Should I Contribute to My Roth 401(k)?
As an experienced pilot, I have a deep appreciation for the practicality of checklists and flowcharts. For pilots, checklists and flowcharts guide our work and enable us to avoid crucial missteps. Here at Incline Financial Planning, we adopt the same strategies to provide efficient financial guidance, ensuring your financial planning journey is as smooth as a well-piloted flight.
This week, we are unfolding a frequent topic, the comparison between Traditional 401(k) and Roth 401(k) retirement plans. These important decisions can significantly shape financial stability and success in later years. Here is an insightful flowchart to help clarify this decision-making process. This clear, easy-to-understand diagram can support you in the retirement planning process. You can visit and use it by clicking here.
Here is a summary of the key differences between the two accounts:
Traditional 401(k)
· Contributions: Contributions are made with pre-tax dollars, which means you pay taxes on them when you withdraw them in retirement.
· Taxes on earnings: Your contributions and earnings grow tax-deferred until you withdraw them in retirement. At that time, you will have to pay taxes on them at your current tax rate.
· Required minimum distributions (RMDs): You must start taking RMDs from your Traditional 401(k) at age 73 if you were born between 1951 and 1959. If you were born after 1960 your RMDs start at 75.
Roth 401(k)
· Contributions: Contributions are made with after-tax dollars, which means you pay taxes on them up front.
· Taxes on earnings: Your contributions and earnings grow tax-free. This means that you will not have to pay taxes on them when you withdraw them in retirement.
· Required minimum distributions (RMDs): Starting in 2024, Secure Act 2.0 eliminated the RMD on the Roth 401(k).
Again, please visit our flowchart here for a more comprehensive decision tree for your situation.
If you find yourself pondering over certain aspects of this matter, particularly how it correlates with your unique circumstances, I kindly urge you to get in touch with us. It is, after all, our top priority to ensure that all decisions are tailored to fit your situation impeccably.
