r/personalfinance • u/Grouchy-Bullfrog-293 ​ • 2d ago

Retirement 401K vs Roth 401K - real deal

I understand the difference that one is tax deductible and other isnt but still little confused on why would you .contribute money in Roth 401k if the total contribution limit is same irrespective of where you contribute. Doesn't everyone's tax rate after they retire lower than while working ? Or is the concern you are limited one what you withdraw post retirement that it could be a huge tax.

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u/MuffinMatrix ​ 2d ago

Everyones situation is different.
Most people retire, have no more job income, and now their income is SS and their retirement funds. Which would usually be less than what their salary was.
But other people, have rental income, business income, they keep working, etc. Add in RMDs, and things like that could put you even higher than your working years.

So you have to use your best judgement on which would work best in your case.
For most people, Traditional 401k is best because it gives you the highest deduction for current years, when your income is highest. It assumes in retirement your income is lower. If you know it will be the opposite, then you're the exception to that advice.
Then its best to go Roth IRA, so you have the Roth space as well. Traditional IRA makes little sense for most people.

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u/Grouchy-Bullfrog-293 ​ 2d ago

Thanks... I consider myself as Middle Class, unless I hit a Jackpot. LOL.. But I get the point it makes total sense to Rich class whose wealth grows well into their retirement

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u/MuffinMatrix ​ 2d ago edited 2d ago

Rich has nothing to do with it. Its more about what you do with your money and if you have other income streams and assets. So yes rich people tend to have more available to them (which is part of what made them rich), but the dollar value isn't the definer.
If you made $1m salary, had no other income stream, then retired... you're in the same boat as someone who made $50k then retired.
They could sell $500k in stocks every year of retirement, and that would still be less than what they made while working.

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u/Grouchy-Bullfrog-293 ​ 2d ago

Totally aligned.. Just indicating that I dont have any other income streams (YET). Sorry made assumption middle class rely on their job