Since both of these are variable accounts it’s likely the account value would be lower than what you assumed. Since there is no protection on the floor, over time the actual return will be lower than the average return.
6:00 $19,500 @ 26.43 effective rate = $5,153 tax. It's erroneous to use effective tax and even it were, the formula is $19,500 / 0.7357 = $26,505 pretax income thus $7,005 tax not $5,153 tax. $150k is 22% federal tax bracket so to $19,500 Roth contribution requires $19,500 / 0.78 = $25,000 pretax income thus $5,500 federal tax.
Maybe….its more complicated than that. The taxes you actually pay as you go are withholding based on your W4. And the amount withheld can change throughout the year based on the size of your paychecks. Also the taxes withheld are not based on your max bracket, but your estimated effective tax rate since rates are marginal. Do you get trued-up when you file, yes. Also your math is wrong….yes you need to make 26,500 in order to contribute 19,500 assuming the rates you used. But the Roth contribution is below the tax line. The 19,500 you contributed to the Roth you have to pay taxes on. You pay those taxes based on your withholding which is an estimate of your effective tax rate. The tax associated with the contribution is limited to the contribution....... all this to say.... None of this math alters the purpose & focus of the video.
@@CashValueLifeInsuranceReviews No your math is wrong: "Also your math is wrong….yes you need to make 26,500 in order to contribute 19,500 assuming the [22%] rates you used." $26,500 * 0.22% federal tax = $5,830 tax : $26,500 - $5,830 = $20,670 contribution. That is wrong. $25,000 pretax income * 0.22% federal tax = $5,500 tax : $25,000 - $5,500 = $19,500 Roth contribution. California 9.3 + Federal tax 22% = 31.3% combined. $19,500 / 0.687 = $28,384.28 pretax income needed for $19,500 Roth contribution.
"F" it...... Invest in both and call it a day. This video has WAY too many variables, not to mention the psychological side of things.... It's easier to pay taxes over the long period of time rather than being burdened with them at retirement. Simple is always better. And these numbers are for a 401k Roth because the Feds say max contribution for IRA's are $7000 for individuals under 50
Since both of these are variable accounts it’s likely the account value would be lower than what you assumed. Since there is no protection on the floor, over time the actual return will be lower than the average return.
If I switch my 401k contribution from Traditional to Roth, will that be taxed at my effective rate, or marginal rate? hmm...
6:00 $19,500 @ 26.43 effective rate = $5,153 tax. It's erroneous to use effective tax and even it were, the formula is $19,500 / 0.7357 = $26,505 pretax income thus $7,005 tax not $5,153 tax. $150k is 22% federal tax bracket so to $19,500 Roth contribution requires $19,500 / 0.78 = $25,000 pretax income thus $5,500 federal tax.
Maybe….its more complicated than that. The taxes you actually pay as you go are withholding based on your W4. And the amount withheld can change throughout the year based on the size of your paychecks. Also the taxes withheld are not based on your max bracket, but your estimated effective tax rate since rates are marginal. Do you get trued-up when you file, yes. Also your math is wrong….yes you need to make 26,500 in order to contribute 19,500 assuming the rates you used. But the Roth contribution is below the tax line. The 19,500 you contributed to the Roth you have to pay taxes on. You pay those taxes based on your withholding which is an estimate of your effective tax rate. The tax associated with the contribution is limited to the contribution.......
all this to say....
None of this math alters the purpose & focus of the video.
@@CashValueLifeInsuranceReviews No your math is wrong: "Also your math is wrong….yes you need to make 26,500 in order to contribute 19,500 assuming the [22%] rates you used." $26,500 * 0.22% federal tax = $5,830 tax : $26,500 - $5,830 = $20,670 contribution. That is wrong.
$25,000 pretax income * 0.22% federal tax = $5,500 tax : $25,000 - $5,500 = $19,500 Roth contribution.
California 9.3 + Federal tax 22% = 31.3% combined. $19,500 / 0.687 = $28,384.28 pretax income needed for $19,500 Roth contribution.
"F" it...... Invest in both and call it a day. This video has WAY too many variables, not to mention the psychological side of things.... It's easier to pay taxes over the long period of time rather than being burdened with them at retirement. Simple is always better. And these numbers are for a 401k Roth because the Feds say max contribution for IRA's are $7000 for individuals under 50
2024 video using 2023 federal tax bracket chart