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If the tax rate you pay stays the same, it doesn't matter whether you pay the tax upfront or on the backend, you'll end up with the same amount.
by SomewhatLikely 10y ago
If the tax rate you pay stays the same, it doesn't matter whether you pay the tax upfront or on the backend, you'll end up with the same amount.
- bskap 10y agoIf you had $18000 dollars and had the option of investing it all and paying tax later or paying tax now and investing the rest, you'll end up with the same amount. If you have $24000 to invest, your two options are: 1. Invest $18000 in a 401k, pay tax on it later. Pay tax on $6000 now, invest the rest and pay tax on the gains later too. 2. Pay $6000 in tax now, invest $18000 in a Roth account, pay no tax on it later. The second one is better because it's essentially letting you put more of your earnings into the tax-advantaged account.
- billmalarky 10y agoGood point. So the assumption to defer tax must be that your tax rate will go down because your withdrawal tax bracket will be smaller than your current income bracket?