Suppose a person is selling identical one-dollar-bills, and he has eleven for sale.The math is a little complex in situations like this but another way of answering the quoted question is to ask "ok, how much do you actually want to contribute?"
When you save 13% in a Roth or 19% in a traditional tax-deferred you still have the same after-tax spending. (numbers approximated and rounded).
Think of it as Saving=Income-Consumption. You could also say Saving=Income-Consumption-Taxes.
Roth contributions at 13% is $10,400 saved, Tax on $80K is $9,200 consumption is $60,400.
Tax-deferred contributions at 19% is $15,200 saved, tax on $64,800 is $5,800, consumption is $59,000.
If you had an allergy to saving more than $10,200 of your salary (which is 13% of 80K) you could think of it as if you put $10.2K in Roth then you have to live off $60K but if you put $10.2K in traditional you could spend $62.7K a year. The numbers are different because the savings are different between 13% Roth and 13% traditional...but the savings are the same between 13% Roth and 19% traditional.
What do you get when you do the calculation (I don't think I made an error but I'm open to it).
"I want to contribute 13% of my total salary" - option A is to contribute 13% pre-tax to traditional, option B is to pay tax on 13%, then contribute the remainder (let's hypothetically say it's 11%) to Roth, option C is to contribute to Roth what will be 13% after tax (let's say that is 15%) so you end up contributing more.
When comparing Roth to traditional, the key part of the math is a maximal contribution of $23,500 to Roth is equivalent not to $23,500 to traditional, but to $23,500 to traditional plus the money you saved in taxes to a taxable brokerage account.Sure it does, when specified there is no other income, and in retirement when one is drawing down from 401K. This is the exact situation given in the example in the wiki you cite (an individual drawing down 40K/year from traditional, if increased to 50k, that additional 10K will be at the marginal tax rate; you could also just calculate the effective tax rate for that 50K).It doesn't, and it's one of the Common misconceptions.
If I contribute maximally to my 401K within the 22% tax bracket for 30 years while working, retire at 60, and start drawing down my 401K at $100,000/year until I start taking social security, I will pay <22% tax on that withdraw. All the wiki article states is that the tax treatment of traditional 401ks gets less favorable the more you withdraw (and the more you contribute), which is kind of obvious.
Ten of them are priced at 90 cents each.
The eleventh one is priced at $1.10.
Would you buy all eleven?
Statistics: Posted by steadyosmosis — Wed Feb 19, 2025 11:40 pm