Comments on: Roth 401k — Why these retirement plans may be bad for your wealth

By: DR

DR — Thu, 17 Feb 2011 12:12:01 +0000

Bob, that’s a great question, and as with all tax questions, my first response is to consult a tax professional! That said, the article wasn’t meaning to distinguish between effective and marginal rates, but rather ordinary income versus capital gains. And assuming the IRA contributions were deductible, I believe the tax treatment is the same as a 401(k). But again, check with a tax pro to be sure!

By: bob

bob — Wed, 09 Feb 2011 00:49:08 +0000

Hi DR,
Thanks for your great article!

I have a question: Does the “withdrawals from a traditional 401k will be taxed, along with other retirement income, at your effective rate” part apply to IRAs too? i.e. are Traditional IRA withdrawals taxed at the effective rate, not the marginal rate?

By: Keep My IP » Leveraging Both a 401(k) and a Roth IRA for Retirement

Keep My IP » Leveraging Both a 401(k) and a Roth IRA for Retirement — Fri, 13 Aug 2010 19:55:13 +0000

[...] 401(k) to leverage the maximum contributions from your employer. However, if the investments in the 401(k) seem to hinder or remain stagnant rather than assist you in your retirement goals, then contribute the rest of your money set aside [...]

By: The Digerati Life

The Digerati Life — Wed, 23 Jul 2008 15:28:34 +0000

Great post! Haven’t really looked into the details of a Roth 401k before, as it hasn’t been available to me. What an interesting option to provide employees nowadays. If it’s not as good an option as a traditional 401k except in the special cases you mention, I wonder why employers even bother to offer it.

By: DR

DR — Wed, 23 Jul 2008 03:24:38 +0000

LC, it goes to show that we should never stop learning and studying. Having spent considerable time studying the option over the last month, I’m moving away from the Roth 401k.

By: LC

LC — Tue, 22 Jul 2008 17:20:49 +0000

This is in direct contradiction to the article you wrote 4 months ago.

“I believe that for most people most of the time, Roth retirement accounts are best”
http://www.doughroller.net/2008/03/03/dave-ramseys-step-4-a-visual-guide-to-saving-15-for-retirement-in-a-roth-401k/

so which one is right?

By: DR

DR — Sat, 12 Jul 2008 11:14:20 +0000

Tom Bob, I agree. And remember that the article is focused just on the Roth 401k, not the Roth IRA. The analysis for a Roth IRA is different, in my view. Unless you qualify for a deductible IRA, the extra money you have to invest has already been taxed, so a Roth IRA makes perfect sense.

By: Tom Bob

Tom Bob — Sat, 12 Jul 2008 11:07:21 +0000

I think Laurie was on a right track with her point. Folks like myself– who are salaried and max out our pre-tax 401K plans but still fall within the Modified Adjusted Gross Income ceiling — have a viable savings option to put away taxable income using a Roth IRA.

For instance, a single tax filer with a MAGI of $98k could put away the maximum on a Roth account to supplement his other retirement plan. In that case, it seems to be up to the individual as to whether it’s worth it or not to sock away the extra $$$. It really is a nice option to have available.

By: Jody Wilson

Jody Wilson — Thu, 10 Jul 2008 20:48:25 +0000

I’m convinced that Congress will be raising tax rates in the future to pay for the growth in Social Security, Medicare, etc. So I’d rather pay my taxes now while they’re relatively low (Roth), in order to avoid paying them later.

By: Jeff

Jeff — Thu, 10 Jul 2008 18:22:35 +0000

You may wish to note that Pennsylvania is kinda screwy and does not allow you to deduct your contributions to a traditional 401k (thus I still pay 3% state and 3% city tax on all of my 401k contributions). I don’t have to pay this tax on distributions though (assuming that I withdraw at 59.5 or older and still live in PA).