Should I max out my pre-tax retirement options?

[Anonymous]

Anonymous wrote:Just to be clear, you don't have any pre-tax retirement options because you are already maxing out your 401ks with after-tax funds, and your income is too high to contribute directly to an IRA. Your only option would be switch your contributions from Roth 401k to Regular 401k, but that is not saving additional money. As others have mentioned, the only way to put additional money in tax-advantaged accounts is doing the Backdoor Roth.

Well, switching those $41K contributions to pre-tax would generate a tax savings of about $12,200 (24% marginal federal tax plus 5.75% (assuming VA)). All they need is an additional $800 to fund two backdoor Roths. This way, the ARE saving additional money (for now).

[Anonymous]

Why are people saying backdooor Roth is $7k?

If you have a $20K 401k and a $10k employer match, backdoor Roth from post -tax 401k is $30K.


Is it different for 403b/government?

[Anonymous]

Anonymous wrote:

Anonymous wrote:40yo gov worker married to a 45yo gov worker, with a combined hhi of $300k, 2 young kids. We're already maxing out our Roth retirement options ($20,500 for a 457 and 401k each in 2022). I have contributed zero dollars to my post tax accounts (which have a max limit of $6k/year). We don't need the money monthly so I won't miss the reduction from my paycheck, but is there any reason not to do this? The kids' 529s are also in good shape. Between our retirement accounts today, plus our pensions, I'm not worried about our retirement funds but still if I don't need the money today is it silly not to max out all of my retirement options? Or should I invest them into something more liquid?

At your income you should have done pre-tax before Roth. I mean, your decision there was kind of idiotic.

OP here. Our salaries only recently bumped way up. I was under the impression that if you expect income growth you were better off putting into a roth (pay taxes off of a lower base). I'm asking now because we just got really substantial raises - about $100K between the two of us. I realize now that I omitted this from my original posting. We're dealing with about $7K extra per month that we don't know how to allocate. We can of course reallocate our current monthly investments but we'd done the math and post-tax previously wasn't going to change our tax bracket. Now, it might.

[Anonymous]

OP here again -- I'm not a fed, and I'm not in the DC metro area. I'm genuinely not sure how that affects advice here. I'm lucky enough to have been comfortable enough with generational wealth and conservative enough in my own spending that I haven't had to think too hard about "the best" type of investment. Idiotic? Maybe, but I figure any savings is better than no savings.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:40yo gov worker married to a 45yo gov worker, with a combined hhi of $300k, 2 young kids. We're already maxing out our Roth retirement options ($20,500 for a 457 and 401k each in 2022). I have contributed zero dollars to my post tax accounts (which have a max limit of $6k/year). We don't need the money monthly so I won't miss the reduction from my paycheck, but is there any reason not to do this? The kids' 529s are also in good shape. Between our retirement accounts today, plus our pensions, I'm not worried about our retirement funds but still if I don't need the money today is it silly not to max out all of my retirement options? Or should I invest them into something more liquid?

At your income you should have done pre-tax before Roth. I mean, your decision there was kind of idiotic.

This. Roth here is glaring financial illiteracy. At your income, a traditional 401k is the ONLY way to contribute to a tax-deferred retirement vehicle (other than the HSA). Your retirement income will be far lower than your W-2 income during your wage earning years, so why lock in your tax rate at 24% now? As govvies you could have anywhere from 8 all the way up to 20-ish years between retiring and SS/RMDs to convert a boatload of pre-tax 401k/457 monies to Roth at a much lower tax rate.

Also the 2023 Roth IRA limit is $6500 now, but this doesn’t apply to you due to being over the income limits. Your only option is a back-door Roth. Personally, I wouldn’t even bother and would rather toss any extra funds into VTI 100% in a taxable brokerage account and call it a day.

NP here:
Huh? Why?

Backdoor Roth is getting funded with the same post-tax dollars as a taxable brokerage. Why would you impose taxes on yourself at some point in the future (i.e., invest in brokerage account)? That makes zero sense. If you have excess funds to put in a taxable brokerage, the first $6.5K should go in a backdoor Roth IRA. You'd be stupid not to do that. You can withdraw Roth principal contributions at any time without penalties or taxes, if you need the money for something.

The Roth IRA is so much more flexible and powerful than a brokerage account.

