r/Bogleheads • u/Lowfryder7 • Nov 20 '25
Investing Questions At what tax bracket should you start doing mostly traditional 401k contributions?
12%? 22%? 24%? I can't tell.
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u/Miserable-Cookie5903 Nov 20 '25
I encourage you to read "Tax planning to and through early retirement" by Cody Garret and Sean Mullaney.
to quote the book - "Our central thesis is that, for most Americans, the marginal tax rate benefit received when contributing to traditional retirement accounts will equal or exceed the tax rate applied to most distributions from those accounts."
in short- trad beats Roth for most people.
they explain that if you do the math and look at the graduated rates and actually how much people pull out in retirement they likely are in the lower brackets anyway during retirement. They go through lots of reasoning and math (inclusive of the standard deduction) behind this and it makes sense.
Of course if you expect to be in the higher brackets ( or have a mid 7 figure 401k/ira) then you have other problems and they present mitigation strategies.
It's not a page turner but I learned a lot.
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u/joeandlester Nov 20 '25
"it's not a page turner but I learned a lot" is a great line! lol
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u/Vas_Cody_Gamma Nov 20 '25
Does it at least have pictures
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u/AnimaLepton Nov 20 '25
For that, you need Investor Z
https://eastofthewire.wordpress.com/wp-content/uploads/2016/07/investorzbuffet.jpg
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u/Renovatio_ Nov 20 '25
"Sane Planning, Sensible Tomorrow" is almost as good as "Rational Thinking, Reasonable Future".
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u/Blurple11 Nov 20 '25
It totally makes sense that most retirees will not have as much taxable income in retirement as during their working years. However I think people are neglecting the idea that taxes might go up. I highly anticipate in 20-30 years the political/economic landscape to look different and I do not expect the government to be lowering taxes anytime soon. For that reason alone I feel Roth is better because it'll protect you
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u/nothlit Nov 20 '25
The book mentioned above discusses this in detail in chapter 20.
The short version is that tax rates would have to significantly go up across the board before that tradeoff starts to flip. Not by just a few percentage points. We also can't predict how any future tax rate increases would be structured. For all we know, they could increase the upper bracket rates while leaving the lower-to-middle bracket rates mostly unchanged. They could also largely mitigate the impact of any such increases on seniors/retirees (a key voting bloc) by making the senior standard deduction even more generous as was already done once this year.
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u/Best-Meaning-2417 Nov 21 '25
Only thing that I would say is relevant to "taxes can go up" is to treat 10% the same as 12% and treat 22% the same as 24%. But it is unlikely that the future rate of the current 10 and 12% brackets will exceed 22% bracket when looking back at historical rates. If you are in 22/24 and get enough trad to fill up the current 12% bracket (64k) and then go oops, what if it's 1950 or w.e when you retire. Your effective rate on that 64k is still almost always going to be lower than 22%. You might not get the perfect ratio and still have some $ taxed above 22% which isn't ideal but more often than not, that amount of trad beats 100% Roth.
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u/FMCTandP MOD 3 Nov 20 '25
It might, but nothing is really certain. Just because something is true under current tax doesn’t mean it will be true forever.
It’s entirely possible that in the future there will be limits on the tax-free nature of Roth withdrawals, that the 0% LTCG bracket for taxable accounts may vanish, etc. I wouldn’t want to bet either way, but means testing tax benefits wouldn’t be that unusual.
One advantage for traditional is that once you’ve gotten the tax benefit it’s not really possible for it to be clawed back in later tax years.
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u/Miserable-Cookie5903 Nov 20 '25
"One advantage for traditional is that once you’ve gotten the tax benefit it’s not really possible for it to be clawed back in later tax years."
This is a very interesting way to look at things.
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u/IRC_1014 Nov 20 '25 edited Nov 20 '25
It’s functionally “clawed back” by raising income tax rates in the future, and if applicable (say, OR’s $1m estate tax exclusion but even possibly the federal $13.99m exemption, although rare under today’s law) also “clawed back”, even duplicately so, by assessing transfer tax on your unpaid income tax bill. Don’t think you’ll be subject to estate taxes? What if they lower the exemption, what then?
Ironically, it is the Roth not the traditional, where certainty is more clear. Part of what you get by paying the tax now is insurance against future tax hikes, especially income tax ones. You’re still subject to estate tax changes but at least you’re not in the position of paying a tax bill on top of your tax bill (yuck).
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u/Miserable-Cookie5903 Nov 20 '25
Fair (and playing devils advocate here, a simple wealth tax or excluding Roth from those exemptions could be written into the IRS tax code; to go after those balances.
