Anonymous asked in Business & FinanceInvesting · 7 years ago

Best to withdraw from both Traditional and Roth 401k?

Many articles debate Traditional OR Roth 401(k) but I do not see why contributing to both is not the best answer. I have been contributing to both and want to know if there is a flaw in my logic. To keep the numbers simple, lets say I currently make $75,000 and when I retire I will withdraw $100,000 per year. I will take $50K from my Traditional account and $50K from my Roth account. Since I only owe taxes on the $50K from my Traditional account, my taxable income should only be $50K even though I am pulling in $100K. Therefore, my tax rate when I retire would be lower that my current tax rate because I have less taxable income. If this is true, why do most sites debate one type of 401k vs the other and not recommend both? Or do I have flawed logic?

3 Answers

  • 7 years ago
    Favorite Answer

    The simple answer is, "pay me now or pay me later."

    In the IRA you do not pay tax on your investment,

    but you will pay tax on any withdrawals you make in

    your retirement years.

    The Roth IRA, you pay tax on your investment now.

    but you pay no tax on any withdrawals you make in

    your retirement years.

    Its debatable as to which way is the better option.

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  • 4 years ago

    Both grow tax-deferred. That implies that you will don't have any tax legal responsibility so long as the money remains in a tax-deferred account, such as the 401k or an IRA. The ordinary 401k provides a tax improvement this 12 months due to the fact the money comes out of your paycheck pre-tax. The Roth does not provide a present tax advantage. The cash comes from your verify after tax. You pay taxes on the money this year. The offset is that while you take the money out later, possibly during retirement which could also be a long time from now, depending to your age, the Roth comes out tax-free whereas the usual will incur tax on each buck you withdraw. To right your remark above, there is not any tax on the usual on the end of the year. On the grounds that your corporation does now not offer any fit, there's very little motivation for you to use an business enterprise sponsored plan versus an IRA except you need to contribute more to the plan than allowed for an IRA ($5000 for many individuals under age 50).

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  • 7 years ago

    Your logic seems ok. You are hedging your bets. 1/2 in a traditional 401k, and 1/2 in a Roth.

    My theory - pay no tax before it's time. Plus I like the tax write-off.

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