I've been playing footsie with a financial advisor for a little while and he seems very much to prefer the Roth option to the 401K. One reason being that with the 401K you will eventually be forced to take distributions later in life, whether you need to or not, which sucks if the market is tanking when you have to start doing that. Just having a clearer idea today of what your tax liability will be in the future seems to be a selling point of the Roth.Arthur Dent wrote:Theoretically, if you knew you'd have a lower marginal tax rate in retirement than today you'd do pre-tax and do post-tax if the reverse were the case. Given that you probably don't know what your future tax rate is, I think the hedge your bets plan splitting between the two is sensible.
If you're contributing enough to get any available 401k matching, I'd do any post-tax contributions in a Roth IRA, as in an emergency you'd have the option to withdraw those contributions (though not any interest/gains) penalty free. That said, as I believe Michael suggested when this came up before, the 401k has the advantage of being a payroll deduction, which ensures you actually end up doing your planned saving, and that is way more important than Roth vs traditional.
Edit: One aspect of this choice I don't see discussed much is with how the max contribution limits are not equivalent. The same $6,000 limit applies to annual traditional Roth & Traditional IRA contributions, for example, but $6,000 in a post tax account is clearly worth substantially more than $6,000 pre-tax. If you're bumping against the limits, switching to the Roth side gets you more retirement income if not more nominal dollars in your account.
I already have a Roth IRA but my wife started a new job a few months ago with a 403B that can be set up as a Roth, with automatic after tax payroll deduction, and they will match after she's been there long enough. The Roth seems like the way to go for her as best I can tell.
Speaking of having a financial advisor, I've been hesitant to do this because the low-cost method of investing is all the rage these days. Just get a bunch of low cost funds across a few different asset classes and let them do their thing, right? The thing is though, I don't feel confident enough in my financial wherewithal to manage all of this on my own, nor do I really want to spend the time doing loads of online research to make sure I'm always on trend. I think I'm willing to let someone else who does this for a living help me plan for retirement, even if his cost will cut into my earnings a bit over the years. Am I wrong?