What should I use to fund my 401k? Pretax or Aftertax $$??
Answers:
It depends on your current marginal tax rate (fed + state).
If you have a low marginal tax rate, it may be better to pay current taxes and be able to withdraw from the Roth 401k with no taxes due later, when you can be facing higher tax rates.
For a high proportion of people though, the regular 401k that is pretax is the way to go. Esp those that currently have high state/local taxes they can avoid altogether by contributing to a regular 401k and retiring in areas with little/no state/local taxes.
Mine is funded pre-tax.
Always fund your 401K with Pre tax to get the benefit of the tax. If you have more income, you can fund after tax also, This depends on the fund managers. 99% of them allow pre tax.
Fund it pretax. Your distributions will be taxable when they are withdrawn. I've never heard of anyone funding a 401(k) after tax, the whole point and benefits of a 401(k) is not paying tax on the money until you retire (or withdraw).
An after tax contribution to a regular 401k, and a contribution to a Roth 401k are different.
Study your plan, you can get a copy of it from Human Resources. If you have an option of designating your contribution as to a Roth 401k, you may find it to be to your advantage. While you get no tax deduction up front, both the contributions and the qualified earnings generated by Roth 401k contributions can be withdrawn tax-free, a huge advantage especially if you are young.
If you contribute after tax money to a regular 401k, you will not pay tax again on those contributions. However, unlike the Roth 401k, the earnings from the contributions will be subject to tax. There are few situations where this would be a good option. If your only choice is a regular 401k, you may as well get a tax deduction up front for your contributions, unless you are pretty sure that your current tax bracket is higher than your anticipated tax bracket when you take the distributions.
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