Another Look at the Roth 401(k)
Last week, I wrote a little about the new Roth 401(k) that passed into legislation last year and copanies started offering this year. I cited an article by Jeff Brown from the Philadelphia Inquirer, but I didn't check his math.
I should have checked because an important point Jeff makes does not hold true, as many people helpfully pointed out in their comments. Jeff says, "Generally, it's best to take any possible tax savings as soon as possible, since that gives you more money to invest - and more time for investments to compound."
This does not compute. Whether the tax is deducted at the beginning or end of the investment period, the end result is the same, since investment gains are not taxed. However, this assumes that either $x is invested in the Traditional 401(k) or $x minus tax is invested in the Roth 401(k). That's not always the two options that people consider. There are several assumptions in the calculation, so any one's situation may vary greatly from the plain calculation.
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While your logic is correct, you are forgetting that the chances of taxes not going up in the long run is slim. Therefore, if for nothing else, it is better, if you qualify, to use the ROTH IRA or 401(k) because tax rates are currently very low historically. Whats to say that the 15% bracket might be the 25% bracket in another 25 years?