Well, a few things:

1. Taxable account can be accessed at any time for any purpose
2. Ability to do tax loss harvesting
3. If you earn less than $80k in retirement, there are no capital gains taxes

Two govt workers with approx. $150K each in salaries will probably have substantial pensions in retirement.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:40yo gov worker married to a 45yo gov worker, with a combined hhi of $300k, 2 young kids. We're already maxing out our Roth retirement options ($20,500 for a 457 and 401k each in 2022). I have contributed zero dollars to my post tax accounts (which have a max limit of $6k/year). We don't need the money monthly so I won't miss the reduction from my paycheck, but is there any reason not to do this? The kids' 529s are also in good shape. Between our retirement accounts today, plus our pensions, I'm not worried about our retirement funds but still if I don't need the money today is it silly not to max out all of my retirement options? Or should I invest them into something more liquid?

At your income you should have done pre-tax before Roth. I mean, your decision there was kind of idiotic.

This. Roth here is glaring financial illiteracy. At your income, a traditional 401k is the ONLY way to contribute to a tax-deferred retirement vehicle (other than the HSA). Your retirement income will be far lower than your W-2 income during your wage earning years, so why lock in your tax rate at 24% now? As govvies you could have anywhere from 8 all the way up to 20-ish years between retiring and SS/RMDs to convert a boatload of pre-tax 401k/457 monies to Roth at a much lower tax rate.

Also the 2023 Roth IRA limit is $6500 now, but this doesn’t apply to you due to being over the income limits. Your only option is a back-door Roth. Personally, I wouldn’t even bother and would rather toss any extra funds into VTI 100% in a taxable brokerage account and call it a day.

NP here:
Huh? Why?

Backdoor Roth is getting funded with the same post-tax dollars as a taxable brokerage. Why would you impose taxes on yourself at some point in the future (i.e., invest in brokerage account)? That makes zero sense. If you have excess funds to put in a taxable brokerage, the first $6.5K should go in a backdoor Roth IRA. You'd be stupid not to do that. You can withdraw Roth principal contributions at any time without penalties or taxes, if you need the money for something.

The Roth IRA is so much more flexible and powerful than a brokerage account.

Well, a few things:

1. Taxable account can be accessed at any time for any purpose
2. Ability to do tax loss harvesting
3. If you earn less than $80k in retirement, there are no capital gains taxes

Two govt workers with approx. $150K each in salaries will probably have substantial pensions in retirement.

Yes, we're anticipating pensions at 50% of our highest annual salaries, which may be where we're at currently.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:40yo gov worker married to a 45yo gov worker, with a combined hhi of $300k, 2 young kids. We're already maxing out our Roth retirement options ($20,500 for a 457 and 401k each in 2022). I have contributed zero dollars to my post tax accounts (which have a max limit of $6k/year). We don't need the money monthly so I won't miss the reduction from my paycheck, but is there any reason not to do this? The kids' 529s are also in good shape. Between our retirement accounts today, plus our pensions, I'm not worried about our retirement funds but still if I don't need the money today is it silly not to max out all of my retirement options? Or should I invest them into something more liquid?

At your income you should have done pre-tax before Roth. I mean, your decision there was kind of idiotic.

This. Roth here is glaring financial illiteracy. At your income, a traditional 401k is the ONLY way to contribute to a tax-deferred retirement vehicle (other than the HSA). Your retirement income will be far lower than your W-2 income during your wage earning years, so why lock in your tax rate at 24% now? As govvies you could have anywhere from 8 all the way up to 20-ish years between retiring and SS/RMDs to convert a boatload of pre-tax 401k/457 monies to Roth at a much lower tax rate.

Also the 2023 Roth IRA limit is $6500 now, but this doesn’t apply to you due to being over the income limits. Your only option is a back-door Roth. Personally, I wouldn’t even bother and would rather toss any extra funds into VTI 100% in a taxable brokerage account and call it a day.

NP here:
Huh? Why?

Backdoor Roth is getting funded with the same post-tax dollars as a taxable brokerage. Why would you impose taxes on yourself at some point in the future (i.e., invest in brokerage account)? That makes zero sense. If you have excess funds to put in a taxable brokerage, the first $6.5K should go in a backdoor Roth IRA. You'd be stupid not to do that. You can withdraw Roth principal contributions at any time without penalties or taxes, if you need the money for something.

The Roth IRA is so much more flexible and powerful than a brokerage account.

Well, a few things:

1. Taxable account can be accessed at any time for any purpose
2. Ability to do tax loss harvesting
3. If you earn less than $80k in retirement, there are no capital gains taxes

Two govt workers with approx. $150K each in salaries will probably have substantial pensions in retirement.

Yes, we're anticipating pensions at 50% of our highest annual salaries, which may be where we're at currently.

I think you should at least continue to do the Roth's while the trump tax cuts have the 24% bracket extended so far. Pensions will limit your ability to do substantial Roth conversions when you retire and also an inheritance would further complicate matters if that is a possibility.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:40yo gov worker married to a 45yo gov worker, with a combined hhi of $300k, 2 young kids. We're already maxing out our Roth retirement options ($20,500 for a 457 and 401k each in 2022). I have contributed zero dollars to my post tax accounts (which have a max limit of $6k/year). We don't need the money monthly so I won't miss the reduction from my paycheck, but is there any reason not to do this? The kids' 529s are also in good shape. Between our retirement accounts today, plus our pensions, I'm not worried about our retirement funds but still if I don't need the money today is it silly not to max out all of my retirement options? Or should I invest them into something more liquid?

At your income you should have done pre-tax before Roth. I mean, your decision there was kind of idiotic.

This. Roth here is glaring financial illiteracy. At your income, a traditional 401k is the ONLY way to contribute to a tax-deferred retirement vehicle (other than the HSA). Your retirement income will be far lower than your W-2 income during your wage earning years, so why lock in your tax rate at 24% now? As govvies you could have anywhere from 8 all the way up to 20-ish years between retiring and SS/RMDs to convert a boatload of pre-tax 401k/457 monies to Roth at a much lower tax rate.

Also the 2023 Roth IRA limit is $6500 now, but this doesn’t apply to you due to being over the income limits. Your only option is a back-door Roth. Personally, I wouldn’t even bother and would rather toss any extra funds into VTI 100% in a taxable brokerage account and call it a day.

NP here:
Huh? Why?

Backdoor Roth is getting funded with the same post-tax dollars as a taxable brokerage. Why would you impose taxes on yourself at some point in the future (i.e., invest in brokerage account)? That makes zero sense. If you have excess funds to put in a taxable brokerage, the first $6.5K should go in a backdoor Roth IRA. You'd be stupid not to do that. You can withdraw Roth principal contributions at any time without penalties or taxes, if you need the money for something.

The Roth IRA is so much more flexible and powerful than a brokerage account.

Well, a few things:

1. Taxable account can be accessed at any time for any purpose
2. Ability to do tax loss harvesting
3. If you earn less than $80k in retirement, there are no capital gains taxes

Two govt workers with approx. $150K each in salaries will probably have substantial pensions in retirement.

Yes, we're anticipating pensions at 50% of our highest annual salaries, which may be where we're at currently.

I think you should at least continue to do the Roth's while the trump tax cuts have the 24% bracket extended so far. Pensions will limit your ability to do substantial Roth conversions when you retire and also an inheritance would further complicate matters if that is a possibility.

+1
Ignore the Roth hater. Tax laws will inevitably change and it's a good idea to have flexibility that comes with owning a taxable, Roth, and IRA/401k account.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:40yo gov worker married to a 45yo gov worker, with a combined hhi of $300k, 2 young kids. We're already maxing out our Roth retirement options ($20,500 for a 457 and 401k each in 2022). I have contributed zero dollars to my post tax accounts (which have a max limit of $6k/year). We don't need the money monthly so I won't miss the reduction from my paycheck, but is there any reason not to do this? The kids' 529s are also in good shape. Between our retirement accounts today, plus our pensions, I'm not worried about our retirement funds but still if I don't need the money today is it silly not to max out all of my retirement options? Or should I invest them into something more liquid?

At your income you should have done pre-tax before Roth. I mean, your decision there was kind of idiotic.

OP here. Our salaries only recently bumped way up. I was under the impression that if you expect income growth you were better off putting into a roth (pay taxes off of a lower base). I'm asking now because we just got really substantial raises - about $100K between the two of us. I realize now that I omitted this from my original posting. We're dealing with about $7K extra per month that we don't know how to allocate. We can of course reallocate our current monthly investments but we'd done the math and post-tax previously wasn't going to change our tax bracket. Now, it might.

Based on your income, you will be paying 24% of your marginal dollar of income plus state tax if any. Assuming 6% state tax, you are paying 30% on your last dollar. I say take that 30% now and worry about taxes in retirement later. Even if you were in the same tax bracket in retirement, you may retire to a lower tax/no tax state saving on state tax. Everyone expects taxes to go up but I don't think that's likely. Democrats will never have the 2/3 majority in the senate to make that happen.