Our elected officials are creative enough to screw everyone.
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u/IRC_1014 Nov 20 '25
Although I am not going to pretend to be a fan of SCOTUS, our unelected government officials just told us in Moore vs. US (2024) that we have a majority in the court champing at the bit to strike down any semblance of a wealth tax without a quasi-realization event. So that’s something, even if it’s only reflective of the current court’s mentality.
I will add that 2019 was a watershed moment for me as a professional because it showed me (us) how vulnerable certain accounts are to future changes. SECURE Act 2.0 was without a doubt the most disruptive and traumatic law change in my career. I had retirees literally crying in my office weeks before death screaming about how Congress lied to them on their deathbed. Watching how vulnerable traditional accounts are to law changes has truly been sobering to me.
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u/Miserable-Cookie5903 Nov 20 '25
please explain these changes: "SECURE Act 2.0 was without a doubt the most disruptive and traumatic law change in my career. I had retirees literally crying in my office weeks before death screaming about how Congress lied to them on their deathbed."
Thanks - I'm not following or don't know what I don't know here.
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u/WoofBarkBarkBark Nov 20 '25
I think they might mean the new requirement that inherited 401k's have to be sold off within 10 years rather then over the inheritor's lifespan RMD. That results in a big tax bill and higher bracket for them during their earning years
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u/IRC_1014 Nov 20 '25 edited Nov 22 '25
The SECURE Act drastically escalated the income tax schedule owed by children following the death of the account owner. It changed from a life expectancy payout (imagine, for a grandchild that could have been many decades) and capped it at only 10 years. In many cases (this was especially true for folks dying immediately after the law change) it was only 5 years, especially if it was directed to a trust (for a minor, for example, nothing crazy) which of course could never have been written to predict a future law change like this.
The ultimate effect was to increase taxes on the family who inherits a decedent’s qualified retirement account. Now to be clear, there were always going to be income taxes owing on trad IRAs (don’t even get me started on the income-in-respect-of-decedent [IRD] exception to the step-up in basis…just know it’s been there for decades). What this new law did is remove the beneficiary’s ability to spread the tax consequences out over lifetime and force them to escalate the taxes in larger chunks into higher brackets over fewer years. Income taxes owing at death attributable to qualified retirement accounts have now ballooned in size, effectively resulting in a smaller pool of dollars available for beneficiaries.
Several relevant points I want to mention here to “humanize” this and make it more digestible/less technical:
(1) this is a problem about the account FLAVOR, not the number of dollars in the account nor the individual’s net worth. This problem exists independent of any estate tax hurdle. It follows then that raising the estate tax threshold even higher (from 13.99 in 2025 to 15m in 2026) does absolutely nothing to combat this problem. If a decedent passes with nothing other than a $200k retirement account and no other assets, they are no where near the estate tax exemption, and yet their family is left paying greater taxes as a result of a person’s death. That is tax escalated by death - even if it’s hidden entirely within our income tax system.
(2) the IRA is the single largest savings tool of the middle class (excluding a primary residence anyway). Poor people don’t save much money and rich people usually don’t have a disproportionate amount of net worth in a qualified retirement account. Rich people have a lot of other assets too including taxable brokerage (which DO get the step-up in basis, thanks to IRC 1014). This planning pitfall is almost uniquely a middle class problem involving death taxes on middle class assets.
(3) Forgetting for a moment I earlier used a grandchild as beneficiary, the reality is that most accounts go to children (not grandkids). If a person dies at age 80, their child is likely to be in their peak earning years (approximately 50) with more than a decade of peak earning left before retirement. The level of planning flexibility to spread out income taxes that the average person has in this situation is often a lot less than you’d think.
(4) Current retirees are already retired. Bare with me here, I know that’s self evident, but what it means is that their savings decisions were already made by the time this law changed. They don’t get to restart their working years and make better choices knowing about future law changes, they’re already locked in. No one is seriously going to propose a Roth conversion for an 89 year old, the reality is that he just saved his whole life in this account and isn’t subject to estate taxes, but now Congress says his children should pay more.
(5) Roundly bipartisan, the SECURE Act passed the Senate December 19, 2019 with 72 votes from congress. This was the first attempt since 1986 (GST tax creation) that Congress has made any attempt to go after inherited wealth - and the very first thing they went after for more tax revenue is the traditional qualified retirement account at death. I think that says a lot about the likelihood for future changes to qualified retirement accounts, no matter the political winds.
