Roth 401K vs 401K What are differences?

Discussion in 'UPS Retirement Topics' started by Damondogg, May 28, 2014.

  1. Damondogg

    Damondogg Member

    I've contributed to my 401K for about 10 years, what's the Roth 401K? Am I able to rollover my current 401K to a Roth 401K or is that even an option?


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  2. UpstateNYUPSer

    UpstateNYUPSer Very proud grandfather.

    Contributions to a traditional 401k are made with pre-tax money while those to a Roth 401k are made with after tax funds. Withdrawals from a traditional 401k are taxed at the rate in effect at the time of the withdrawal while those from a Roth 401k are tax free. Keep in mind that contributions to a Roth 401k will have a greater impact on your net pay than those to a traditional.

    The traditional 401k gives you the tax break upfront-----contributions are not taxed and are subtracted from your gross for tax purposes----while the Roth 401k gives you the tax break on the back side.

    You cannot roll your traditional 401k balance in to a Roth 401k.

    With 10 years in you may better served by suspending contributions to your traditional 401k and initiating them in your Roth 401k. Yes, you will have two separate 401k's, but you will be able to roll over your traditional 401k upon separation and/or retirement to lessen the tax blow.

    All new hires should choose the Roth over the traditional.
     
  3. oldngray

    oldngray nowhere special

    The interest earned in a Roth is tax free which can really add up over time. Roth loses most of that advantage if you are closer to retirement and has less time to compound that interest (if you are just starting a new plan). Rollovers to an IRA can be easier with a traditional than with a Roth I think.
     
  4. upschuck

    upschuck Avatar bet gone wrong

    Nobody knows the answer to this, but mainly depends on whether you think taxes be higher, or lower than what they are now.

    Also with a Roth, you know exactly how much you have because there is no tax consequence. Your balance will be less*, but you keep it all.


    * assuming same take home pay between IRA and Roth options
     
  5. Brownslave688

    Brownslave688 You want a toe? I can get you a toe.

    Some employees will allow you to roll over your traditional 401k into the Roth. At this time that is not an option at ups but I'm holding out hope that it will be in the future.
     
  6. UpstateNYUPSer

    UpstateNYUPSer Very proud grandfather.

    Is it even legal to roll over a traditional 401k to a Roth 401k? What about the tax consequences?
     
  7. Brownslave688

    Brownslave688 You want a toe? I can get you a toe.

    Yes you take the tax hit when you roll it over. Not many employers have Roth 401k even less let you roll your old 401k into it.

    I looked into it I would of gladly taken the hit at 26/27 whenever it was that I started the Roth.
     
  8. Damondogg

    Damondogg Member

    So I have the option to have both Roth 401K & 401K while at UPS?


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  9. Brownslave688

    Brownslave688 You want a toe? I can get you a toe.

    Yes.

    You may also want to seek the advice of a financial advisor.
     
  10. oldngray

    oldngray nowhere special

    Or stay at a Holiday Inn Express.
     
  11. Damondogg

    Damondogg Member

    Thanks for your help! Now I need an advisor. ImageUploadedByBrownCafe1401316096.830089.jpg


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  12. UpstateNYUPSer

    UpstateNYUPSer Very proud grandfather.

    Yes but it would make zero sense to have both.
     
  13. Brownslave688

    Brownslave688 You want a toe? I can get you a toe.

    Actually the argument could be made that 50% in both is your safest bet.
     
  14. UpstateNYUPSer

    UpstateNYUPSer Very proud grandfather.

    The selling point of a 401k is the compounding feature. Dividing the balance between two 401k's reduces the benefits of compounding.

    One of my co-workers was a PT sup for a few years. She has her mgt 401k and her Teamster 401k. Both have relatively small balances but combined they would benefit from compounding.
     
  15. upschuck

    upschuck Avatar bet gone wrong

    Mathematically it is the same. Distributive property. (a+b)c = ac + bc where a and b are the accounts and c is the return.
     
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  16. Brownslave688

    Brownslave688 You want a toe? I can get you a toe.

    You said that much better than I could of. Same result either way.
     
  17. Brownslave688

    Brownslave688 You want a toe? I can get you a toe.

    Even though I love the Roth I'm somewhat happy my wife's employer doesn't offer it. I max out my Roth she maxes her regular.

    No matter what happens we should be ok. If all stays as it is I hope to live off hers and continue to let mine grow tax free.
     
  18. satellitedriver

    satellitedriver Moderator Staff Member

    All I can say is ,
    I hope y'alls ignorance brings you bliss in your retirement.
    How in the hell do y'all live your daily life while not learning how to prepare for your future?
     
  19. brownmonster

    brownmonster Man of Great Wisdom

    Y'all's ignorance. Lol.