My company offers a 401(k) and a Roth 401(k), and I currently contribute to both; should I put all of my contribution money toward the Roth 401(k)?

My company offers a 401(k) and a Roth 401(k). Currently I contribute 6 percent to my 401(k) and 8 percent to my Roth 401(k). Is this a good long-term strategy? I want to contribute all to my Roth 401(k) starting in 2019. Is that a better strategy? Also, can I take out my principal if needed from my Roth 401(k) since it’s after-tax dollars?

Financial Planning, Retirement, 401(k), IRAs, Taxes
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October 2018

When determining whether to contribute to a pre-tax or Roth 401(k) you should consider your current tax bracket. Currently, we're in a historically low tax environment starting this year. If you're in one of the lower 3-4 tax brackets it can be advantageous to contribute more to the Roth side of the 401(k). You're essentially "guessing" that you'd pay fewer taxes today than you would in the future. It's especially beneficial for younger individuals who are at the beginning of their earning years and will likely only move up in tax brackets as their careers progress. 

However, having buckets of pre-tax and after-tax funds to withdrawal from in retirement is also advantageous because you can control your taxes better then. Therefore, contributing to both is a great strategy. If you take out the principal of your Roth 401(k) you'll still be taxed on the earnings portion, relative to the amount of earnings in the account. Your retirement accounts are meant for the long-term and if you need funds prior to then, it's important to set aside investments or cash for that purpose. Withdrawing early from retirement accounts is almost never a good idea. 

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