Comments on: Roth and Traditional 401(k): Why not invest in both?

By: George Adams

George Adams — Fri, 18 Jan 2008 03:33:00 +0000

Another advantage of the Roth 401(k) over a Traditional 401(k) is with unqualified distributions.

Say you put in $10,000 in both a Traditional 401(k) and Roth 401(k), and both grow in value to $15,000. Later, you leave your company and roll both accounts over into (respectively) a Traditional IRA and Roth IRA.

And then let’s say you need some money, but you haven’t hit age 59 1/2 or any other qualifying event.

With the Traditional IRA, you will be hit with penalties if you try to withdraw any of that money. But with the Roth IRA, you can withdraw any or all of your contributions without penalty at any time. So if you need up to $10,000 from that IRA, it’s yours for the taking.

We plan on using that as a form of college savings for our kids. Almost all our excess money will be going to my Roth 401(k) rather than a 529 college savings plan. Later, if we need extra money for our kids’ college, I’ll be able to pull out some of my contributions to my Roth IRA (rolled over from the Roth 401(k)) to help foot the bill.

By: DR

DR — Tue, 08 Jan 2008 21:23:03 +0000

Emeka, I'm glad you're finding the site useful. As for Roth versus traditional retirement accounts, you may won't to try a calculator that can help you determine which is best for you. I've included a link to one in the following post: The Ultimate Guide to Traditional and Roth 401(k) and IRA Retirement Accounts.

By: Emeka

Emeka — Mon, 07 Jan 2008 16:44:22 +0000

I have read some of your articles and think they are brilliant. They are very great and relevant for everyone more especially the younger generation.

I contribute to my company’s 401k and am matched at 75% for the first 6%. Currently am putting in the 6% which is in a traditional 401k and also contributing to a Roth IRA. My personal contribution is about equal for both the Roth IRA and the traditional 401k . My company offers the Roth 401k and I want to know if I should switch over. Should I stay how I am and be tax diversified as we dont know what future tax laws are OR should I go with the Roth and enjoy the tax-free withdrawals. I am 24 years old and believe my tax rate will go up.

By: DR

DR — Fri, 14 Dec 2007 10:53:38 +0000

Randall, I too suspect that taxes will have to go up. Social Security and medicare will cost us a fortune. You’d be surprised, though, how close a call a traditional versus Roth 401(k) is even if you assume taxes will go up. The calculator I link to in the article allows you to set different tax scenarios to test this. Good luck!

By: Randall

Randall — Thu, 13 Dec 2007 13:41:36 +0000

I like the Roth 401(k), it’s just that no company I’ve worked at has ever offered one yet. I ‘believe’ that taxes will have to go up, maybe even significantly, with all the pending issues the U.S. is facing in the coming decades; Social Security solvency, Boomers retiring, Economic slowdowns, etc.

If I’m wrong, then I lost a little money. If I’m right, those in a taxable account stand to possibly lose a LOT of money.

The other thing I like is the ‘don’t have to take disbursements at 70 1/2′ If I want to leave it in there to accumulate interest, I can. Conventional Roths and IRAs force you to take it out whether you want/need to or not.