{ "media_type": "text", "post_content": "How do you decide how much of your $20.5k 401k contribution should be Roth vs Traditional? I don’t know how to anticipate my future tax situation so I default to 2/3 Roth and 1/3 Traditional. I currently make about 180k if that impacts advice. Thanks for any help!", "post_id": "61e61d453b60d00029a1031c", "reply_count": 19, "vote_count": 2, "bowl_id": "5b3f7377ab53db00136f7b4c", "bowl_name": "FIRE Financial Independence Retire Early", "feed_type": "bowl" }

How do you decide how much of your $20.5k 401k contribution should be Roth vs Traditional? I don’t know how to anticipate my future tax situation so I default to 2/3 Roth and 1/3 Traditional. I currently make about 180k if that impacts advice. Thanks for any help!

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Typically, your income will be higher now than when you take it out at retirement, so you want it taxed then which means traditional.

likesmart

1. Yes it does. Say I make 200k now. I very strongly presume I will not need any more than 100k in retirement. Unless you're saying taxes will be raised so drastically that the 100k in 30 years will be taxed higher than 200k today. Historically nothing that drastic has occurred. If you truly believe that, then yes you should be going 100% Roth. 2. See above. If you're making a respectable amount, it's very likely your withdrawls will be lower in retirement than your current salary. Also SS is peanuts and if that's your main argument then you have no idea what you're talking about lol. Who knows how much of that will even be around. 3. The national debt has always been rising so I'm not sure what your point is. You're saying there will be more demand for social programs so taxes will go up? What if I turn this around on you and say the government will make a shocking change and start taxing Roth accounts? We can play what-if games all day. The information we have now based on current rates and historic tax rates/brackets says to use traditional when your current bracket is high, and use Roth when your current bracket is low. If you're that afraid of tax changes, that's where your Roth IRA (backdoor if needed) and megabackdoor (if available) can serve as a hedge.

I do it all traditional, mostly because I figure there’s no way my income in retirement will be what it is now, but also because my plan allows for a partial mega backdoor so I get Roth there anyway (as well as regular backdoor)

likesmart

I’m all in on Roth 401k and employer match goes to pretax (traditional). I’d rather maximize tax free earnings.

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You can do a Roth conversion ladder if you're worried about RMDs (moving traditional 401k to Roth IRA). Your logic is not a good reason to do 100% Roth when you're in a high tax bracket now. Let's say you're making 170k now (32% bracket). Do you really think you'll be spending that much a year in retirement? In that situation, traditional is the obvious answer unless you reeeeally plan to ball out lol. I will say to your point, there are situations where you're just not sure and it's close to the same (by your best guess) whether you do traditional or Roth. If it's similar, I'd still argue to go traditional while maintaining your yearly backdoor Roth (and megabackdoor if you can) as a hedge. And make sure you invest the tax savings from choosing traditional into a brokerage account. Having traditional 401k will allow you to play around with how you want to deal with your money. You can convert it to Roth during low income years (e.g. you go back to school for MBA or take time off for other reasons). And if you retire early, you could have 0 other income and convert your traditional accounts at the lowest rate.

likesmart

Traditional so I can do a roth conversion ladder and still minimize taxes when I retire early.

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While I agree that my income in retirement will be lower, I do all Roth. I dont mind paying the extra couple grand now vs doing so in the future (who knows how taxes will look like in 30 years)

It'll be way more than "a couple grand" so I'd rethink your strategy here. Read some boglehead forums on this topic. There would have to be very drastic tax law changes to justify going with Roth even though you're in a high tax bracket now (compared to retirement). People looked at historic tax changes, played around with brackets, etc and found that traditional still comes out on top most of the time, unless you're in a low tax bracket. And you'll still have your backdoor Roth IRA as a hedge (and megabackdoor if that's an option).

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I thought you could do a Roth when you make over a certain amount of money, which I think you’d reached?

You’re thinking of Roth IRA which has income limits. Some employers include a Roth 401k option which is what I’m talking about. No income limits, only the $20.5k yearly contribution limit.

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