I looked around and can't find a clear answer to this question, so thought I'd come here. Even the teenager behind the Schwab chat couldn't answer it.

Since I am over 50, my maximum contribution from payroll is $30,500 this year ($23,000 + $7,500 catch up).

With my new company, I have a choice of a Traditional 401k or a Roth 401k. I chose to go with the Roth but lets ignore that right now.

Now, regarding maximum contributions, I can deposit the full $30,500 into the traditional 401k. The contribution is pre-tax as the traditional 401k get taxed when withdrawing monies.

With Roth 401's, what are the guidelines? Can I contribute the full $30,500 in Post-tax dollars? Or, is the Roth 401k contribution limited to the $30,500 in Pre-tax dollars so only the net delta gets deposited (i.e. $30,500 - taxes = maximum Roth 401k contribution).

Thanks.

It's the gross $30,500 that can go into the Roth. There's no separate tax calculation isolated to that amount, just your total taxable wages as reported at yearend. That $30,500 will be included in that taxable amount, as opposed to a regular 401(k) where it would not.

So, the $30,500 pre-tax contribution limit is it regardless if it goes to a Traditional 401 or a Roth 401.

With a maximum 401 contribution of $30,500
Traditional 401
$30,500 - No Tax = $30,500 in T401. Tax at withdrawl

Roth 401 with 20% Tax liability
$30,500 - $6,100tax = $24,400 in R401. no tax at withdrawl

^^^ You have to ask yourself:
What's the tax rate going to be on withdrawal?
If you are retired and your earnings are low, you are likely to be in a lower tax bracket.
If you are currently in a higher tax bracket you might be better off with the traditional 401k.

Agree, but that’s not the question. Just trying to find out if the Roth Contribution is $30,500 in full with post tax dollars or the net of $30,500 after taxes removed.

Roth 401k is post tax but still limited to 30k. Theory is pay tax now and grow that 30k to some multiple of that in next 10-20 years or however long you work. The company match is not post tax. There is some math required at what age is it better to do Roth or non Roth 401k as the older you get less time you have to grow that free tax growth. I’d rather pay tax now and have it be tax free in the future regardless of my future tax bracket.

quote:

Originally posted by ugeesta:
So, the $30,500 pre-tax contribution limit is it regardless if it goes to a Traditional 401 or a Roth 401.

With a maximum 401 contribution of $30,500
Traditional 401
$30,500 - No Tax = $30,500 in T401. Tax at withdrawl

Roth 401 with 20% Tax liability
$30,500 - $6,100tax = $24,400 in R401. no tax at withdrawl

^^^^. So, the contribution limit for a Roth 401 IS $30,500 post tax dollars.

I agree, no matter when the withdraw age is, I’m thinking my tax bracket won’t change much and like the idea of fund appreciation being tax free as well. Ain’t going to live like a pauper in my retirement.

Most of my retirement account is in traditional 401s so I’ll be screwed on taxes either way.

quote:

Originally posted by ugeesta:
^^^^. So, the contribution limit for a Roth 401 IS $30,500 post tax dollars.

Yes.

quote:

Originally posted by American Pit Bull:

quote:

Originally posted by ugeesta:
^^^^. So, the contribution limit for a Roth 401 IS $30,500 post tax dollars.

Yes.

^^ THIS

It doesn't have to be one or the other either. 2/3 of year I contribute to Trad 401k and last third of year contribute to Roth 401k. As long as it totals $30,500 or less then it's OK.

This message has been edited. Last edited by: tatortodd,

Yes, I max my Roth 401k every year and this year will put in 23500 all post tax. You can also do a combination. The match if any would be pretax rules. Tax free growth over a long period will typically beat any tax savings in the current year in the whole tax now vs later debate. If the horizon is shorter it could be a closer match.

Thanks for the replies

quote:

Originally posted by ugeesta:
Roth 401 with 20% Tax liability
$30,500 - $6,100tax = $24,400 in R401. no tax at withdrawl

You have to pay the tax for the year that the income was earned but this doesn't reduce the amount in the Roth account—the full $30.5K that was contributed in the account stays in the account. The tax doesn't come out of the account.

quote:

Originally posted by ugeesta:
^^^^. So, the contribution limit for a Roth 401 IS $30,500 post tax dollars.

I agree, no matter when the withdraw age is, I’m thinking my tax bracket won’t change much and like the idea of fund appreciation being tax free as well. Ain’t going to live like a pauper in my retirement.

Most of my retirement account is in traditional 401s so I’ll be screwed on taxes either way.

The calculation is 150000 taxable income, minus 30000 roth contribution.

OR

150000 income - 30000 trad 401 contribution = 120000 taxable income.

You get taxed on your income, the 401 amounts are the same. I put all mine in roth. You never know what future tax brackets are gonna look like when the .gov needs more money. Pay the tax now and be done with it.
A second factor that no one really mentions is that the employer contribution can only be traditional. So if you contribute to the roth portion, the company is still contributing to the traditional.If you contribute to the traditional, your match will also be trad, you will be double dipping in the pretax funding. I prefer to spread mine around.

I have 6% matching from my employer. Can I max out all on Roth and still get the 6% match in the trad side, or do I need to put aside at least 6% on the trad side to get the match?

quote:

Originally posted by Rawny:
I have 6% matching from my employer. Can I max out all on Roth and still get the 6% match in the trad side, or do I need to put aside at least 6% on the trad side to get the match?

You can max out on the roth side, the company match can only go into traditional. You don't have to put any in traditional for the company match to go into traditional.

I had this discussion with my CPA a few years ago and his comment to me was given the financial hole the government is digging itself into do you think the tax rate will be the same, lower or higher in a few years?

My answer was higher so I am in the process of converting my SEP IRA into a Roth IRA in the belief that I would end up paying considerably more later.

I am not looking forward to filing my taxes this year!

quote:

Originally posted by smlsig:
I had this discussion with my CPA a few years ago and his comment to me was given the financial hole the government is digging itself into do you think the tax rate will be the same, lower or higher in a few years?

My answer was higher

Exactly.

The old strategy of "pay the tax now because you're going to be in a lower tax bracket when you retire" likely won't work out these days.

Especially for someone just getting into middle age, where it's a near certainty that tax rates will be higher in 20-30 years.

The picture is bigger than just the tax rate today vs when you are retired. Your traditional 401k or IRA withdrawal counts as income, and that counts against you in other areas. It affects how much your Social Security gets taxed and how much you pay for Medicare. Those can be big penalties.

Being poor on paper may qualify you for freebies or discounts, too. Cheap cell service, etc.

It is hard to find a scenario where the Roth isn't worth paying the taxes today.

Until the cash-strapped, bankrupt Govt. hits upon a brilliant plan to eliminate the tax-free provisions of a Roth.

I hate that argument. If they decide to change the tax rules on Roth decades after the fact then nothing would stop them from just taking your 401k and giving you a stipend instead. The game is rigged. If you think they would only change one rule you are nuts. The barrier to reverse decades of Roth contributions is pretty high regardless of the doomsday hyperbole.

If you are saying they might eliminate Roth in the future then I agree that is possible but not the same as going backwards in time and double taxing your prior contributions. That is tin foil hat territory.