My employer offers a 401(k) and a Roth 401(k). They match up to 6%. I am getting my full match. Currently contributing 10% to my 401(k) and 2% to the Roth 401(k). I am over 50 so contributing Catch-up to both. I can’t recall the reasoning that led to me contribute to both.
Is there a good reason why I should contribute to both?
>Is there a good reason why I should contribute to both?
Depends on your income and existing retirement assets
At 50, it seems reasonable to be putting more into traditional, so I don’t really question that.
I guess the real question is, why the 2% in Roth?
The main thing I can think of is that you’ll now have access to some non-taxable income in retirement if you’re trying to stay within certain brackets/thresholds
I’m like you, over 50. I contribute the federal max (including catchup) every year, all into Roth. But Roth has only been available to me for 10 years, so most of my 401k is still traditional. Here’s my thinking on the matter:
1. if you need the tax deduction to put more into your 401k, then go Traditional and up your percentage.
2. Most retirement accounts are subject to RMDs once you turn 72, but not *Roth IRAs.* To make your Roth 401k not subject to RMDs, just roll it to a Roth IRA before you turn 72. One evening I was playing with an RMD calculator and it scared me — telling me I’d have to withdraw 4x my current salary when I was 80.
3. Roth is withdrawn tax free. Traditional withdrawals are taxed as if it’s W-2 income.
4. I don’t trust Congress not to break something, so my goal is to have 50/50 Roth/Traditional. I don’t know if that will end up being advantageous or not.
One branch of Congress has passed SECURE 2.0, which if it is enacted will change the age for RMDs to 75. I’ve not seen anything yet to indicate SECURE 2.0 that would make me change my strategy.