{ "media_type": "text", "post_content": "Looking for some direction. Just finished paying off my law school debt. I'm 29 years old. $40k in taxable brokerage account, $15k emergency fund (3.5 months), $20k in 401k. In September I'm starting a new job that will pay me $200k which doubles my current salary. Will max my HSA, 401k etc. But should I be making Roth 401k contributions in this tax bracket?", "post_id": "60edc5d9214cad00245b5a2e", "reply_count": 7, "vote_count": 1, "bowl_id": "5b3f7377ab53db00136f7b4c", "bowl_name": "FIRE Financial Independence Retire Early" }

Looking for some direction. Just finished paying off my law school debt. I'm 29 years old. $40k in taxable brokerage account, $15k emergency fund (3.5 months), $20k in 401k. In September I'm starting a new job that will pay me $200k which doubles my current salary. Will max my HSA, 401k etc. But should I be making Roth 401k contributions in this tax bracket?

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See if your 401k plan allows for after tax contributions and auto conversions to Roth (this is called mega back door Roth). Then do traditional 401k to the max and the rest after tax. This is what I do. Will allow for tax diversity in retirement and I can leave my roth $$ I don’t use to heirs tax free.

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This is the way

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It comes down to whether you think you’ll be in a higher or lower tax bracket when you withdraw from it in retirement. I used to think I’d be higher and contributed to Roth. Now I realize I can pull from other non-taxable accounts first so my tax bracket will probably be lower in retirement. I switched to Traditional 401k contributions. I still fully fund a Roth IRA, so I have a bit of both Roth and Traditional = nice flexibility in withdrawal strategy in the future.

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How do you have a non-taxable brokerage? Municipal bonds is the only thing I can think of…

First off, there is no right or wrong answer. You either pay the government now (Roth) or pay the government later (traditional). If you think tax rates in this country will increase in the future then pay your taxes now (Roth). There is some truth to higher tax bracket now vs later but that does not consider the tax you would pay on the growth of the contributions.

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