Single female new 401k Roth or Traditional pre tax
Here’s the scenario I’ve not seen this addressed before.
Single 45 yo female, single mom will not be married before retirement. Not expecting to pay for college for 16 yo. Current income $130,000 a year, 3% annual pay increase. Just starting 401k 4% deposit with 4% match from employer. Investment strategy conservative/ low to mid risk. Hoping for 5-10% growth, due to late entrance to the game.
What is the best option? Tax bracket now high and when retired will only have social security and 401 k withdrawal for income. What would my best option be. Is there anywhere I can find comparison charts. Hoping to increase future contribution as time goes on. Should my strategy be more aggressive. Would like to see $ comparisons for Roth and traditional. Thank you for any info you can share on this topic.
Terry Says
First — good for you. Contribute the max –and be sure to get the full match from your employer.
Now, in answer to your question — There is NO comparison, because we won’t know until the END!
By that I mean, we don’t know if tax rates will be higher in retirement — even if you have low income.
So we can’t compare the impact of the current deduction to the potential results in a Roth.
But ask yourself if the tax deduction now would allow you to have extra money — which means you could increase your contribution to your IRA. Now, that’s an interesting comparison.
And, as an alternative, I’m sure you can have BOTH options within your plan. So just to hedge your bets, you could contribute to a Roth say this year, and to a traditional next year (both within the same plan). That way you’d have both and be able to see the results in 30 years! Ask your HR department if this is allowed.
