When advising a young adult on putting money into either a tax deferred or Roth-type retirement plan (company matched in both cases), what do you recommend and what is your thought process?
I am no expect but when my kid was faced with the same, they went with the Roth. So did most of her coworkers
If you are in a low incremental tax bracket like 12% (incomes up to about $50K if single, around $100K if married filing joint), the Roth is a no-brainer IMO, unless they absolutely canāt afford the extra tax, which should be unlikely.
Once you hit the 24% bracket and higher, tax-deferred is the way to go, IMO. The deduction now will be worth more than not paying taxes in the future for most people.
It gets tricky to predict, because Roth distributions donāt affect taxability of SS benefits. If all your income in retirement will be SS and IRA distributions, you may be able to save a fair amount in taxes on your SS, depending on how big your SS payment is and what income bracket a taxable distribution would push you into.
Unfortunately, to know for sure, you have to know what future tax rates will be, what future SS benefits will be, what your other future income will be, and whether tax treatment of Roths will ever be changed. Given all the uncertainty, some people think a sure deduction now is worth more than an unknown benefit down the road.
So far I have told my kids to go Roth, because I donāt envision their tax rate ever being lower than it is now, and up until the end of this year the bank of mom has helped quite a bit. My son, the ā22 yo fiscally conservative one,ā recently upped his contribution to retirement to 80%, so he can save more and start the multiplication that will likely happen over decades. (He went all stock, which I donāt agree with, but that was his choice). Next year my advice may very well be different.
Agree with the Rothās. Itās a no-brainer for most young kids starting out. (The exceptions might be new docs and lawyers in Big Law making bank in high tax cities ā looking at you, NYC).
I wish I would have pumped my savings in Roths years ago. I always assumed that Iād be poor in retirement, so I took the tax savings then. If only I knew then, what I know nowā¦
Instead, next year weāll be paying some serious taxes to do some tIRA conversions to Roth before I hit RMD landā¦
@bluebayou - Well there is good news, if you are not poor in retirement 
In general, the advise I read says Roth for young adults.
Even tho our child is in the same 24% tax bracket we are in, we figure heās less than a decade into his career and recommended Roth when possible plus 401k. Heās done this so he has both tax deferred and funds that can grow tax free. If he were in a lower tax bracket, Roth would be even more appealing.
Iād definitely encourage contributing to get the maximum match employer is willing to give. Thatās part of the benefits packageāwhy turn down free $$$$?
Anyone ever āretireā and then go back in full-throttle? Was going back a good decision or not? After a year or so of āretirementā?
Why or why woulndāt one choose to do this? I big āwhyā for us is the dang health insurance, but I am interested to hear other thoughts.
āIād definitely encourage contributing to get the maximum match employer is willing to give. Thatās part of the benefits packageāwhy turn down free $$$$?ā
For sure. No question there. 
My Hās friend retired and has gone back to full time work several times. His wife is still a flight attendant and they have no kids.
H retired and then went back for 6 months (a month after retiring), because he wanted to help his employer transition and he liked the folks he worked with. They gave him salary + pension for that period of time. Heās never been tempted to go back since!
I know several judges who retired and then become part time mediators who seem to enjoy the income and keeping busy.
Ugh - sorry for the typos in my post #14267. I hate that there is only a brief window in which to edit! I need to be a better proof reader!
If your kid works for several employers in the early years and does a 401K at each, when they leave that employer, is it best to rollover or leave the 401k with the assorted employers?
Does it make sense for a kid who is likely to earn good money in the future to max out 401k (no match) just to start building a fund?
For convenience, I think itās nice not to have more accounts and institutions than one can comfortably kept track of. Itās also nice to check on options ā some retirement accounts can be rolled over into IRAsāthe particular IRA can vary.
Some Retirement accounts allow you to rollover tIRAs into them as well.
Iād look at the cost and investment options of the 401k. Also, if the person wants to do Roth IRA conversions, it is important not to have Traditional IRAs, or you have to do a proration.
A CPA or fee based financial planner may be able to offer the best advice. If the amounts are small, Iād just consolidate into a 401k with minimal annual admin costs and good no load, low cost broad index fund.
It is probably easier to direct rollover them into IRAs in order to better keep track of them and have fewer constraints on investment options (a possible exception is if the 401k offers a desirable investment not available outside of it, or not available without significantly higher cost outside).
Itās almost never worth leaving them in the 401k, because fund choice is usually limited, the funds will generally not be the lowest cost version, and there are often account fees that get taken out every month or quarter. And itās all too easy to lose track of them.
Unfortunately many people just withdraw the money and take the penalty hit, instead of rolling it over.
All 401Ks can be rolled into rollover IRAs when you leave the company. If the balance is small enough some companies force you to take a distribution.
My understanding is that only IRAs that are exclusively funded with rollovers from other retirement plans like 401Ks can be rolled back into a 401K.
This is true only if you are converting an after-tax IRA to a Roth.
IMO, it makes sense for EVERYone at any income level to max out savings of any kind at the soonest minute possible; thatās the way to a solid and perhaps (very) early retirement.
The younger you are, the more time there is for compounding. A match, while nice, is dwarfed by the effects of compounding for a few decades (cf. Einsteinās 8th wonder of the world).
It might be a tough sell for a youngster, especially if youāre recommending Roth 401k (if available in employer plan). I ābribeā my children by providing our own match when necessary.
Kid has been living on the budget of the moderately paid for many years, but will see an increase likely next year or the year after. She has a side gig opportunity, still W2 so 401k available, but we know after next summer she will not be at either of these jobs again. She could dump nearly all her side gig earnings into 401ks up to the IRS max? And just keep living on her usual budget.
She would then need to roll those one or two 401ks to a traditional IRA after leaving this job and area.
Does any of that cause any issue with future Roth & Back door Roth IRAs?
I think it would be brilliant to maximize 401k monies now, when she is not used to the extra income anyway. Someday she will thank me for that choice, I do believe.
Yes, it creates issues with the backdoor Roth.
When you do the backdoor Roth, you must treat the converted funds as being pro-rated between pre-tax and post-tax IRAs.
For example, if you have $5K in a post-tax IRA and $95K in a pre-tax IRA, if you try to do a backdoor Roth of the $5K post-tax IRA, the IRS treats it as converting 5% from the post-tax IRA and 95% from the pre-tax IRA, regardless of which account you actually move the money out of.
So you not only paid taxes on the $5K that went into the post-tax IRA, when you do the backdoor Roth you will have to pay taxes on the $4750 that is treated as coming from the pre-tax IRA.
401K assets are not counted when doing a backdoor Roth, so (if allowed, most 401k plans I have had with force a distribution if you have less than $5K in the 401k) you can leave the money in the 401K to get around this. The higher expenses can chip away at the value of the 401K over time, though.
Iād move the 401k money to a regular IRA (if she canāt do a Roth). Fees in 401k plans eat up the assets. Roll to low-cost mutual funds.
I never cashed out a 401k distribution ā rolled to the IRA every time. It has grown nicely over 30 years. Worked as a 401k plan administrator and the fees for the funds in our group trust were huge.