Traditional vs Roth 401k?

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OldSport
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Traditional vs Roth 401k?

Post by OldSport »

My company offers both a traditional and Roth 401k option. My DW only has a traditional 401k option. Im trying to decide if I should go Roth 401k, traditional 401k, or some combo of both. I'm not sure how to decide. Can afford to contribute to max both mine and DW either way.

We make too much to directly contribute to a Roth IRA and have both been using backdoor Roth for years.

However if I contribute 100% Roth 401k, there is a chance we may be subject to NIIT. If I do at least 25% traditional 401k should put below NIIT threshold.
KlangFool
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Re: Traditional vs Roth 401k?

Post by KlangFool »

OldSport wrote: Sun Dec 05, 2021 6:38 pm My company offers both a traditional and Roth 401k option. My DW only has a traditional 401k option. Im trying to decide if I should go Roth 401k, traditional 401k, or some combo of both. I'm not sure how to decide. Can afford to contribute to max both mine and DW either way.

We make too much to directly contribute to a Roth IRA and have both been using backdoor Roth for years.

However if I contribute 100% Roth 401k, there is a chance we may be subject to NIIT. If I do at least 25% traditional 401k should put below NIIT threshold.
OldSport,

You make too much money for Roth 401K to make any sense. You should max up your Trad 401K.

How much money do you have in your Trad 401K?

What is your marginal tax rate?

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pizzy
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Re: Traditional vs Roth 401k?

Post by pizzy »

Traditional.
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willthrill81
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Re: Traditional vs Roth 401k?

Post by willthrill81 »

Unless you have a substantial pension, are in the 12% or lower federal bracket, and/or already have in excess of at least $1m in tax-deferred accounts, traditional 401(k) contributions are very likely to be better for you than Roth.
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OldSport
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Re: Traditional vs Roth 401k?

Post by OldSport »

We are MFJ in 24% tax bracket. Roughly $500k in aggregate pretax traditional 401k accounts. Also max HSA.
Topic Author
OldSport
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Re: Traditional vs Roth 401k?

Post by OldSport »

Truly I am quite upset that 2021 may be last opportunity for backdoor Roth. That really hurts.
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willthrill81
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Re: Traditional vs Roth 401k?

Post by willthrill81 »

OldSport wrote: Sun Dec 05, 2021 6:58 pm We are MFJ in 24% tax bracket. Roughly $500k in aggregate pretax traditional 401k accounts. Also max HSA.
Unless you or your spouse will get a pension, stick with traditional 401(k) contributions.
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MattB
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Re: Traditional vs Roth 401k?

Post by MattB »

OldSport wrote: Sun Dec 05, 2021 7:01 pm Truly I am quite upset that 2021 may be last opportunity for backdoor Roth. That really hurts.
It does.

That said, the advice you were given to continue contributing to a regular 401k remains sound. The benefits of tax deferral should, in all likelihood, outweigh the benefits of paying taxes now.
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OldSport
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Re: Traditional vs Roth 401k?

Post by OldSport »

As of now, both our companies offer "pensions", but they are more small token pensions that supplement, nothing close to funding a primary retirement. We could take lump sum at retirement, probably a few hundred thousand. If we take as pension, I'm predicted to get $2k/month and spouse is predicted to get $1k/month, but no guarantee we will retire from those companies or if they will be fully funded when we retire. Its a "nice to have" bonus, but we are not counting on it. Same with social security.
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ruralavalon
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Re: Traditional vs Roth 401k?

Post by ruralavalon »

What are your ages? About how long until expected re retirement?


OldSport wrote: Sun Dec 05, 2021 6:38 pm My company offers both a traditional and Roth 401k option. My DW only has a traditional 401k option. Im trying to decide if I should go Roth 401k, traditional 401k, or some combo of both. I'm not sure how to decide. Can afford to contribute to max both mine and DW either way.

We make too much to directly contribute to a Roth IRA and have both been using backdoor Roth for years.

However if I contribute 100% Roth 401k, there is a chance we may be subject to NIIT. If I do at least 25% traditional 401k should put below NIIT threshold.
OldSport wrote: Sun Dec 05, 2021 6:58 pm We are MFJ in 24% tax bracket. Roughly $500k in aggregate pretax traditional 401k accounts. Also max HSA.
OldSport wrote: Sun Dec 05, 2021 11:18 pm As of now, both our companies offer "pensions", but they are more small token pensions that supplement, nothing close to funding a primary retirement. We could take lump sum at retirement, probably a few hundred thousand. If we take as pension, I'm predicted to get $2k/month and spouse is predicted to get $1k/month, but no guarantee we will retire from those companies or if they will be fully funded when we retire. Its a "nice to have" bonus, but we are not counting on it. Same with social security.
Because you can afford to make maximum annual 401k contributions even if you make Roth 401k contributions, my guess is that Roth 401k contributions or your mix of 25% traditional/75% Roth may be best.

TFB blog posts:
1) "The Case Against Roth 401(k)";
2) "Most TSP Participants Should Switch To the Roth TSP"; and
3) "Roth 401(k) for People Who Contribute the Max".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
VanGar+Goyle
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Re: Traditional vs Roth 401k?

Post by VanGar+Goyle »

OldSport wrote: Sun Dec 05, 2021 7:01 pm Truly I am quite upset that 2021 may be last opportunity for backdoor Roth. That really hurts.
I am often upset by imagined possible insults and potential problems,
but am starting to try to not let things that I can not change affect me that way.
Perhaps you can contact your Senator this week, and your Representative next week.
Organizing bogleheads to march to Washington in bad weather seems optimistic :)


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