📊 🏖️ When should a high-income earner switch from Roth to Traditional 401k?
📊 🏖️ When should a high-income earner switch from Roth to Traditional 401k?
From this Reddit thread:
I know this question gets asked ad nauseum here, but the answers are invariably "choose to pay taxes whenever you think your taxes will be lowest".
I wanted to ask this question with some specific numbers, and get some peoples' specific input on how they would be handling this.
I'm currently contributing to a Roth 401k, taking ~15% of my bi-weekly paycheck, where my employer is matching 5 or 6% (we've changed plans several times in the last couple years, and I don't recall the plan details).
I'm employed in CA, paying 9% state and 22-24% federal income tax (marginal rates, not effective).
Personal info: Age: 34 Married, one child (2YO) Individual income: $104k + up to 10% bonus Household income: $210k 401k: $195k across three accounts Averaging 10-14% returns Mostly Vanguard ETFs and Target Date funds $850 bi-weekly ROTH contributions (including match) 529 for daughter's education $18k in CA ScholarShare 529 $500 monthly contributions Other: Wife will have retirement through CalSTRS and 403b Inherited IRA (traditional) with $65k that I received earlier this year My only debt is a mortgage and car note. I expect the mortgage to be satisfied in ~12-14 years. It's only 3.125%, but I value the peace of mind of having it paid off, and make roughly 3 extra principal-only payments annually. As such, I don't anticipate having a mortgage in retirement. I'm trying to fund the 529 early to give it the best opportunity to grow before my daughter is college age, and I will probably taper off contributions eventually.
The question then, I suppose, is at what point do I switch to making traditional contributions? I'm having a hard time gauging whether or not I would be able to live at or below the 12% bracket. Obviously in 30 years that bracket may not even exist, or it may not be livable. Or am I trying to optimize retirement planning to a level that doesn't have a clear answer at my income level?
From this Reddit thread:
I know this question gets asked ad nauseum here, but the answers are invariably "choose to pay taxes whenever you think your taxes will be lowest".
I wanted to ask this question with some specific numbers, and get some peoples' specific input on how they would be handling this.
I'm currently contributing to a Roth 401k, taking ~15% of my bi-weekly paycheck, where my employer is matching 5 or 6% (we've changed plans several times in the last couple years, and I don't recall the plan details).
I'm employed in CA, paying 9% state and 22-24% federal income tax (marginal rates, not effective).
Personal info: Age: 34 Married, one child (2YO) Individual income: $104k + up to 10% bonus Household income: $210k 401k: $195k across three accounts Averaging 10-14% returns Mostly Vanguard ETFs and Target Date funds $850 bi-weekly ROTH contributions (including match) 529 for daughter's education $18k in CA ScholarShare 529 $500 monthly contributions Other: Wife will have retirement through CalSTRS and 403b Inherited IRA (traditional) with $65k that I received earlier this year My only debt is a mortgage and car note. I expect the mortgage to be satisfied in ~12-14 years. It's only 3.125%, but I value the peace of mind of having it paid off, and make roughly 3 extra principal-only payments annually. As such, I don't anticipate having a mortgage in retirement. I'm trying to fund the 529 early to give it the best opportunity to grow before my daughter is college age, and I will probably taper off contributions eventually.
The question then, I suppose, is at what point do I switch to making traditional contributions? I'm having a hard time gauging whether or not I would be able to live at or below the 12% bracket. Obviously in 30 years that bracket may not even exist, or it may not be livable. Or am I trying to optimize retirement planning to a level that doesn't have a clear answer at my income level?
1 Answer
Tough to do better than traditional tbh, for the reasons mentioned in the reddit thread, but try it for yourself: https://finfam.app/mahmoud/views/roth-vs-trad-401k
Want to answer this question?
Disclaimer: Questions, answers, and information shared on this Q&A board represent individual user opinions and experiences. This information is provided for educational purposes only and should not be considered as financial, legal, or professional advice. Please exercise critical judgment and consult qualified professionals for important decisions.