So I’m clear, by tax deduction, you mean an actual tax deduction, not just not paying taxes on the principal now, correct? (I’m but a humble goon who has taken the standard deduction to this point in life)
I do not pay taxes on what I am contributing to my 401k, but will when I withdraw the funds.
With a Roth IRA, you pay taxes on the money now, but will withdraw it and any earning on it tax free in the future.
as an example, if I am in the 24% tax bracket and I put $1000 in my 401K, I will save $240 on my tax bill this year
If I put it in a Roth IRA, I will be paying the $240 right now.
So I am now retired and in the 12% tax bracket when I withdraw the $1000 from my 401K, I will have a tax bill of $120
If I withdraw from the Roth IRA the money I pay no taxes.
In this example I saved $120 by putting it in my 401K instead of a Roth IRA, not accounting for the time value of money.
The issue comes when I withdraw the earnings on what I have contributed. There is a point where the current tax savings may be lower than future tax savings. The wider the gap between current tax rates and future tax rates the more favorable to get the current deduction. There is also the time before retirement element. The long the time between the current deduction and retirement the better it will be for a Roth IRA.
IOW one size does not fit all. I am very near retirement and in a higher tax bracket, so my personal calculation says put in my 401K not a Roth