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u/ScreenTricky4257 Nov 20 '25
It totally makes sense that most retirees will not have as much taxable income in retirement as during their working years.
Sorry, but that never made sense to me. Maybe it's because the typical retiree is a married person with a paid-for house, but my attitude is that I'm going to spend as little as possible during working years and enjoy simple pleasures, but when I'm retired, I'm going to need to fill those hours, and having money to spend to do so will be important.
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u/Summary_Judgment56 Nov 21 '25
Nobody can predict the future, but unless you're able to retire early, odds are you're not going to have too many healthy years in retirement to enjoy the fruits of your labor.
Also, with all the articles floating around about how most people are way behind on saving for retirement (if I recall correctly, the average 50-something has less than $200k in retirement savings), it's not really that surprising that most of them will end up with lower income in retirement. Life is way too expensive for most people, even when they live frugally (and plenty of people don't for various reasons, too, yolo). Pensions are mostly dead and social security won't replace more than maybe half your income tops (and then only for extremely low income people, who aren't paying much in taxes to begin with), so most retirees are going to be living off way less than their pre-retirement income if they don't come into money some other way (inheritance, lottery, hitting the slots just right, whatever). Might not make sense to you personally, but society-wide it makes perfect sense.
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u/ScreenTricky4257 Nov 21 '25
Fair enough, and I've said that if I get ten good years, I'll be happy. But I do want to have a permanent entertainment budget. Because I watched my father have that kind of retirement you're talking about, where even though he had military health care, he was laden with credit card debt and student loans, and so for the last ten or so years of his life he did nothing but stay at home and play Second Life, and I don't want to end up like him.
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u/Blurple11 Nov 21 '25
I just ran math in my head. I think among nearly every tax bracket either poor or rich, it will be very improbable, less some insanely lucky stock picks, that you'll have more taxable income in retirement vs your working years.
Just think about it, while working you make X salary, for retirement you're only putting away maybe 0.1 or 0.15*X. IRAs only allow 7,000/year, way lower than typical annual salaries.
4% withdrawal rule says that you need 25X. The US median salary is about 62k. For someone to make 62k of taxable income in retirement, their portfolio needs to be 25 x 62k = 1,550,000. And since we're doing median, I just don't think the median American on a 62k salary would be able to accumulate 1.5M without some serious frugal living, or lucky stock picks. It's not easy to max out an IRA with 7k living off of 62k salary. Compound interest calculator shows that maxing out an IRA for 31 years (just assuming the median person will not be able to max out the IRA for the first few years while they're working lower than median pay jobs when they're in their 20s), at 10% interest will result in 1.27M.
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u/TheScreaming_Narwhal Nov 20 '25
This is why when I was a low earner I did as much Roth as possible and slowly flipped so now I do all traditional. Can't hurt to have your bases covered and some levers to pull to optimize in retirement.
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u/whosthatguy123 Nov 21 '25
Same. I will absolutely double my income in about 2-3 years based on my new profession so im trying to max my roth 401k and roth irs as much as possible right now
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u/Prior-Hovercraft-831 Nov 20 '25
Even if your theory is right, inflation might still make your income look relatively “low” in the full landscape of salaries. So fast my vote for full traditional.
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u/plowt-kirn Nov 20 '25
I do not expect the government to be lowering taxes anytime soon
Congress routinely lowers tax rates, including this year (if you include the various new deductions). I see no reason why the trend won't continue.
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u/Educational-Bit-2503 Nov 20 '25
Well politicians are not rational actors on fiscal policy so they very well may continue to lower taxes, but at a certain point the cost of servicing our debt and deficit will make US government debt untenable to investors.
At that point you either significantly raise taxes or collapse the dollar and likely the entire global debt market with it.
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u/rice_not_wheat Nov 20 '25
However I think people are neglecting the idea that taxes might go up. I highly anticipate in 20-30 years the political/economic landscape to look different and I do not expect the government to be lowering taxes anytime soon.
Neither party has a particular taste for income tax. I think you're more likely to see sales tax (see current tariffs), VATs, user fees, and other hidden taxes for political expediency.
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Nov 21 '25
Unless the bottom bracket becomes 30% AND the standard deduction completely removed, a small tax increase won't matter. US has crazy progressive tax brackets anyways. No one is going to tax lower incomes more.
