The limit for both is $18,500, but for the Roth, is that limit the before or after tax amount? I know that for Roth IRA's you can contribute $5,500 of after tax money, so the pre-tax earned income that gets you that $5,500 is higher than that. A maximum contribution to a ROTH IRA (while not being tax-deductible upfront) is guaranteed to be more valuable than a maximum contribution to a Traditional IRA with the same asset allocation because you don't have to pay taxes when you take the money out, and the "balance" on the account will be the same. Does the same hold true for 401k's?
Hypothetically if your marginal tax rate is 35%, does that mean a ROTH 401k lets you contribute and invest what was (18500/(1-.35)) = $28,561 of pre-tax income? Or is it that only $18,500 of pre-tax income can be allocated there and your balance in the account goes up by (18500*(1-.35)) = $12,025?
This sounds like something I could easily google for an answer, but honestly I've tried and had no luck finding anyone making this (I feel important) distinction. If Roth IRA's do allow you to get effectively get tax beneficial status on more money, then it's very weird to me that no one is talking about this significant advantage. If not, then I feel like it would get complicated calculating what the tax would have been (taking into account state and everything) and then have the leftover added to the account; and it'd be weird that it works differently than IRA contribution limits.
Submitted July 29, 2018 at 09:09PM by readingtheturtle https://ift.tt/2v1rmw1
