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50/50 Roth/Traditional Reitrement Contributions

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  • 50/50 Roth/Traditional Reitrement Contributions

    My first investing philosophy was based on individual stocks and minimizing tax bills with a traditional IRA in 2014/2015. I then changed that to include Roth investing and using indexing. At the point of that transition, I was contributing 50/50 traditional/Roth (IRAs). I kept at that for several years, then I included traditional/Roth 401(k) and 403(b), again 50/50. At my current job, I have gone 100 Roth (401(k) and IRA) with no traditional contributions this year, so far. I also have been beefing up my taxable account and emergency fund, while paying off my car with mega double payments so the loan is gone by next summer.

    Since we don't know for sure what the tax situation will be over the course of a career, should I go back to the 50/50 traditional/Roth approach? Or floor the 100 Roth approach and leave the 50/50 mix in the dust? Current pay is $115k plus overtime, so I would love to try and avoid a event where I owe tax (I take 0 exemptions).

    Current stats:

    E-fund total: $10k (not really relevant, but included here for full picture)
    Roth IRA total: $36k
    Traditional IRA total: $29k
    Taxable total: $31k
    Old 401(k) total, 50/50 Traditional and Roth: $33k
    Old 403(b) total, 50/50 Traditional and Roth: $7k
    Current 401(k), 100 Roth: $10k
    HSA: $5k (not really relevant, but included here for full picture)

  • #2
    Too many accounts. Why do you have a traditional IRA?

    Roll traditional IRA into current 401(k). Roll old 403(b) and 401(k) into current 401(k).

    Unless your current plan is garbage, or they won’t accept it. But I’d consolidate those things.

    You’re in the 24% tax bracket, so I’d say stick with 100% Roth for current contributions.

    Also you are getting close to income limits, depending on your overtime, for direct Roth IRA contributions.

    All the more reason to roll everything up into your current 401(k).

    Comment


    • #3
      Originally posted by bovie View Post
      Too many accounts. Why do you have a traditional IRA?

      Roll traditional IRA into current 401(k). Roll old 403(b) and 401(k) into current 401(k).

      Unless your current plan is garbage, or they won’t accept it. But I’d consolidate those things.

      You’re in the 24% tax bracket, so I’d say stick with 100% Roth for current contributions.

      Also you are getting close to income limits, depending on your overtime, for direct Roth IRA contributions.

      All the more reason to roll everything up into your current 401(k).
      Current plan is garbage; the only Vanguard fund is a “balanced fund” of 60/40 TSM/TBM. No TSM in it like VTSAX (Voya).

      TIRA is a relic from PhD training in the mid 2010s. I think I opened that one first then went Roth and did the 50/50 approach…

      Comment


      • #4
        Would you be allowed to roll that tIRA into your old 401 or old 403b (assuming one of them is decent)? As bovie said, it would be nice to have the flexibility to do backdoor Roth contributions if the need arose.

        Comment


        • #5
          While the TSP allows separated participants to rollover other retirement accounts. It is relatively rare for 401k or 403b plans. It is still worth checking If they have low cost investment options.

          Comment


          • #6
            Originally posted by spiritrider View Post
            While the TSP allows separated participants to rollover other retirement accounts. It is relatively rare for 401k or 403b plans. It is still worth checking If they have low cost investment options.
            Do you mean low cost options in my old plan? My old plan is great with options; new plan not so much. I do not currently have a traditional 401k at the new plan, but could I open one there and roll over that way?

            Comment


            • #7
              I was referring to one of your old plans. I was replying to 99mkw
              who suggested rolling over your IRA into one of those plans.

              I was simply pointing out that it is relatively rare for plans you are separated from to allow IRA rollover contributions.

              Not to mention, I stand by recommendation to do a Roth conversion of your traditional IRA.

              Comment


              • #8
                Originally posted by F0017S0 View Post
                My first investing philosophy was based on individual stocks and minimizing tax bills with a traditional IRA in 2014/2015. I then changed that to include Roth investing and using indexing. At the point of that transition, I was contributing 50/50 traditional/Roth (IRAs). I kept at that for several years, then I included traditional/Roth 401(k) and 403(b), again 50/50. At my current job, I have gone 100 Roth (401(k) and IRA) with no traditional contributions this year, so far. I also have been beefing up my taxable account and emergency fund, while paying off my car with mega double payments so the loan is gone by next summer.

                Since we don't know for sure what the tax situation will be over the course of a career, should I go back to the 50/50 traditional/Roth approach? Or floor the 100 Roth approach and leave the 50/50 mix in the dust? Current pay is $115k plus overtime, so I would love to try and avoid a event where I owe tax (I take 0 exemptions).