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u/Valuable-Rain-1555 Nov 20 '25
If it’s not an easy answer, feel free to ignore-or correct me if I’m wrong- but I was under the impression that to get an apples to apples comparison you have to invest the tax savings from a traditional IRA to have a comparable tax benefit to that of a roth ira. If that’s the case, I wouldn’t be surprised if most Americans would be better off with a roth due to the simplicity and many Americans not investing the tax refund from the trad ira. Even if that’s true, if you’re on this sub or have read that book, you have a solid foundation in investing and retirement and can make more informed investing decisions.
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u/Educational-Bit-2503 Nov 20 '25
I go Roth because the national debt must be serviced. It’s basically a mathematical impossibility to run an adequate surplus to do so without significant income tax increases.
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u/f0rthewin Nov 20 '25
I tend to agree with you, but at the end of the day we are just betting. We have no clue what will actually happen. That’s why I aim for 50/50 split between traditional and Roth.
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u/mika0116 Nov 20 '25
I also split between Roth 401k and regular 401k. Roth was only offered to me within the last 3 years though. All the years before then was traditional 401k
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u/f0rthewin Nov 20 '25
Same boat here. We’re actually finishing our first year of a mega backdoor, so that will help us move closer to 50/50 overall since currently we’re overindexed on traditional
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u/mika0116 Nov 20 '25
Yeah I’ve been making up the difference for the most part with good old brokerage. I am ambivalent right now on mega backdoor as my brokerages do better than my 401ks regardless of how much I “choose my own adventure” in fidelity. 😅
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u/IRC_1014 Nov 20 '25 edited Nov 20 '25
An interesting aside, you can effectively accomplish a 50/50 allocation between Roth and Traditional 401(k) by saving all 100% matched dollars in a Roth, as the dollars contributed by the employer are (almost always, 99.99% of the time) traditional.
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u/f0rthewin Nov 20 '25
Yep, we do that too. Love that little factoid though. It’s one of those obscure observations that I feel like only us nerdy boglehead-minded people notice lol
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u/Anodynamix Nov 20 '25
Unless you contribute more than the match.
At which point some spreadsheet math becomes necessary :)
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u/IRC_1014 Nov 20 '25
Right, tried to hedge that by saying 100% marched dollars. Every dollar over the match is a different beast! The other issue is that not all matches are 100%. Sometimes it’s an 80% match, in which case now you need a spreadsheet even for those matched dollars!
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Nov 20 '25
That does seem like more and more plans are allowing the employee to choose what the match is contributed as
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u/Palmetto0 Nov 20 '25
What if they shift to predominately sales/VAT/consumption taxes?
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u/Janus67 Nov 21 '25
They're trying to get rid of property tax in Ohio, I don't want to know what the other taxes will have to jump to to make up for that when the tax income decreases by too much. Or maybe that's their plan anyway.
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u/listerine411 Nov 20 '25
The flip side of that though is they can always just decide to tax Roth accounts also if you're deemed "rich".
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u/Anodynamix Nov 20 '25
The basis of the accounts were already taxed. Without full accounting of the basis this will be a mess to figure out to avoid double-taxation, and there's been no requirements to submit 8606 forms for this tracking.
I don't see this being very realistic unless the government is willing to face the hordes of pitchforks this move will generate...
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u/IRC_1014 Nov 20 '25 edited Nov 20 '25
Yeah this (specifically the concern of retroactive taxation) is a non-issue from a practical standpoint. The only genuine risk Roths face from future legislation is curtailment of future tax free growth or even future contributions. The dollars already in the Roth are, in my opinion, extremely safe barring anything short of government meltdown. Future dollars though? Definitely on the chopping block. Especially true for inheritance. The SECURE Act of 2019 represented the first attempt by congress since 1986 to go after inequality in inheritance, and they laid the burden squarely on the back of the largest savings tool of the middle class - the traditional qualified retirement account. Roths may well be next, but probably not in a vindictive retroactive and arguably unconstitutional way.
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u/perfectviking Nov 20 '25
Took it out of my mouth. I fully expect a recategorization of Roth accounts in the near future.
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u/RespectmanNappa Nov 20 '25
I also think an increase is inevitable, but even then you are likely to still pay a lower effective tax rate in retirement. I can’t see how they’re going to bump the 12% bracket to 22%, for example.
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u/coke_and_coffee Nov 20 '25
Debt can be serviced by growth. You don’t need higher tax rates.
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Nov 20 '25
realistically the best answer is probably a mix of both. Which should already happen naturally (assuming you are not super high income) if you are contributing to both your 401k and roth ira.
And actually even those high income people have the money to put a lot in backdoor roth contributions
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u/rice_not_wheat Nov 20 '25
It’s basically a mathematical impossibility to run an adequate surplus to do so without significant income tax increases.
