Thinking It Over: Stopping Roth 401k Deductions

by Kevin on August 1, 2008

I wrote yesterday about how I was thinking of stopping contributions to my Roth 401k at work because I’ve already maxed out my company match. I thought I would make a decision last night, but didn’t for a couple of reasons.

For starters, we are heading out of town today. We’ve been busy packing and the like. Add to that the fact that our puppy is under the weather and stressing my wife out greatly, well, let’s just say there wasn’t a lot of time for discussion of the issue.

On top of that, Living Almost Large posted an excellent comment on the post and has also been e-mailing back and forth with me. Her argument is that a traditional 401k and traditional IRA are better than the Roth versions. I’m letting her present the evidene (and I’ll do some of my own research) before making a decision.

So hopefuly I’ll have something to share on Monday.

{ 2 comments }

Stephanie PTY August 1, 2008 at 2:05 pm

Maybe you should just decrease your contributions. Of course, this is moot if you switch over to a traditional 401(k), but in the mean time. Basically, set it up so that you’re contributing just enough so that you’ll hit the threshold next year at a reasonable date. $1000 was the threshold, right? So less than $100 a month. That way, if you forget to change it back next year, you’ll still be contributing enough for the full company match.

Sorry to hear about your pup – mine just had surgery so I know how you feel 🙁

JoeTaxpayer August 2, 2008 at 10:12 am

If you were to google [pre tax vs post tax ira] (no quotes just the words, I am proud to be the first returned site.
The decision process can go either way. If we had a crystal ball, I would look ahead to see what tax bracket you are in at retirement. If you have any defined benefit (pension plan) through any jobs you’ve held, and what other income you have at retirement. Have you actually saved so much pretax that you are now in a higher bracket?
Then, I’d come back to now and look at your savings rate. All that Roth money doesn’t count. Not towards forecasting the tax bracket you’d be in at retirement. I’d also ask, today, what bracket you are in now? If you are truly paranoid that tax rates will only go up, do the math and plan to save pretax only enough so at retirement you will be at top end of the 10% tax bracket adjusted for inflation. Too many are focused on how great Roth is, but miss the zero and ten percent brackets at retirement, losing out on the 25/28% tax break today.

(I looked at yesterday’s post. You don’t mention your bracket there, either. ‘LivingAlmostLarge’ seems to be on the same wavelength as me. The bottom line is to be aware of the huge amount of savings it would take just to top off the 15% bracket when you retire.)

Joe

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