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  • traditional or Roth 401(a)

    I know this has been discussed many times, and I'm still confused after reading through a bunch of posts.

    I'm enrolled in TSP, and can participate in a traditional or Roth 401(a), or combination of the 2.

    40% of all my money in retirement accounts is pre-tax, and 60% Roth. I didn't include my bank account or taxable account, because I'm not planning to use them for retirement.

    I'm usually in the 24-28% tax bracket, although rarely I'm in the 10% tax bracket. I need to save at least $5,182 pre-tax to avoid being in the 32% tax bracket, but normally I give enough to charity that it's not an issue.

    The government contributes one percent of my gross pay and matches up to four percent, which I believe are pre-tax.

    I have no idea what my tax bracket will be in retirement. I'd like to retire early, in 5 years, but would definitely like to be retired in 17 y.

    Should I put 100% of my 2021 401(a) in traditional, to try to increase my pre-tax portion of my retirement accounts and lower my 2021 taxes? I try to convert part of my pre-tax money to Roth in low income years, although I don't think TSP currently allows that.

    Thank you!

  • #2
    lot of confusion here. First, is it a 401(a) or a 401k or 403b? If it's a 401(a) your contributions are probably mandatory.

    Second, there's no 24-28% bracket. It's 24% and then 32%. So are you in 24%?

    Third, what your age and balances in pre-tax vs roth? Sounds like you're very heavy in roth, which is good and bad. What's your current marginal rate (state+fed)? you probably want to do a backdoor Roth IRA and then anything else in a 401k/403b/401a should be pre-tax but we need more information.

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    • #3
      Thanks, JBME!

      It's a 401(a).

      I was in the 24% tax bracket in 2018 and 2019.

      I have > $550K in Roth and $375K in traditional.

      My 2020 marginal rate is 41.3% (32% federal + 9.3% state).

      I typically do a backdoor Roth IRA.

      Thx!
      Last edited by Ju; 01-17-2021, 08:56 PM.

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      • #4
        given your marginal rate and the fact that you have much more in Roth than pre-tax, I'd contribute all but the backdoor Roth to pre-tax. Your marginal rate of 41% is very high and you're unlikely to be in that bracket when you retire unless you have a big pension. even still, I'd just do pre-tax

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        • #5
          Slam dunk for traditional

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          • #6
            To piggyback on the initial question. If you are in a high tax bracket early on in your career and there is a chance you will be in a lower bracket when you retire, does it still make sense to covert a traditional IRA to a backdoor Roth?

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            • #7
              Originally posted by qballin View Post
              To piggyback on the initial question. If you are in a high tax bracket early on in your career and there is a chance you will be in a lower bracket when you retire, does it still make sense to covert a traditional IRA to a backdoor Roth?
              A little confusion.
              Backdoor roth is a process using a Traditional IRA post tax contributions and converting them to a Roth IRA.

              The value of this is the earnings are not taxed. A relatively small Traditional IRA balance might be worth converting. The annual contribution ($6k) is limited but the earnings being tax free for a number of years might make it worth while.
              Preferable to rollover to another pretax account (401k,403b).
              Pay higher tax rate to open the door to tax free earnings.

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