                Current stats:

                E-fund total: $10k (not really relevant, but included here for full picture)
                Roth IRA total: $36k
                Traditional IRA total: $29k
                Taxable total: $31k
                Old 401(k) total, 50/50 Traditional and Roth: $33k
                Old 403(b) total, 50/50 Traditional and Roth: $7k
                Current 401(k), 100 Roth: $10k
                HSA: $5k (not really relevant, but included here for full picture)
                What is missing is the age and future income and how many years and the annual income projections.
                "Current pay is $115k plus overtime." That is all I can tell. Future earnings of an "other professional" do not have the "bump up" that physicians have and they don't have near the significant drop at retirement.
                1) It is extremely difficult for a taxable Roth contribution to make up for the pretax contributions.
                2) If you are flat lined at say a $130k annual (base + ot) that means $26k contributions per year. I would fill up pretax and stuff the rest into roth via BD or taxable.
                3) I think you are risking paying more tax now than you will be in retirement with your Roth contributions. The purpose of Roth is to avoid higher tax rated in retirement. I don't think you will have an RMD problem in retirement based on the current income and contribution limits and tax rates.
                4) The "other professionals" usually have a decline income in the later years and opportunities to do Roth conversions or work until later in careers.
                You really need to have projections of income and go from there. The default is pretax to smooth the tax rates. I don't see that in your information.
                Sure Roth is "good", but it comes at a cost of current taxes. That is the key factor. Current marginal tax rate vs Retired marginal tax rate.

                Most of the advice it based upon HCE which you are at the extreme low end. Tax advice is individual. Single or married all the way through retirement?
                Need more information.

                If you can generate 1099 income legitimately for several years, a solo 401k solves your problem for orphaned retirement accounts.





                Comment


                • #9
                  Originally posted by Tim View Post

                  What is missing is the age and future income and how many years and the annual income projections.
                  "Current pay is $115k plus overtime." That is all I can tell. Future earnings of an "other professional" do not have the "bump up" that physicians have and they don't have near the significant drop at retirement.
                  1) It is extremely difficult for a taxable Roth contribution to make up for the pretax contributions.
                  2) If you are flat lined at say a $130k annual (base + ot) that means $26k contributions per year. I would fill up pretax and stuff the rest into roth via BD or taxable.
                  3) I think you are risking paying more tax now than you will be in retirement with your Roth contributions. The purpose of Roth is to avoid higher tax rated in retirement. I don't think you will have an RMD problem in retirement based on the current income and contribution limits and tax rates.
                  4) The "other professionals" usually have a decline income in the later years and opportunities to do Roth conversions or work until later in careers.
                  You really need to have projections of income and go from there. The default is pretax to smooth the tax rates. I don't see that in your information.
                  Sure Roth is "good", but it comes at a cost of current taxes. That is the key factor. Current marginal tax rate vs Retired marginal tax rate.

                  Most of the advice it based upon HCE which you are at the extreme low end. Tax advice is individual. Single or married all the way through retirement?
                  Need more information.

                  If you can generate 1099 income legitimately for several years, a solo 401k solves your problem for orphaned retirement accounts.



                  Current age 32 and I’m a single clinical research professional. I do not anticipate marriage nor do I want kids. Currently I am on track to max my Roth 401(k) contribution for the year; I made a direct contribution to my Roth IRA in March. I live at home, so my rent is a very reasonable $860 a month. I am beefing up my e-fund at $600 a month and currently on an accelerated plan to pay off my car in the next 13 months (I just want the loan gone, so I am making double payments; $16k down since February, about $16k to go). And I recently did a $6k contribution to my taxable. Right now things are a little “messy” with the multiple accounts and the car note. :/

                  Income projections are trickier; depends upon my role and the company I work for. I am trying to be judicious with these funds as I fee like a HENRY: high(-ish) earner, (definitely) not rich yet. Once the car note is gone, I intend to use those funds to go to taxable.

                  For now, I will plan on “dispensing with” my traditional funds in favor of Roth, judiciously converting over the next couple of years.

                  Edit: I do have some 1099 income (2022) from allowing my property to be used for a film shoot, in addition to doing some surveys and participating in a clinical study. Would that count as legitimate for a solo 401(k)?

                  Comment


                  • #10
                    Originally posted by spiritrider View Post
                    I was referring to one of your old plans. I was replying to 99mkw
                    who suggested rolling over your IRA into one of those plans.

                    I was simply pointing out that it is relatively rare for plans you are separated from to allow IRA rollover contributions.

                    Not to mention, I stand by recommendation to do a Roth conversion of your traditional IRA.
                    Appreciated; I will reach out to my old HR department.

                    Comment


                    • #11
                      Any employer contributions are going to pretax.
                      Your elective contributions plan contribution at any consistent income level are more advantageous filling pretax and avoiding taxes paid to the government sooner than later.
                      My point is the 401k pretax is a better choice than 401k Roth . You are likely to pay a higher tax now than a lower tax in retirement.
                      I have no concern about how to spend or pay off debt. Only the out of pocket tax and the math.
                      Fill all of your pretax before filling Roth.
                      Pretax , then Roth , then taxable. The only time to alter that is for diversity and RMD concerns on RMD’s. No pass on the tax math. I don’t see you having and RMD problem at 72 given your employment. I appreciate the feedback. Given the PhD training period, Pretax , then Roth , then taxable at 20% of gross will fund your retirement at 65.
                      Comp-taxes-retirement @20%= spending (including debt and anything else you are saving for)

                      Just a simple way to pay yourself first. I am referring to the 50/50 split going forward. only.

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