How to choose a 401K

Plus, you’ll love this: you’re effectively saving about 30% more in your retirement account if you max out a Roth 401k vs. maxing out a regular 401k, because with one you’re putting in pre-tax dollars, the other you’re putting after-tax dollars.

I thought the pre-tax dollars went with a regular 401K, which would be a benefit; your comment makes this sound the other way around

Clark- You've apparently left out a very important factor- namely that income may prevent some folks from enrolling in the Roth IRA.

This is confusing still to me- while I do not qualify for an individual IRA due to my income, my company presently offers a Roth option under the company 401(k) plan.

Can you possibly explain how this is possible, considering the income factor here? Thanks in advance for your response.

I guess I disagree. Putting money into a Roth401k is post-tax and thus grows at a slower rate as you're not getting the pre-tax benefits of contributions. Pre-tax contributions will grow larger (due to more money being contributed) from the start, eventhough you'll have to pay taxes on your withdrawals later.

Your last comment, doesn't make sense: "Plus, you’ll love this: you’re effectively saving about 30% more in your retirement account if you max out a Roth 401k vs. maxing out a regular 401k, because with one you’re putting in pre-tax dollars, the other you’re putting after-tax dollars."

But if after you retire, you take half of your income from the pre-tax and half from the roth, you'll effectively be in a lower tax bracket, paying less than you would now, so isn't the best strategy a split.

why want my mortgage company (wellsfargo mortgage) let me refinance my mortgage. they just blow me off

I checked and Clark Howard is about as credible as a shoe box; on par with Dave Ramsey and Suze Orman. Could CNN get someone who is qulified to discuss such issues (see Eric Tyson).

In Eric Tyson's book "Let's Get Real About Money," he discusses tax implications of the IRA when considering the growth of retirement dollars over time. This type of analysis is more realistic. He also recommends consulting analysis software, available at most mutual fund houses, to determine if you should get a Roth or not. This advice makes sense compared to the tax predicting capabilities of Clark Howard. Maybe he is getting his talking points from Suze Orman who recommended the same thing on Oprah.com two days ago.

I don't understand the push for Roth 401(k) using the assumption that tax rates are going up. Your contributions while working are at your highest marginal tax rate whereas in retirement you withdraw money at your average tax rate (assuming no other income). Thus, if tax rates remain the same (or even if they rise somewhat), the average tax rate in retirement will be lower than the marginal tax rate while working.
Today, my marginal tax rate is about 25%, while my average tax rate is closer to 15% - a big difference.

Thus, it seems that it would be better to use a pre-tax (standard) 401(k) than a Roth. Yet, I have never heard anyone discuss this when recommending a Roth.

My sleaze of an alcoholic brother convinced my dad to co-sign a loan for $1500. Then, because of the loan, was offered to credit cards with $5000 limits (unknown to my father). He maxed those out and defaulted (not sure that's the correct word?) on all of it. This was all done while my mother was dying and my father was understandably distracted. My father managed to settle the debt for around $3500. Now the IRS has contacted him for unreported income (the amount of debt that was "forgiven"), including a penalty. My dad now owes the IRS $1297.

We could have my brother thrown in jail over all of this, but my father is
reluctant to do so. This has destroyed my fathers' credit rating which has wide effects.

Is there anything we can do?

What is Roth 401k please?

Unfortunately, the benefits of the 401(k) -after all the broker & fund fees are paid over the years--and all the deferred taxes have been paid--seem to be no better than having a regular savings/CD account guaranteed by the FDIC.

The 401(k) was a "Reagan idea" to do away with company/union pensions that does not guarantee a fixed income on retirement. Those with 401(k)'s are victims of Wall Street bankers & their fluctuating markets & greed.

WHEN you retire does not seem to make a difference either, as you are still victim to the whims of the financial markets that can be manipulated UP or DOWN throughout the time that you are drawing-down your 401(k) account in retirement.

"My two cents"--or "one cent" these days!

Who gets tax if we gift $10,000.00 to each one of our children or grandchildren with money that we withdraw from my husbands retirement.

I am 40 years and married. My company do not contribute in 401K, but offer a Roth 401(k). Where would you suggest for investmenr ?

hi I like to know which 401k are the best are safe for my Retirement thank. LEO

It's all sounds good on paper and in theory. However, we decided not to continue to max out our Roth – because it's still on the Stock-Market. There are no fixes for what could happen to our economy – accept lose $100 of thousands of dollars.

Although at the beginning of this year – I was down -43% and now – it's positive 1.2% – and we have about 13 years to retire – not a very good return so far.

However, over the past 5 years (we had decided to be diversified) – 25% bonds – 50% CD's – 25% Savings – 25% Roth. Most of our Bonds and CD's are over 4% to 5% – because they were purchased during good years. We have over $300K in Bonds, CD's and Savings. We have $100K in our Roths.

Basic Point is – having a Roth is hoping for returns (based on a good Stock Market and Economy) – whereas – CD's, Bonds and Savings are there to insure that your retirement years have some (Guaranteed) – funds available to you to enjoy our last years!

I have friends who have lost over 50% of their Roths, and they are retired – what we do we say to them? You should have saved more? Or should they have been more diversified? Roths are a false promise to those who are max'n it out – and not saving elsewhere. It will come to bite them in the future!

13 More years – I'm ready!
Love your show – even though we disagree!
Mike

Here's some additional information regarding highly compensated employees and the Roth 401k

The Roth 401k provides a greater advantage to highly compensated employees who cannot contribute to a Roth IRA due to the income phase-out ranges and salary limits imposed on Roth IRAs.
Source: http://www.research401krollover.com/roth-401k-information.html

Eligibility for 2009 income phase-out ranges is between $105,000 and $120,000 for single filers and $166,000 to $176,000 for those who are married and file jointly. Roth 401(k), unlike the Roth IRA does not have income phase-out ranges. The Roth 401(k) is also subject to contribution limits of regular 401k plans – $16,500 for 2009 or $22,000 for those 50 or older by end of the year unlike the Roth IRA where the contribution limit is $5000 for 2009 and $6,000 for people 50 years or older by end of the year. This allows investors contributing to a Roth 401(k) to stack away thousands of more dollars than they would be able to if they contributed to a Roth IRA.

Note: These contribution limits apply to both types of 401(k) plans; therefore you cannot put $16,500 in a regular 401k and another $16,500 in a Roth 401(k).

Here's some useful information regarding traditional 401k versus a Roth 401k from Yahoo finance http://finance.yahoo.com/how-to-guide/personal-finance/12917

If taking tax-free distributions from your employer-sponsored retirement plan appeals to you, a Roth 401(k) plan may help you achieve this objective. As its name implies, a Roth 401(k) combines features of a traditional 401(k) with those of a Roth IRA. Like a traditional 401(k), workers contribute through payroll deduction. But, like a Roth IRA, contributions are after tax and participants may make withdrawals free of taxes and penalties after age 59 1/2.

Hope this helps.

Visit http://www.fiduciary.me for additional information and help.