Hi all,
I've read countless threads/articles on the Traditional 401K versus Roth 401K (or Traditional IRA vs Roth IRA) debate. And I can't help but feel like the best choice for most investors is to contribute to both, leaning more towards a standard 401K/Traditional IRA than a Roth. Most articles that I read on the subject seem to advocate for choosing one over the other, which simply does not make sense to me.
My reasoning? If Roth withdrawals don't count towards income, then you can manipulate whatever tax system we have at the time of your retirement into your favor.
Let's look at our current brackets for individuals as example:
10%: $0 to $9,875
12%: $9,876 to $40,125
22%: $40,126 to $85,525
24%: $85,526 to $163,300
32%: $163,301 to $207,350
35%: $207,351 to $518,400
37%: $518,401 or more
The standard deduction goes up to $12,000 for individuals. So for your first $12,000, withdrawing from your traditional 401K or IRA is the better financial choice. Then, drawing up to $40,125 from your traditional also makes a good deal of sense, assuming your top marginal rate was higher than 12% when you were investing in your 401K.
At this point, wouldn't it be nice to then withdraw from a Roth investment account rather than continuing to pull from a traditional 401K to avoid the 22% tax bracket? You would only be able to do this if you had money in a Roth as well as a traditional 401K or IRA.
Would love to hear your thoughts!
Submitted March 29, 2021 at 07:54PM by scentsandsounds https://ift.tt/3m3y3H7
