Are You Making Roth 401k Contributions? Think Again... - B.E.S.T. Wealth Management
Brad Tinnon

Brad Tinnon

Are You Making Roth 401k Contributions? Think Again…

Many people have aspirations to build up their tax-free investments and do so inside of a Roth 401k. However, you may be surprised to learn that your Roth 401k contributions are not actually going into the Roth (tax-free) bucket, but instead into the Traditional (pre-tax) bucket.

If you’ve followed my blog, then you know I promote a 3-Bucket Strategy when it comes to investing. I want you to have money in a pre-tax accounts (taxable in the future), Roth accounts (tax-free in the future), and Taxable Accounts (taxable now and in the future).

A key reason for this strategy is that you don’t know where tax brackets will be in the future when you start withdrawing from your investments. A common thought is that taxes will rise due to the rate at which the government spends money. If that pans out then having money in a tax-free bucket like a Roth 401k could prove to be very beneficial!

If you contribute to your 401k on a Roth-basis then be sure to verify this on your pay stub and your 401k statement.

We’ve had a couple clients that chose to contribute to their 401k on a Roth-basis, but later found out that the contributions were still being made on a pre-tax basis. Had it not been discovered, it could have a detrimental impact on retirement.

If it is a mistake on behalf of the 401k company, then they should be able to reverse it and retroactively apply your contributions to the Roth component. However, I’m not that confident that all 401k companies will know how to properly handle this.

As such, it’s much better to catch this up front.

Have your 401k contributions ever been handled incorrectly? Please feel free to share below.


Brad Tinnon
CERTIFIED FINANCIAL PLANNER™

Share on facebook
Facebook
Share on linkedin
LinkedIn
Share on twitter
Twitter
Share on email
Email
Share on print
Print

Leave a Comment

Your email address will not be published. Required fields are marked *

OUR PLEDGE

  • No Sales Tactics
  • No Commissions
  • No Investment Limitations
  • No Sales Quotas
  • No Investment Minimums
  • No Minimum Fees
  • True Financial Planning
  • Satisfaction Guarantee

Stay Connected

Get Weekly Financial Tips

Scroll to Top

Thank you so much for signing up to receive our Weekly Finance Tips! We hope you enjoy the content.

* Downloading PDF will also sign you up to receive weekly financial tips. But don’t worry, you can always unsubscribe anytime.

Please check your email for the download instructions. We hope you enjoy the content!