401k Roth

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  • Avatar Ifixfeet 
    Status: Physician
    Posts: 7
    Joined: 08/31/2016
    medical school scholarship sponsor



    My group just started offering a 401K this year as of a few weeks ago. 401k Traditional or 401k Roth option. I already maxed out my backdoor roth the beginning of january, and now i’m setting up the 401K, am i allowed to contribute to the 401K Roth? or do i have to do the traditional??? This is my second year as an attending and am in the 35% tax bracket.   If i do the roth401K, will i just have to pay taxes on the 19K that i put in it this year? Any suggestions would be helpful, any thoughts on doing that versus the regular 401k? Thank you!

    #189063 Reply
    Avatar jacoavlu 
    Status: Physician, Small Business Owner
    Posts: 2114
    Joined: 03/01/2018

    you could choose Roth but you want pretax when you’re in the 35% bracket

    The Finance Buff's solo 401k contribution spreadsheet:

    #189065 Reply
    ENT Doc ENT Doc 
    Status: Physician
    Posts: 3355
    Joined: 01/14/2017

    Yes, you are allowed. No, it is not wise.

    #189066 Reply
    Avatar Peds 
    Status: Physician
    Posts: 3999
    Joined: 01/08/2016

    definitely not. pretax 401k.

    #189461 Reply
    abds abds 
    Status: Physician
    Posts: 219
    Joined: 01/16/2017

    Roth vs traditional is a personal choice.

    If you do traditional: are you disciplined? i.e. are 100% sure you will invest the $10,000 you save in taxes as opposed to spending it? If you may spend it, I would do Roth.

    Do you think you’ll be in a higher tax bracket when you retire either due to 1- tax code/bracket changes (which is absolutely possible but simply a guess), or 2- large income in retirement? If so, do Roth.

    Do you have a large non-Roth balance? If so you could consider Roth just to diversify that a little, even at 35% marginal tax.

    Roth retirement money is the most valuable retirement money you can have, it just comes at an opportunity cost of saving on taxes now.


    #189521 Reply
    Avatar Main 
    Status: Resident
    Posts: 4
    Joined: 01/26/2018

    Here is an example, letting the math do the talking/teaching using round numbers for simplicity:

    A) This year at 30yo, you invest $20,000 into your Roth 401K, let it grow for 30 years at 8% interest. You keep all of the $215,000.

    B) This year at 30yo, you invest $20,000 into your Traditional 401K, let it grow for 30 years at 8% interest.

    You save $7,000 on your taxes. If you invest that money in a taxable account at the same parameters (30y, 8%) you have $75,000. That money is taxed at long-term capital gains, which would be 20%. You end up with $60,000.

    The $215,000 you withdraw is taxed as normal income. With the 2019 brackets, a married individual would be taxed around 25% (if you are married and live in a state with an average income tax), left with $160,000.

    So in the end, you would end up with $220,000 in traditional as opposed to $215,000 in Roth. If you were to hold off on withdrawing that money until you were 65, then the Roth 401K would become more valuable than the traditional in this experiment.

    My Thoughts

    – If you save like most people in this chat, your taxes are going to be higher in retirement than you think and it will be nice to have more Roth savings. If you plan to retire in a high state income tax state, then your taxes are going to be higher than the average person and Roth makes a lot of sense.

    – Roth has no required minimum distributions (once you roll them into your Roth ira).

    – Roth usually only makes sense before you reach an age where you are around 30 years from using that money. This is due to the wonders of compounding. So Roth makes the most sense as a resident and for your first few years of attending salary. Once you make partner, you should be maxing your traditional.

    – Hope this helped! There are so many estimates and assumptions that must be made, so my calculations may be useless for your situation (i.e. I know you do not have to withdraw $215,000). My estimates may be useless if tax law changes (which it likely will).

    #189591 Reply

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