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UPS Retirement Topics
Just started my 401k, thoughts?
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<blockquote data-quote="brett636" data-source="post: 1218931" data-attributes="member: 249"><p>Your math is simply wrong, and I can show you why. You are assuming that the contribution amount for a Roth account is based on net pay since its after tax and the contribution for a traditional account is based on gross pay. The truth is both are based on gross pay, but with the Roth the taxable portion of your gross pay remains unchanged while the taxable portion of your paycheck is reduced when contributing to a traditional 401k. So all things equal if I am contributing to a Roth and you are contributing to a traditional 401k my paycheck will be smaller than yours because my taxes are higher, but my 401k contribution will be the same as yours. This means that come retirement 20-25% of your 401k will be going to the government as you withdraw it while I will get all of my 401k contributions back plus growth tax free. </p><p></p><p>The only real point to argue is whether tax rates will remain the same or will be higher in the future. If tax rates are higher in the future as I believe they will the ROTH will be the account to have, while if taxes remain the same or even go lower(highly unlikely) then the traditional account wins out. When you figure in our pension and the fact that if we get any social security part of that will become taxable, you are adding fuel to the fire by having a purely traditional 401k to draw on since everything taken out goes through the IRS before you see a dime.</p></blockquote><p></p>
[QUOTE="brett636, post: 1218931, member: 249"] Your math is simply wrong, and I can show you why. You are assuming that the contribution amount for a Roth account is based on net pay since its after tax and the contribution for a traditional account is based on gross pay. The truth is both are based on gross pay, but with the Roth the taxable portion of your gross pay remains unchanged while the taxable portion of your paycheck is reduced when contributing to a traditional 401k. So all things equal if I am contributing to a Roth and you are contributing to a traditional 401k my paycheck will be smaller than yours because my taxes are higher, but my 401k contribution will be the same as yours. This means that come retirement 20-25% of your 401k will be going to the government as you withdraw it while I will get all of my 401k contributions back plus growth tax free. The only real point to argue is whether tax rates will remain the same or will be higher in the future. If tax rates are higher in the future as I believe they will the ROTH will be the account to have, while if taxes remain the same or even go lower(highly unlikely) then the traditional account wins out. When you figure in our pension and the fact that if we get any social security part of that will become taxable, you are adding fuel to the fire by having a purely traditional 401k to draw on since everything taken out goes through the IRS before you see a dime. [/QUOTE]
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Just started my 401k, thoughts?
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