same or lower or higher, it’s tax-beneficial to have a bucket of Roth money around that doesn’t drive up your AGI when you draw on it.

Agreed - hence the bolded.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For the ROTH 401(k) option, don't think about it as your tax bracket now vs later....think about the fact that all the growth of your money will be tax free. You will likely have double, triple, quadruple amount of money that will NOT be taxed. And there are no Required Minimum distributions with a ROTH.

Once again, a PP fails basic math. If you devote the same amount of money to a traditional 401k and a Roth 401k, and your tax rate remains the same, you will have exactly the same amount of money.

This is middle school stuff, people. If you want to screw up your own portfolio, fine, but don't give incorrect advice to others.

You are so confidently wrong. But not interested in debating.

Please go look up order of operations, and then get back to me using the parameters in my earlier post. Oh, but you're "not interested in debating" - translation, not quite so sure of yourself.

Lol @ order of operations. Thanks for your concern but I am sure of myself. Anyone who thinks there is only one right answer is wrong 99% of time.

Math doesn't change, PP. FFS.

As I said, there are reasons to chose a Roth option over a traditional 401k/IRA. But believing that your Roth portfolio will be bigger isn't one of them (again, assuming you devote the same amount of money to retirement savings, and your tax rates remain the same.)

You're just making yourself look stubborn and not very bright. Please stop.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I feel like I am smarter than this post will make me sound, but I cannot figure out what maxing out retirement means.

Let's say I have access to four retirement vehicles:
Traditional 401k through work
Roth 401k through work
Roth IRA
Traditional IRA

My income puts me out of the running for a Roth IRA, so I'm down to three options.

I can put $6k into my Traditional IRA, right? Regardless of any 401k investments?

Now where I'm really stuck... $20,500 is the maximum for the TOTAL of my traditional and Roth 401ks, right? Or can I contribute that in EACH?

So if I'm understanding correctly, the absolute maximum I can contribute in a given year is $26,500?

(for the sake of this question let's ignore Backdoors, that feels like a problem for another day...)

- 401K - $20,500 is the max you can contribute to a 401K - Regular or Roth. If you are over 50, you can contribute another $6500. At your income level, a Roth 401K does not make sense.
- 401K - Check if your company has a mega-401K. This allows you to contribute after-tax $$ in addition to the 20,500 to your 401K and convert that to a Roth (aka mega-backdoor Roth).
- IRA - You can contribute to either a traditional or Roth IRA. At your income level, you can contribute to a Traditional IRA and convert that to a Roth (backdoor Roth). $1000 more if you are over 50. You cannot deduct contributions to a Traditional IRA so kinda pointless unless you do plan on converting to a Roth.

This is a good explanation. The recommendation if you can afford to do this is max out: traditional 401k, HSA (if eligible), back door Roth IRA, and mega back door Roth IRA (if available to you).

Most people are eligible for 20,500 (401k), 6000 (back door Roth IRA).
Some are married so can double that number
Some are over 55 so can contribute additional catch up amounts
Some have access to HSA and mega-back door Roth IRA so can contribute more after tax up to 61,000 total in each 401k.

It depends on your situation, maxing means putting the most you can in all of the available options you have.

This is a good summary, although the catch-up trigger age is 50, not 55.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For the ROTH 401(k) option, don't think about it as your tax bracket now vs later....think about the fact that all the growth of your money will be tax free. You will likely have double, triple, quadruple amount of money that will NOT be taxed. And there are no Required Minimum distributions with a ROTH.

Once again, a PP fails basic math. If you devote the same amount of money to a traditional 401k and a Roth 401k, and your tax rate remains the same, you will have exactly the same amount of money.

This is middle school stuff, people. If you want to screw up your own portfolio, fine, but don't give incorrect advice to others.

You are so confidently wrong. But not interested in debating.

Please go look up order of operations, and then get back to me using the parameters in my earlier post. Oh, but you're "not interested in debating" - translation, not quite so sure of yourself.

Lol @ order of operations. Thanks for your concern but I am sure of myself. Anyone who thinks there is only one right answer is wrong 99% of time.

Math doesn't change, PP. FFS.

As I said, there are reasons to chose a Roth option over a traditional 401k/IRA. But believing that your Roth portfolio will be bigger isn't one of them (again, assuming you devote the same amount of money to retirement savings, and your tax rates remain the same.)

You're just making yourself look stubborn and not very bright. Please stop.

New PP here (not one of the two of you arguing about this).

Respectful suggestion: why don't you each show your math and governing assumptions, rather than talking about it? That should make it very easy to sort out where the disconnect is.