Roth 401k Or Traditional 401k - Which Is The Better Investment?

Roth 401k vs 401k? Which is going to be better for you? There are a few different things you need to think about before you decide where to invest your money. One of the biggest deciding factors is what tax bracket you think you'll fall into when you retire. The problem is that it's tough to project that far into the future since there are going to be a lot of things that happen to you between now and when you're able to access this 401k money.

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Disclaimer: This video is for entertainment purposes only. Everyone's situation is different so do your own research before making any decisions with your money. If you need help then contact a Certified Financial Fiduciary before trying anything that is mentioned in this video. I prefer a Fiduciary financial advisor that charges an hourly fee as opposed to an ongoing fee based on a % of your portfolio. Always remember that incentives determine the type of advice they give you so one that charges an hourly fee is less likely to be problematic.

#roth401k #401k #401kmillionaire

[JarradMorrow]

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[MyOdette]

OMG you explained this so well I finally understand! I have watched several vids but yours is by far the best!

[minihorses]

Love all of your videos, they are so informative! I am maxing out traditional 401k this year, I sold a rental property and trying to soften the blow when it's time to pay Capital Gains tax.

[petereinert]

So the answer is "I don't know". Great, thanks for playing! J/K Jarrad, love your vids.

[DAILYGamblingCS]

I invest in a ROTH right now. I max it out every year, and then save the rest for real estate investing. Awesome video man I learned a lot!

[bren]

Great video. My employer lets us do both the roth 401K and traditional 401K. So i actually do both but i put a little more in the traditional 401K to help lower my taxable income every year.

[ganthc]

I do want to say that looking at only federal income taxes might not give a full picture, especially if you are in a high state income tax state, but plan to retire in a no state income tax state. Traditional saves you from paying state income taxes on a Roth on the front end, while not paying state income taxes on the withdrawal side. Just something to consider, especially in states like California, where the state income tax is 9%. I will invest in Roth when I move from Virginia to Texas.

[simonmhamdi]

thanks, Jarrad !! it's a great video.

[jongoldenstein]

You need to analyze the effects of marginal tax rates when you contribute vs effective tax rates on withdrawals. Also need to consider the potential loss or reduction of AGI based tax credits/deductions into your tax rate if you choose Roth over traditional. For those reasons, I’m 100% traditional. May be different for someone else but tax rates now vs future is too simplistic.

[sileenastevens]

I can’t afford to max out my 401(k) with just the Roth option. So, I do a mix of both. I am able to fully max out my 401(k) with this method. Doing so also allows me to max out my Roth IRA *and* I’m still able to pay my bills, invest, and save for things I want.

[EllenIsLovex]

Really informative. I am 23 and want to reach FI and want to retire early. My employer offers both options of contributing to my 401K pre-tax or ROTH. I'm still not sure I understand but, would you recommend splitting it 50/50? In this video, you said that if you are trying to reach FIRE then, it might make more sense to do pre-tax. Can you explain that more? or do you have another video that touches on that closely?

[chad]

I have the option for both were i work. I currently put more in the traditional and am steadily increasing my roth contribution.

[OrcasV]

Hi Jarrad. I'm currently enrolled in my employers Roth 401k and plan to invest the maximum limit but I just find out that they charge 0.9% for contract asset charges that's on top of the expense ratio of the plan fund I chose (vanguard institutional total stock market index 0.04%). Would it still be smart to maximize my 401k or just invest in taxable account. Also my employer has a discretionary matching so I don't even know how much they'll match or if ever they will match it. I'm over the limit for a Roth IRA so sadly it's not an option and backdoor will probably be regulated soon.

[brianvernaglia]

With a traditional 401k, you save taxes at your marginal tax rate. Then you pay taxes at your effective tax rate in retirement. Even if you move into a high tax bracket in retirement, your effective tax rate is probably lower. Ideally, save some early in your career into a Roth 401k so you can diversify. But mid career, traditional is ideal.

[claytonb]

Hey Uncle Jarrad, great video! I know you have some videos on strategies to pay off debt, but I don't remember your philosophy on investing before you're debt free. My wife and I will graduate this fall with 150k in student loans and will earn about 150k a year (pre-tax). We are also early 30's with not a lot saved for retirement. Should we focus all of our efforts on paying off debt (maybe 3 years of hard work) or put some money into 401k and savings as well? Kind of debating our strategy at this point. Thanks for your input and great vids!

[Qred]

Tax bracket only affect the dollar amounts in those brackets

[garymcfadden]

Jared, am now retired and so thankful I did 30 years of Roth. Tax free is always better than tax deferred and I don't ever have to deal with RMD's. Your vid's are excellent, excellent info!

[nursevinyl]

I have both i don’t know if thats good. My wife has traditional roth ira.

[gofdoom]

if we are going for FAT Fire, would income from our investments dictate what tax bracket we are in?

[tannerdavisr]

I think the biggest advantage of a Roth 401k is the money grows tax free. So as far as I understand it, I don't have to pay taxes on the interest my money earns. That is a big plus if it's true.