Tue Apr 09 2024, by Tyler Gardner

Maxing Out Your Roth 401k: A Conversation

Tyler: Yep, says here. You'll be retiring with 3.3 million dollars in your Roth 401k.

Friend: Yep. That can't be right. You only contributed $225,000 to this account.

Tyler: Oh, yeah, I maxed out my 401k each year in my 20s and then I never touched the account again.

Understanding Roth 401k Contributions

Friend: But can't you only contribute $6,500 a year to this account?

Tyler: No, it's a Roth 401k. The maximum contribution is actually $22,500 a year. It just took it right out of my paycheck, so I never had to see it and I learned to live on less.

Tax Implications

Friend: Well, we'll be waiting for our taxes on that $3.3 million when you retire.

Tyler: No, it's a Roth 401k. I already paid taxes on that money back in my 20s when I was in a much lower tax bracket.

Withdrawal Rules

Friend: Well, you can't touch that money until you're 59 and a half.

Tyler: No, it's a Roth 401k. I can take back the contributions whenever I want for whatever I want.

Distribution Requirements

Friend: Well, you have to start taking that money out at 72.

Tyler: Nope, I don't. It's a Roth 401k and I never have to take distributions. I actually plan on leaving that money in the account for my children.

Passing on Wealth Tax-Free

Friend: Well, we'll get our money when you pass it on to them.

Tyler: Well now you're really gonna be upset when I die. The profits on this account kind of magically disappear and my kids get all of that money tax-free—all because you maxed out your 401k in your 20s.

Friend: Yep. Well, see you later.

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