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Roth 401k?

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  • abds
    replied
    Very rough back of napkin calculations...

    You make $1.2M.
    Federal taxes could be as high as $380k.
    State taxes could be up to $120k?
    You save $250k.

    Are you spending $450k annually? More? Does this include paying off massive student loans or is this number high because of the 529 super-funding, either of which will instead go toward savings in future years? If the answer to that last part is "no," then I would argue perhaps you should be saving more money.

    But that's not what you asked... so in my opinion the breakdown of tax-deferred, Roth, and taxable is important, and calculate what those balances might be in the future.

    For example if that 1.2M was on one income and a single 401k was your only tax deferred option, your numbers might be tax-deferred $61k, Roth $12k, and taxable $175k annually. I assume your numbers are quite different than that though, with a large amount in tax-deferred and very little in taxable. So what's the breakdown?

    Leave a comment:


  • bovie
    replied
    Originally posted by ImpalerMD View Post
    The wife and I make a combined 1.2M gross. Our savings rate on that 22%. We are in our late 30s with 2 children (both under 2, with total 200K superfunded into 529s thanks for our contributions and family members). We max our 401ks and 457bs, backdoor Roths, HSA, the rest goes into taxable. I’m “worried” that our savings rate is high enough that we should contribute at least some to the Roth 401k option due to this high savings rate. I know this is all based on a lot of assumptions and read the blog posts about this as well, but what are some other factors to consider here?
    Honestly, I think your savings rate is low for your income, not high.

    Would help to know your spending, and plans for the next 20-30 years.

    Regardless, I don't see much benefit to going with Roth 401(k) at your current tax bracket. The vast majority of your money will be in taxable brokerage, which affords the greatest flexibility and is taxed at a comparatively low rate.

    Take the tax deduction for traditional 401(k), and consider Roth conversions down the line when you're in a lower bracket.

    Leave a comment:


  • Notsobad
    replied
    Roth 401k seems reasonable for you. Even though your tax bracket in retirement will likely go down. At least you will have some tax free money, plus a little relief from RMDs. However there just be some future marginal rate threshold above which it might not make sense.

    Leave a comment:


  • jfoxcpacfp
    replied
    Long-term tax planning, preferably some semblance of a financial plan or a financial checkup to get a long-term view and side-by-side scenario. You can always (at least, under today’s regs) make Roth conversions post-retirement, but, again, I wouldn’t recommend without some serious planning. You won’t get far beyond guesswork otherwise.

    The good news is that you’re going to be able to build a significant nest egg, regardless (unless you’re both planning to retire mid-40s or do something risky like skipping out on LTDI OO policies and b/c disabled). Income taxes may be a pain after retirement, but easily affordable at your current rate of earning & saving. Estate taxes, otoh, could be a different story.

    Leave a comment:


  • ImpalerMD
    started a topic Roth 401k?

    Roth 401k?

    The wife and I make a combined 1.2M gross. Our savings rate on that 22%. We are in our late 30s with 2 children (both under 2, with total 200K superfunded into 529s thanks for our contributions and family members). We max our 401ks and 457bs, backdoor Roths, HSA, the rest goes into taxable. I’m “worried” that our savings rate is high enough that we should contribute at least some to the Roth 401k option due to this high savings rate. I know this is all based on a lot of assumptions and read the blog posts about this as well, but what are some other factors to consider here?
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