{ "media_type": "text", "post_content": "I understand that traditional vs. Roth 401k depends on tax bracket now vs. expected tax bracket in retirement. And of course there is the risk of changing tax laws.\n\nBut what if you just don't know? Do you just split 50/50? Or once you're making over a certain amount, does it naturally make more sense to lean towards traditional? Not sure what other people do and what income level they make the shift to traditional, if at all.", "post_id": "614ce34e3d47a4001d3e9dcf", "reply_count": 20, "vote_count": 1, "bowl_id": "59064a3cb12379001006592c", "bowl_name": "Personal Investment Chatter" }

I understand that traditional vs. Roth 401k depends on tax bracket now vs. expected tax bracket in retirement. And of course there is the risk of changing tax laws. But what if you just don't know? Do you just split 50/50? Or once you're making over a certain amount, does it naturally make more sense to lean towards traditional? Not sure what other people do and what income level they make the shift to traditional, if at all.

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50/50 is as good of a guess as any

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If you are in 30%+ tax bracket go traditional, otherwise go Roth

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Nothing happens to Roth balances once you exceed the limit you just can’t contribute anymore (unless through backdoor or mega backdoor). Your existing Roth balances stay invested and you can make any changes to investments like you normally would.

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IMO when you get to retirement there are mental benefits to having a large chunk of money you know is 100% yours (I.e. Roth). So I do 100% Roth knowing all of my employer contributions fall into the traditional bucket. My approach would change if I was close to maximums on tax credits (such as I make $160k and need to make less than $150k for additional child tax credit then I would contribute at least $10k to traditional to reduce my income). My approach would also change if I lived in a high income tax state.

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Roth could reduce Medicare premiums because if you income is too high you pay more. Roth withdrawals don’t create income while traditional withdrawals do.

Twilio 1 posted a fair counter argument, but I’ll argue in favor of Roths: - consulting offers both high income early on AND very large increases in compensation, I wouldn’t be surprised if most of us accrue large retirement accounts and can afford a high standard of living in retirement - there are other benefits of Roth’s, namely no RMDs and better tax treatment for estate planning - final thought is that have some Roth funds allows you to better smooth out and reduce taxable income in retirement so you can optimize your remaining tax deferred funds

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High standard of living in retirement does not necessarily require high income in retirement. There is a certain order by which one should withdraw from account types to minimize taxes. Traditional IRA/401k is last in the optimal order. At that point your spending is likely naturally lower due to age, you are probably also taking SS (mostly tax-free) and so your taxable income bracket will be lower than you expect.

I personally max out Roth first and then whatever else I save for retirement in the year goes into traditional, it usually ends up around 50/50 if not slightly leaning towards traditional but I want to get tax savings on at least one end

Got it. I read it as a Roth 401k which PwC doesn’t offer. Once you are able to max your pre-tax 401k, you should start doing mega backdoor Roth IRA conversions through your 401k

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