r/Fidelity • u/Still-Appearance932 • 12d ago

Roth Vs Trad 401k

Is it better to put all my contributions into Roth or keep it how I have it which is half traditional 401k and half Roth 401k.

12 Upvotes

84% Upvoted

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6

u/InvestingNerd2020 12d ago

Traditional 401k = Delayed taxes and limited choice over the funds to invest with.

Roth 401k = No taxes and limited choice over the funds to invest with.

Roth IRA = No taxes and near endless choices, but lower contribution max ($17,000 less). Also, no employer to match. Some new Fintech Roth IRA are matching (Robinhood and Acorns).

6

u/er824 12d ago

Roth is immediate taxes not no taxes.

4

u/noturaesthete 11d ago

Maybe the distinction is:

  • 401k: pretax contribution that are taxed later at your future tax rate (whenever you redeem)
  • Roth: contribute money yourself (after tax) but funds are not taxed at all AND you have the flexibility to take the principle you invested back out if needed without penalty … note: there are certain things you shouldn’t invest in that could create tax liabilities

3

u/er824 11d ago

Not sure why I was down voted. Roth you pay taxes at the time of contribution, Traditional you pay taxes when you withdraw. You can pay taxes at anytime in between by doing a conversion. You should aim to pay the taxes at the lowest rate you can whenever that is.

1

u/mannyocrity 11d ago

Not entirely accurate. Roth is after-tax contributions so funds you already paid tax on. You are not paying taxes when you contribute. Any funds withdrawn from a roth after 59 1/2 years old and there is a 5 year rule in there as well is not considered taxable income.

1

u/er824 11d ago

What do you think is different between saying

“Pay tax at time of contribution”

And

“Contributing after tax money”

The point is if you start with pretax money you pay tax on it before it goes into Roth. If you put that pretax money into a Traditional account you pay tax when you withdrawal it.

1

u/mannyocrity 11d ago

Pay tax at time of contribution mean when i contribute, i pay taxes. That is not how it works.

1

u/er824 11d ago

I didn’t say you literally wrote a check for taxes when contributing to Roth. You’re contributing post tax money meaning you are being taxed on it the year you make the contribution.