Another question here on the issue of contributing to Roth vs. Pre-Tax 401k. Trying to decide how to adjust my (and my wife's) allocations, searched a ton on this forum/online, and still having a tough time of it. We are mid-30's professionals with combined income in the 32% bracket.
Early in my career it seemed obvious to do Roth - I'd probably make a lot more in the future or in retirement than I did then. As I moved up in income and experience, pre-tax seemed to make a lot more sense. I figured then that I was probably making more than I would in a theoretical early retirement scenario, so I switched to all pre-tax. That was 5-8 years ago, and since I began contributing more then and maxing out the 401k, pre-tax has become about 90% of my portfolio.
Today things seem a little less clear. We've done better I think than either of us would've expected, we are at low 7 figures in investments and contribute ~$100-150k per year to our investments. With 15-20+ years left in our careers, it looks like the Roth option, even if still at a 32% rate, might be better to save much more money in the future in taxes. Should the market continue to clip ahead even at an OK return, and if tax rates move up even a little, the Roth seems like a smarter play. Not to mention my analysis usually doesn't include SS income at all, which would push the retirement tax rate up further. And finally, and what I find a bit confusing is that usually discussions of roth/pre-tax never mention capital gains rates, but rather just compare across income tax brackets. In a roth scenario, aren't you paying income tax today, in lieu of paying capital gains taxes tomorrow?
Am I overthinking this here? Is it just smarter to go 50/50 roth/pre-tax, and move on with my life? Been going back and forth on this for the past week before I adjust any contributions.
Early in my career it seemed obvious to do Roth - I'd probably make a lot more in the future or in retirement than I did then. As I moved up in income and experience, pre-tax seemed to make a lot more sense. I figured then that I was probably making more than I would in a theoretical early retirement scenario, so I switched to all pre-tax. That was 5-8 years ago, and since I began contributing more then and maxing out the 401k, pre-tax has become about 90% of my portfolio.
Today things seem a little less clear. We've done better I think than either of us would've expected, we are at low 7 figures in investments and contribute ~$100-150k per year to our investments. With 15-20+ years left in our careers, it looks like the Roth option, even if still at a 32% rate, might be better to save much more money in the future in taxes. Should the market continue to clip ahead even at an OK return, and if tax rates move up even a little, the Roth seems like a smarter play. Not to mention my analysis usually doesn't include SS income at all, which would push the retirement tax rate up further. And finally, and what I find a bit confusing is that usually discussions of roth/pre-tax never mention capital gains rates, but rather just compare across income tax brackets. In a roth scenario, aren't you paying income tax today, in lieu of paying capital gains taxes tomorrow?
Am I overthinking this here? Is it just smarter to go 50/50 roth/pre-tax, and move on with my life? Been going back and forth on this for the past week before I adjust any contributions.
Statistics: Posted by bogwrangler7 — Wed Mar 27, 2024 10:27 am — Replies 5 — Views 199