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Tom:

You are correct that if you remain in the same tax bracket, the net amount of dollars you will have left at the end of the day will be identical if you contribute to a pre-tax 401(k) or a post-tax Roth. It will work no matter what percentage you use.

Matter-of-fact, everything you say is true. A Roth is better than a 401(k) if you expect your tax bracket to be higher at retirement, and a 401(k) is better if you expect your tax bracket to be lower at retirement.

I look at it this way, though. When you are in your late 20s or early 30s, you have not maximized your earnings potential. You might be in the 28% tax bracket now, but assuming you are promoted, get a better job, earn more income from investments, etc., its natural to think your tax bracket will INCREASE with age.

At retirement, well, who knows. I think that I'd probably want to continue to live at 63 by the same means and standard I was at when I was 62 -- hopefully, in a higher bracket than when I was 30. So, for me, the Roth is a better vehicle. Maximize it first, then the 401(k). (Of course, the 401(k) is first when getting matching dollars).

The situation I mention might not be applicable for everyone, though, and it is possible that someone's tax bracket will decrease. As you point out, if it is the same, it makes no difference which vehicle you use.

So, now with your added commentary, we have a more complete understanding of what the original poster should do. Final answer? It depends . . .

Thanks for your thoughts.

CPAScott
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