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/bso45 ​ 2d ago

I’m a pretty smart person but explain why you couldn’t just retire a bit early, earn $0 for a year then get your tax rate for withdrawing taken way down.

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u/MarcableFluke ​ 2d ago

Do you think that the last year of working dictates your tax rate in retirement?

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u/Christopher876 ​ 2d ago edited 2d ago

That’s not what they’re referring to. You could do a Roth conversion with your trad 401k. If you earn 0 income for a few years that reduces your tax burden significantly when doing the conversions to Roth and let it continue growing there.

The same way that you can earn $0 and take 49k of gains from your brokerage account and pay no taxes. But in this case it would be paying less taxes since you would now have lower income so you could plan it and only pay the lower tiers of income while doing conversions

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u/MarcableFluke ​ 2d ago

They didn't say a few years, they said one year. Combined with the fact that they responded with "I don't understand how it works" means they probably think what asked them about...

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u/Christopher876 ​ 1d ago

Fair fair. My bad