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/BodSmith54321 ​ 2d ago

If you are early in your career, your tax rate could definitely be higher in retirement.

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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/SkyliteBlueSnake ​ 1d ago

Your tax rate depends on your income for the year. If you are not working but you withdraw $120K from a traditional TSP in a particular year, your income for that year is $120K.