Roth 401k vs Traditional 401k (WHICH IS BETTER?)

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Күн бұрын

ROTH 401k vs TRADITIONAL 401k | Should you contribute to a pre-tax Traditional 401k or a Roth 401k? In this video, I'm going to explain how a Roth 401k works & why it could be amazing to grow your money, and more importantly, how to choose between a Roth 401k vs Traditional 401k.
#roth401kvstraditional401k #traditional401kvsroth401k #roth401kvs401k #roth 401k #401kinvesting #roth #401k #roth401kvs401kvsrothira
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Skip Ahead Here!
0:00 - Roth 401k vs Traditional 401k
0:41 - Can you contribute to both a Roth 401k and a Traditional 401k?
1:11 - How does a Roth 401k work?
2:56 - If you do a Roth 401k, do you still get employer matching?
3:13 - Who is eligible for Roth 401k?
3:37 - How should you choose between a Roth 401k and a Traditional 401k?
6:34 - Bonus Tip!
**RECOMMENDED READING LIST**
The One-Page Financial Plan by Carl Richards (easy read, holistic + fun graphics!) amzn.to/35NH54Z
Simple, Smart Investing by Ian Kennedy (can help you construct your investment portfolio)
amzn.to/32GRJbJ
A Random Walk Down Wall Street by Burton G. Malkiel (classic book that sold me on index funds) amzn.to/2H7pbzS
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Alvin Carlos is a CFP® professional and CFA® charterholder. His team helps young/mid-career professionals to be smarter with their money. They help them optimize their investments, lower taxes, pay off debt, and have peace of mind.
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Пікірлер: 23

@DistrictCapital 2 жыл бұрын

Skip Ahead Here! 0:00 - Roth 401k vs Traditional 401k 0:41 - Can you contribute to both a Roth 401k and a Traditional 401k? 1:11 - How does a Roth 401k work? 2:56 - If you do a Roth 401k, do you still get employer matching? 3:13 - Who is eligible for Roth 401k? 3:37 - How should you choose between a Roth 401k and a Traditional 401k? 6:34 - Bonus Tip!

@JustinRiray 2 жыл бұрын

Fellow pinoy here - great video! Thanks Alvin!

@DistrictCapital 2 жыл бұрын

Thanks for watching!

@deathinsight Жыл бұрын

Great video! Thank you so much for this information.

@DistrictCapital Жыл бұрын

Thank you very much!

@blakegossard3268 2 жыл бұрын

Hey, Alvin! I just stumbled across your blog and videos. Outstanding content! Great job man! Keep up the good work! Really appreciate the information. Subscribed!

@DistrictCapital 2 жыл бұрын

Thank you so much your comment. I appreciate it!

@JimboSlice0 2 жыл бұрын

This is great information, glad I found your channel! I am in a lower tax bracket, currently using a Roth. Looks like I made a good choice

@DistrictCapital 2 жыл бұрын

Thanks for your comment. I appreciate it!

@joseaod15 Жыл бұрын

I contribute to a Roth 410k and a Roth IRA, because I’ll still have the pre-tax portion from my employer match, so that diversifies my retirement too😊

@greenfein786 2 жыл бұрын

Thank you sm for this video

@DistrictCapital 2 жыл бұрын

Glad you found it useful. Have a great day!

@alrocky 2 жыл бұрын

@ 1:16 traditional 401(k) is *_not_* tax deductible but it does reduce amount of tax paid.

@DistrictCapital 2 жыл бұрын

What other questions do you have about Roth 401k vs Traditional 401k that we can answer?

@w7855 Жыл бұрын

New to your channel and find your content interesting. I currently do a traditional 401k and Roth IRA. My thought process is that I’m in a 22% marginal tax bracket now, so I’m saving 22% on my 20.5K I contribute to the 401k. With this extra tax savings up front, I’m basically able to fund my Roth IRA with these tax savings. Does this sound like a good approach? When I’m retired, I should be able to be smart with my traditional withdrawals to keep income in lower tax brackets than my current 22%.

@alrocky Жыл бұрын

You are mistaken. The tax savings for contributing to *_traditional_* 401(k) is not a spendable amount that you can use to fund your Roth IRA. That amount resides within the traditional 401(k).

@w7855 Жыл бұрын

@@alrocky no sir, you’re mistaken. My 401k contributions are taken out of my paycheck pre tax and therefore reduce my taxable income.

@alrocky Жыл бұрын

@@w7855 It's true that contributing to *_traditional_* reduces your taxable income but it's *false* that translates to *"extra"* income that you can (spend or) invest in Roth IRA. $20,000 pretax income in 22% Federal Tax Bracket is subject to ($20k * 0.22 =) $4,440 federal tax. Here are 3 scenarios: $20,000 pretax income = $20,000 traditional 401(k) contribution + $0 tax + $0 spendable income $20,000 pretax income = $15,600 Roth 401(k) contribution + $4,400 tax + $0 spendable income $20,000 pretax income = $4,400 tax + $15,600 spendable income Investing in traditional 401(k) *DOES NOT* provide you with "tax savings income" that can be used to fund Roth IRA. The tax savings resides within that traditional 401(k).

@w7855 Жыл бұрын

@@alrocky I get where you’re coming from, but let me explain my rationale further. I nearly max out my traditional 401k, let’s say $20,000. This results in $4,400 less paid in taxes up front compared to if that $20,000 was not put into a 401k or put into a Roth IRA. This means I have $4400 more to save or invest anywhere I please

@alrocky Жыл бұрын

@@w7855 No that is *NOT* correct. That $4,400 is inside the traditional 401(k)! As shown in prior post, you either pay the $4,400 federal tax or that $4,400 tax you did not pay goes inside the traditional 401(k). $42k to $90k is 22% Federal Tax Bracket: A1) $60k = $Y spendable income + $X federal tax B1) $80k = $Y spendable income + $15,600 spendable income + $X federal tax + $4,440 federal tax B2) $80k = $Y spendable income +$X federal tax + $20,000 traditional 401(k) [which means the $4.4k is inside the t-401(k)]! Person A1) and person B2) end up with identical spendable income and pay identical federal tax. B2 does not have additional $4,400 to invest in Roth IRA. If you contribute $20,000 to traditional 401(k) you "save or don't pay" $4,400 in federal tax. If you covert that $20k t-401(k) to Roth 401(k) you will pay $4,400 in federal tax and end up with $15,600 Roth 401(k).