If you save all of your leftover money, then don't you necessarily have to save less in the Roth 401(k) because you pay the tax bill, and thus literally have less money to save?Theoretically yes, but most people that invest in their Roth 401k contribute the same salary % whether they contribute to a tax deductible 401k or a Roth 401k.Your math is correct assuming the same marginal tax rate at time of contribution and time of distribution. This is due to the commutative principle of multiplication - the order doesn’t matter.
Here is an example, starting with $10,000 in wages, 24% tax rate (x .76), 700% lifetime growth (x 7):
Roth: (10,000 x .76) x 7 = $53,200
401K: (10,000 x 7) x .76 = $53,200
The people that I know who contribute to their Roth 401k, especially in their early career/low tax bracket years, don’t contribute less to their Roth 401k because it’s after tax. Maybe they just never thought about it.
I guess it may be true for bogleheads who calculate the after tax difference.
bill
Statistics: Posted by slondr — Sun Mar 10, 2024 6:07 pm — Replies 8 — Views 353