Quote History Originally Posted By Stick4242:
I guess my main question is, with the current account that has money in it, would I be missing out on the further compounded interest or gains if I paused contributions to that or lowered them and started an entirely new ROTH account essentially. Would the extra money earned on that account balance out the taxes I would save on a ROTH when I am ready to withdraw.
I know, probably a question better suited for a FA that could look over the numbers, but there seems to be some smart people on this site when it comes to investing. So more so just a general opinion.
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Quote History Originally Posted By Stick4242:Originally Posted By DSB:
People are mixing things up
There are employee related retirement accounts 401/457 in both traditional pre tax and post tax ‘ROTH’
There are also IRA, Individual Retirement Account traditional pretax (and post tax) and ROTH
The question is about the first group.
Some things to consider
- what is your marginal tax rate (tax on the next $ you earn) 22%
- do you have children and are near the child tax credit limits? Yes and No
- are there other reasons you want to reduce your current taxable income now, not the future? It looks as though we will be owing on our Federal Taxes this year. Not a substantial amount, but we will be owing. That is also a factor as the reduction in taxable income with the standard 457(b) did help out this year. We would have been hit even harder if I did not contribute what I did this year. So if I do switch to primarily contributing to a ROTH I would have to adjust my Federal Income Tax withholding to compensate for not having the pre-tax contributions.
You can always max out your 457 (in whatever type you choose)and invest even more savings into a ROTH IRA. I don't max out my 457(b) contributions quite yet. I could max out ROTH contributions and continue to put in a smaller amount to the pre-tax, but then I'd be getting hit harder on taxable income every year unless I up my withholdings.
Also, for a 401 ROTH the employer ‘match’ does not go into the ROTH account. It goes into the traditional account so it can be taxed when withdrawing. Only your post tax contributions can go into the ROTH There is no employer match for me
I guess my main question is, with the current account that has money in it, would I be missing out on the further compounded interest or gains if I paused contributions to that or lowered them and started an entirely new ROTH account essentially. Would the extra money earned on that account balance out the taxes I would save on a ROTH when I am ready to withdraw.
I know, probably a question better suited for a FA that could look over the numbers, but there seems to be some smart people on this site when it comes to investing. So more so just a general opinion.
It sounds like you might be confused and have some very fundamental misunderstandings that are making it hard to answer your questions.
When an employer plan like a 457b allows for Roth contributions, they are not held in a different "account" or "side". You simply may elect to have your payroll contributions directed to pretax or Roth, or a mix of both. Inside the 457b, the money is held in separate "sub-accounts" but this is largely transparent to the end consumer and it used for maintaining separation for taxable/tax free earnings growth, future rollovers, etc.
To answer specifically what I *think* your current question is.... if you stop contributing pre-tax payroll contributions, and switch to Roth payroll contributions, this will not impact your existing money. It is held inside the 457b and will continue to be invested and potentially grow.
Nothing will "balance out" when it is time to withdraw. You will simply choose how much to withdraw from taxable, and how much to withdraw from tax-free based on your needs and requirements at the time. These might be from the existing 457b account at that time, or you might roll these over into personal self-directed IRA's (one for traditional IRA and one for Roth IRA). It is good to have multiple sources of potential income during retirement: taxable long term capital gains, cash, taxable retirement accounts, and tax-free retirement accounts. This allows you to control your taxable income and optimize it to be the lowest it can be.