The Digestible IRS Series
Written by Samuel Sweitzer April 28, 2021
I get many questions regarding 401(K)’s, IRA’s, and Roth’s. Everyone’s situation is particular, so there is no blanket answer to the best vessel to save for retirement in, but there are some key concepts that I would like to share with you.
When did 401(k)’s start?
401(k)’s were established by the revenue act of 1978. This allowed individuals to defer paying taxes on a portion of their income for the year and put it into a retirement account. The taxes would then be paid later when the money is accessed. One thought process about this today is that you will be in a lower tax bracket in retirement so by deferring that income, you are saving money on taxes. For perspective, in 1978 the highest tax bracket was 70% on every dollar over 203,200. It may not feel like it right now, but we currently have historically low tax rates.
Should I fund my 401(k)?
This is a question that really pertains to your specific situation. My follow up questions to this are always as follows: Do you get a match? Are you worried about a large tax bill in retirement? Do you have any tax-free buckets you can draw from? These questions get the conversation started about whether or not to fund your 401(k) and to what degree.
Is a Roth better?
Having access to money in retirement that does not need to be included in your income for that year can be very beneficial when trying to predictably account for your money. $1,000,000 in your Roth account means you have access to $1,000,000. On the other hand, if you have $1,000,000 in your IRA or 401(k) you have less than that depending on your tax rate and other factors. Per the IRS, the marginal tax rate in 2021 is 37% on income over $523,600 if filing single and $628,300 for married couples filing jointly. It is important to know that the balance in your 401(k) or Traditional IRA is not all yours.
The Internal Revenue Service. SOI Tax Stats – Historical Table 23. (2020). Retrieved from
Congress. H.R. 13511 – Revenue Act. (1978). Retrieved from
The Internal Revenue Service. IRS provides tax inflation adjustments for tax year 2021. (2020). Retrieved from
Kenneth Sweitzer is a licensed insurance professional. Sam Sweitzer is a financial professional who offers insurance services.
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