Roth 401k even as a high earner?

[jacoavlu]

no, it doesn’t make sense and you already know that

57k should only be a portion of your savings anyway

you will have years between stopping working or cutting back working, and RMDs. That’s when you do Roth conversions, and live off taxable savings

[triad]

It probably doesn't make sense but I do a roth 401k because of the higher contribution limit relative to a traditional. already my taxable account is larger then my tax deferred and i have a tiny roth in comparison. I'm hoping to retire in a few years so I would probably be better off in tax deferred

[jacoavlu]

higher contribution limit relative to a traditional

huh?

[Lithium]

huh?

$19.5k after taxes are already paid is worth more than $19.5k before taxes. So nominally the contribution limits are identical, but on a tax-adjusted basis, you can contribute more to Roth.

[Tim]

I’d just take the additional tax you would be paying and dump it into an old fashioned taxable account and grin and bear it.

At your tax rates, that’s ~another Roth. My account nickname would be tRoth. Just a mind game to double the Roth space. Same take home cash flow
YOLO, this time you simply admitted that you got a subconscious spending problem. Too much income and want to rationalize paying more tax. First world problem solving. Troth, It’s really a taxable. A little bit of behavioral finance here.

[jacoavlu]

$19.5k after taxes are already paid is worth more than $19.5k before taxes. So nominally the contribution limits are identical, but on a tax-adjusted basis, you can contribute more to Roth.

that's a dumb way to look at it. By that logic everyone should choose Roth over pretax always

total after tax return is what matters. No one knows the future but if my marginal rate is 50% I'll take my chances with pretax

[Dont_know_mind]

Whether it is worthwhile paying the tax upfront depends on what capital gain rate you expect and what your expectations are of future CGT rates vs future RMD tax rates. You can put this in a spreadsheet and do some scenario analysis.

If I could I would pay tax and put all savings into Roth space vs taxable. Maybe I have calculated this incorrectly though.

To me, it appears the Roth space speculation may work with an investment that you think has a very high probability of a large capital gain. I did this on a property that I thought had a good chance of a 10X return. The investment was influenced by reading about Mitt Romney’s IRA when he was a presidential candidate. I think others have also thought about it too:

https://www.biglawinvestor.com/secrets-of-a-100-million-dollar-roth-ira/

It is a high risk strategy. Roth space is not readily replenishable and much less forgiving than a taxable account.

My other retirement account investments are in index funds.

[jacoavlu]

To me, it appears the Roth space speculation may work with an investment that you think has a very high probability of a large capital gain. I did this on a property that I thought had a good chance of a 10X return. The investment was influenced by reading about Mitt Romney’s IRA when he was a presidential candidate. I think others have also thought about it too:

https://www.biglawinvestor.com/secrets-of-a-100-million-dollar-roth-ira/

It is a high risk strategy. Roth space is not readily replenishable and much less forgiving than a taxable account.

My other retirement account investments are in index funds.

this really has nothing to do with the 99.9+% of people debating Roth vs pretax in their 401k where investment choices don't include the type of investment you're talking about

if the OP was running a custom self-directed checkbook solo 401k perhaps your point would pertain to this discussion

[Lithium]

that's a dumb way to look at it. By that logic everyone should choose Roth over pretax always

total after tax return is what matters. No one knows the future but if my marginal rate is 50% I'll take my chances with pretax

I'm not saying the OP should choose Roth but if you expect your marginal rate in retirement to be about the same as it is now, that's one factor that tilts in favor of Roth.

I agree that hardly anyone has a marginal tax in retirement of 50%, but I don't know what the OP expects to earn in retirement.

[jacoavlu]

I'm not saying the OP should choose Roth but if you expect your marginal rate in retirement to be about the same as it is now, that's one factor that tilts in favor of Roth.

I agree that hardly anyone has a marginal tax in retirement of 50%, but I don't know what the OP expects to earn in retirement.

to be clear it's about the marginal rate at the time of Roth conversion, not strictly in retirement.

[Peds]

but if you expect your marginal rate in retirement to be about the same as it is now, that's one factor that tilts in favor of Roth.

it does not. this ignores the progressive rate of RMDs in retirement vs pure marginal conversion at this time.

[xraygoggles]

First, that’s historically inaccurate. Federal income tax wasn’t a thing for nearly the first century of our country.

Are you sure it's inaccurate? See chart below, taken from Tax Policy Center, a non-partisan think tank from DC. Today is the lower end of marginal rates, historically speaking. Given that, it's more likely that it will increase from here, rather than decrease. That was my thinking.

(Of course if you include the period before there was any federal income tax, that's not really a fair comparison, since that's never going to happen again.)

[xraygoggles]

I really don't know about retirement RMD and my tax situation at that time, since it's so far away. There's no way to even guess.

I just wanted to know if anyone was hedging against future tax hikes, which seem more likely than not. Sounds like most are not, but I may still consider it, at least for a portion of my retirement savings.

[CordMcNally]

Are you sure it's inaccurate? See chart below, taken from Tax Policy Center, a non-partisan think tank from DC. Today is the lower end of marginal rates, historically speaking. Given that, it's more likely that it will increase from here, rather than decrease. That was my thinking.

(Of course if you include the period before there was any federal income tax, that's not really a fair comparison, since that's never going to happen again.)

There just isn't going to be an appetite for having ridiculous marginal tax brackets for the income that most physicians make in the future. You may start finding some support at the 7 figure mark and increasing support into the 8 and 9 figure income amounts but not where most physicians are at now. I love to think that I'll come up with some ridiculously smart business idea and spend my days Scrooge McDuckin' but I'm not betting my money on that. I'm taking the smart bet now. If I end up being wrong on that bet then that means I'll be in an even *better* financial position than I was predicting, which is already pretty rosy.

[G]

Are you sure it's inaccurate? See chart below, taken from Tax Policy Center, a non-partisan think tank from DC. Today is the lower end of marginal rates, historically speaking. Given that, it's more likely that it will increase from here, rather than decrease. That was my thinking.

(Of course if you include the period before there was any federal income tax, that's not really a fair comparison, since that's never going to happen again.)

I don't have a reference on-hand, but that chart only gives part of the picture--it is more important to determine what people actually paid than a chart of the top brackets.

I anticipate a RMD problem, so if 1) I take no action and 2) brackets stay the same, I will likely end up in a higher bracket at retirement than I am not at part-time. but those are two significant issues, one of which I have direct control for a decade or two before my first RMD.

for sure, plenty of folks are doing Roth as a hedge.

if there is a blue wave next week (month?), I will probably throw the dice and put in employee contribution as Roth in 2021.