Is A Roth 401k Better Than A Regular 401k Plan For A 21 Year Old? I Dont Know Anything About Retirement Plans
Is a roth 401k better than a regular 401k plan for a 21 year old? I dont know anything about retirement plans. But the lady giving the presentation at my work said roth 401k would be better for my age but I dont see how. Also my company will match up to 5% any tips I should consider?
I concur whole-heartedly with the responses stating that the Roth is better due to its pre-tax status.
By the way, if you take $1000 and sink it into an investment making 12% within a Roth IRA, then add $100 a month to it, it turns into $1,775,093.54 when you are 65. Not bad.
Yes, the ROTH is better at your age. You are probably in the lowest tax bracket you will ever be, so it makes sense to pay taxes on the money and then withdraw it TAX FREE when you retire.
There is no guaranty that tax rates in general won’t be higher 40 years from now, so even if you are in a middle tax bracket, it probably still makes sense.
I wish my company offered a ROTH 401(k). I put into my company’s regular 401(k) and then also put into a separate ROTH IRA.
I agree with her as well. A ROTH is better and here is why:
When you deposit money PRE-tax (like a tradition roth account), then Uncle Sam needs to get his money at some point which is when you retire. So say you put in $100 when you are 21 pre-tax. You normally would have paid like $15 to Uncle Sam, but you did it pre-tax, so you paid him nothing. Now, after 40 years of growth – your $100 is now $1000. But, since you are now withdrawing that money at retirement, you pay Uncle Sam off of the $1000 … say $200.. instead of paying him at the beginning that measley $15.
In a Roth, you pay taxes up front. So all your money grows tax free!!! It is great! That is the whole reason the feds put a cap on the Roth – at $4000/per year last I checked. Otherwise, every other rich person would be throwing money into it.
Absolutely Roth IRA…you will not pay taxes on the interest earned. Long story short, you will have more cash for retirement as opposed to a traditional IRA.
I agree w/the above opinions..Congrats on starting saving young!