Intro hey how's it going bill lethan here for money evolution in this video I'm going to be talking about why you should probably be putting your money into a Roth 401k instead of a traditional 401k plan if you're single and you make less than $191,900 for 2024 or if you're married filing a joint tax return and you have combined income of less than $383,900 so why am I talking about this well uh for the longest time the traditional 401k plan was really the only 40 1K plan around everything went in on a pre-tax basis uh it also grew tax deferred and then you would take this money out in retirement pay taxes on it later and I think the big myth that many of us kind of bought into I know I certainly did uh when I was 21 years old and started putting money into a 401k plan for the first time is that hey we're going to take this off of our income tax right now today you're not going to pay taxes on it uh but you'll pay taxes later when you're retired uh after all you're not going to be working and so of course you're going to be in a lower tax bracket than which you are right now well the reason why today this is especially important here in 2024 is we have something called the tax cuts and jobs act rates uh these are rates that went into effect in 2018 and uh basically had a sunset provision that they were only going to last through the end of the tax year for 2025 and then in 2026 if Congress uh new legislation doesn't come out uh those taxes are Tax Bracket Projection going to revert back to the old 2017 tax table with an adjustment uh for inflation so um so if we look at this and we say okay well uh if we're single $11,950 that is the upper end of the 24% tax bracket uh in 2026 just to give you kind of an idea um the tax bracket once it reverts back uh is projected this is our projection based on some inflation of the old tax table with uh an inflation Factor uh the 15% tax bracket will Top out at 47,1 145 so what that means is that if you make over $47,476 per uh after that uh so if even if you're planning to retire in a couple of years if you're thinking that you're going to be taking out more than $47,000 out of your retirement account or that along with a pension and your Social Security benefits is going to be greater than that um then most likely you're going to at least be in a 25% tax bracket and why that's important is one of the things that I've said in many other videos as the number one factor of either contributing to a Roth versus a traditional or even doing a Roth conversion is what is my tax bracket today versus what is my tax bracket in the future going to be and if I think my my tax bracket in the future is going to be higher then it's going to make more sense for me to do the Roth to pay that tax now either for a contribution or even for a Roth conversion so if you're you're under those brackets then most likely that's going to be the recommendation um and if you still have room in the bracket and you still could uh make your contribution to your 401k plan and still have room before you hit that 191 19950 uh then maybe some Roth conversions even make sense too if you can afford to do that uh if you're married filing joint uh that's going to be 383,000 and the combined income in 2026 uh what it's projected to be in that uh 25 where the 25% tax bracket is going to start is going to be 94290 so again even if you're planning on going into retirement by time you add in your Social Security your spouse's social security uh currently up to 85% of those Social Security benefits are subject to tax so not all of it but you know a good portion of it and then if you have any kind of a pension or you're going to be needing to take withdrawals out of your retirement account uh for many people probably watching this your tax bracket's going to be a little bit Tax Bracket Comparison higher than that so so let's take a look at this um uh on the married filing joint uh tax R it's going to be very similar if we were to look at it uh for a single tax filer uh by the way this is something that I created I created all these reference materials as a part of our retirement time machine program uh that we do it's a self-guided DIY retirement uh uh planning uh program for individuals uh really kind of walks you through that entire uh financial planning retirement planning process but anyway I created this uh just to give us that comparison so here here we can see uh that 24% tax bracket uh goes up to $383,900 that's where the tax table stops if we add in our standard deduction uh that's going to bring that up to $413,000 we'd have up to $413,000 and we're not going to pay uh any income tax over that 24% tax bracket U so that is just absolutely phenomenal but to give you an idea uh this is what uh the current tax tables would look like if we didn't have the tax cuts and jobs act rate so that 15% tax bracket tops out at 89,000 and you jump up to 25 but that only goes to 181,000 um the 20 uh then you jop up to 28 that goes to 276 um we're still not up to as much income as we have here under 24 and you can see the top end of the uh 20 uh uh 28% tax bracket uh 276 then 33 uh up goes up to 493 so we we basically have over $100,000 uh in the 24% tax bracket uh which which would have been normally taxed at 33% under the old tax rule Roth vs Traditional uh so if you have money in your 401k plan uh if you're still contributing to that traditional account uh or you have an opportunity to do some WTH conversions and you're under these limits uh this is something that I would absolutely be taking a look at and see if these Roth conversions or making Roth contributions instead of traditional uh makes sense for you uh we know at least you know unless Congress Ena some new legislation that these tax rates are going to expire at the end of 2025 and we're going to revert back to these higher tax tax tables but we also know uh that the US government has 30 whatever day you look at it $35 trillion I think right right around there of debt uh and uh the interest on the debt is uh actually more than our entire military budget if you can believe that you can look at this you know a bunch of different ways but it's a big number and at what point uh is there a point where they just say hey we need to raise taxes we cannot let this debt continue to go people are going to need to start paying more uh of course we'd like to see maybe some of the people at the higher end of the tax bracket pay more uh but uh there's not enough people in those brackets so they're going to most likely have to raise taxes across the board for everybody uh so if you can get some of that money into that tax-free WTH uh that might be a strategy that makes sense um one other quick little plug here I created a case study all about uh Roth uh strategies I think it's called the Roth strategies uh case study uh we'll put a link down in the description below for that and uh it kind of walks through six different strategies to get more money over to uh Roth IRA Roth 401k plan uh we kind of walk through that in a hypothetical case study situation and show what some of the long-term tax benefits are of doing some of these Roth conversions or changing up your contribution so uh again if you're under those brackets uh 191 single 383 married filing joint uh if you haven't looked at the Roth uh contributions Roth conversions I think that's something you should definitely be taking a look at so Outro anyway hope you enjoyed today's video um again if you want to learn more about what we do uh check out some of the links down in the description below uh you can also head over to money evolution.com our website we're trying to build out an entire uh information superhub for everything personal finance retirement planning related uh and really first and foremost is just to educate everybody uh if you find something interesting you want to explore a little bit about what we do uh we'd love to have that too but really just to provide you the information is what I'm looking to do here so thanks and I'll see you back in one of my next videos for