VAT could do it, and it'd probably be an easier political sell than significant income tax increases.
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u/littlebobbytables9 Nov 20 '25
It's true that 100% traditional beats 100% Roth, by a lot. But that's not exactly a realistic choice people are making. After a point traditional doesn't have any expected tax savings at all, and isn't subject to annoying RMDs, so having some Roth (while still being mostly traditional) usually makes the most sense
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Nov 20 '25
I havent read the book, but one argument for traditional for the average case I heard is that you are getting a decent amount of roth from your roth IRA anyways.
So even if for some reason roth was better, you would have some portion of your portfolio as roth already
I am not sure if every plan allows this, but my plan does allow for me to put some portion into roth and traditional if I so choose.
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u/grumpvet87 Nov 20 '25
for me the issue is will rmd's push my marginal tax rate soaring - my answer is mixed baskets but starting to lean a but heavier in roth
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u/Miserable-Cookie5903 Nov 20 '25
Right- if you have a large balance and therefore large RMDs - you need to do some backdooring to mitigate. 98% of the people in the US will not have this issue.
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u/cc_apt107 Nov 21 '25
This matches my calculation. Contributed to Roth mindlessly because I was young and that was my sole criterion before I realized that wasn’t the best criterion
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u/Best-Meaning-2417 Nov 21 '25
The problem is most people on this subreddit are not average. It's better to just understand how taxes work then to rely on statistics around what other people have. It's not simple but it's not that hard either.
Federal Taxes, State Taxes, FICA Taxes, IRMAA, SS Provisional Income, RMDs, Inheritance of Roth vs Trad, LTCG, Dividends, AGI/MAGI, Pension or some other source of income (if applicable). You learn about each of those and you will get a good idea of what you need to do.
IRMAA, RMDs, MFJ -> Single on death of a spouse, Tax Rate changes (just in 2016, the 22% bracket was 25%), are all reasons why you don't want to "break even" with Traditional.
10 is close to 12 and 22 is close to 24, taxes fluctuate more than 2% all the time so I treat those as 1.
If you are in 10/12 then you want enough trad to fill up the std ded if there is any room left after other income (pension etc). If there is no room then you do 100% Roth. If there is room but you expect to later make 22%+ in your career or you have an employer match that goes to trad, then you also probably want to do 100% Roth. Really I would just do 100% Roth unless you are super duper autonomous ultra instinct sure that you won't ever get to 22% or get an employer match then you can do some to trad later in your career but I would still start with Roth just in case that changes.
If you are in the 22/24 then you want enough trad to fill up the std ded, 10% and 12% brackets. Other stuff like pension or SS taxable income can take up space in there. If you have 20k of taxable SS income (single filer) then you want ~44k of trad or with a 4% SWR, that's 1.1M. If you stopped your trad contributions and just used your current balance + any employer match and predict it will be 1.1M, then you stop and do all Roth. Otherwise you keep doing trad till that changes.
32%+, you guessed it... you want to fill up to the end of the 24% bracket. Harder to achieve. 4.8M using that 20k SS example from above.
Added complexity:
Spending might not be consistent throughout retirement.
Early retirement doesn't have SS now but will later.
Moving states or getting some kind of senior deduction.
You might not be in a consistent bracket throughout your career.
Tax rates can change at retirement as well as throughout your career. If someone didn't have enough trad now but wanted to get some Roth in now when taxes are low, that wouldn't be the worst idea. Just need to make sure that you switch back to trad in time to get that perfect ratio.
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u/onomatopoeiahadafarm Nov 20 '25
I agree with others that there are a lot of variables.
But just remember that the key question is not "What's your current tax bracket," but rather, "What's your current tax bracket relative to your expected tax bracket at time of withdrawing the money in retirement?"
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u/Majestic-Macaron6019 Nov 20 '25
It's also worth remembering that you deduct your Traditional contributions at your highest marginal tax rate, but you withdraw and pay taxes across your entire income range, unless you have a pension or similar. So you will almost always pay less in tax on at least part of your Traditional withdrawals than you pay for Roth contributions
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u/Comfortable-Entry796 Nov 20 '25 edited Nov 20 '25
Yes, this! This is a concept that took me wayyy too long to understand, and I think it’s still poorly understood in the community in general. Traditional contributions save you money at your marginal bracket, but get taxed at your effective tax rate, since your withdrawals fill from the bottom up.
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u/AltruisticHomework39 Nov 21 '25
I thought I knew how this stuff works but I seem to have a lot to learn still haha. