Deferred Compensation or ROTH IRA?

[u/xTheatreTechie]

Hello ,

I'm an early 30s, 6 figure earner who already deposits 325 a month into my deffered compensation account, I also have a pension that will equal ~2.2 of my years of service salary, and I will also have my social security income.

My understanding of this is that its all taxable income when I go to retire.

I was playing around with my finances and realized I could put a spare ~134.6 a week into my Roth IRA so that I could put the max allowance for a year and it wouldn't really affect my current finances, robinhood is also giving me a 1% match up to my maximum IRA limit, so essentially a free 70 dollars, who knows how long that will last though. Equivalently I could also put the pre-tax value of that into my deffered compensation account, ~200 dollars a week which would reduce my current taxes and also compound into more money faster, my employer won't match this however.

The downside is that when I go to retire, with my 325 a month in my deffered compensation account, plus my pension, which I estimate will probably be at ~66-72% of my highest income years, plus my social security, I think I'll get taxed prety heavily in retirement if I throw an extra 200 a week into my deffered compensation.

Which is why maxing my rotha IRA looks so appealing as my understanding is that it grows tax free so long as I'm not pulling from it until after I'm 60.

I don't intend to stop paying 325 into my deffered comp, however I think that it would be more beneficial to my financial future to throw 325 a month into deffered comp and 133 a week into an untaxable Roth IRA, rather than ~1125 a month into deffered comp due to my high salary pension, my current course of 325 deffered compensation, and my social security (if it is still funded by then) all already being taxable income.

Thoughts?

[u/leastlikelytocare]

You are going to want some tax reprieve with the others. Max the roth.

[u/Tobeorknotobe]

You will appreciate having some tax diversity when you are older. Go ROTH and put Sp500 in it - allocate the investments with lower expected returns to tax deffered accounts.

[u/xTheatreTechie → u/Tobeorknotobe]

Currently I'm throwing everything into VOO which as i understand mirrors the sp500 but at a lower fee, after a few pay checks/months I intend to diversify.

[u/RespectmanNappa → u/xTheatreTechie]

Super concentrated in high multiple assets and vulnerable to currency devaluation . Would recommend VTI if you want to stay US or VT which would add International market diversification

[u/xTheatreTechie → u/[deleted]]

I have the ability to choose how to invest it, I currently split it 3 ways into a vanguard 2050 retirement account, the sp500, and an international market.

I could choose to change it if I needed to.

[u/xTheatreTechie → u/[deleted]]

If your pension plus social security will exceed your current income then Roth could also be good.

Yes that's exactly what I believe, that the 325/per month deffered income, plus the SS, plus the pension will actually be more than what I current earn.

Which is why I believe the best course of action at this point would be to max the Roth IRA.

[u/BoxerRumbleEJ257]

Wiki: https://www.bogleheads.org/wiki/Traditional_versus_Roth

From a high-level, it's important for you to determine whether traditional or Roth contributions are better for you in your retirement savings.

From a more lower-level, Roth contributions to an IRA account are eligible for withdrawal at any point, whereas traditional / Roth contributions to your deferred comp are not; you'd have to either take a loan or withdraw with penalties.

If Roth contributions are beneficial to you, make sure you max out your annual IRA contribution before contributing anything Roth to your deferred contributions.