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Retirement split- pre tax , post tax

Home Retirement Accounts Retirement split- pre tax , post tax

  • Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2123
    Joined: 09/18/2018

    AGI ~ $500k single age 34.
    Option to choose pretax or Roth or split.
    Hate to give up 30% + tax.
    Hate to give up tax free growth.

    -If you expect your retirement tax bracket to be higher, go for the Roth.
    -If you expect your retirement tax bracket to be lower*, go for the traditional IRA/401(k).
    -If you have no idea, do some of both.

    No reason to believe the tax savings would be invested.
    No idea the retirement tax bracket.
    Significantly larger pretax savings in other plans.

    I can see great value in having a sizable Roth to have tax neutral funds available from 60-70 to manage cash vs taxable income until RMD’s start.

    Opinions?

    #214152 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 892
    Joined: 01/11/2017

    Pretax, not close

    Backdoor Roth

    Taxable

    Convert before RMDs begin

    #214154 Reply
    Liked by wa2106
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3614
    Joined: 01/08/2016

    You already know this answer tim…..

    #214162 Reply
    Liked by Lordosis
    Avatar Financial Naive MD 
    Participant
    Status: Physician
    Posts: 29
    Joined: 05/05/2019
    Earnest refinancing bonus

    An individual with 500K gross income is not eligible for Roth, I think.  IMO, if your current tax bracket is below 20%, converting traditional IRA to backdoor Roth may be reasonable.  Reason for <20% bracket is because we pay 20% tax on long-term capital gains, if we put money from tax saving (pretax) into long-term investments. Having income producing properties or dividend producing stocks during retirement may be a better alternative than having Roth, if we have to pay 30%+ tax upfront.

    #214166 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2123
    Joined: 09/18/2018

    “You already know this answer ”

    Yeah but…. this time it’s different (typical).
    Roth is so much more appreciated by the those that inherit. Kitces is pretty good.
    https://www.kitces.com/blog/non-spouse-beneficiary-stretch-of-inherited-ira-and-401k-or-403b-employer-retirement-plans/
    Guess they will just have to figure it out later.

    #214170 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 793
    Joined: 02/11/2019

    If the person in question is a bad saver then Roth is a way to sneak more money away that might be less noticeable to them. If they do not invest the tax savings that is. But someone with that income would likely need a taxable account to save enough assuming they spend proportionally.

    “Never let your sense of morals prevent you from doing what is right.”

    #214175 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 1848
    Joined: 03/01/2018

    To be clear that’s 35% and approaching 37% federal tax bracket territory, plus state. Choosing Roth when pretax is available makes no sense to me in that situation.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #214177 Reply
    Liked by Peds, Tim
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2123
    Joined: 09/18/2018

    Two other pretax and an employer 8.5% contribution accounts and a Backdoor Roth. The numbers say pretax.
    Until student loans are gone, can’t see any significant taxable from each paycheck. No state.
    Thanks.

    #214180 Reply

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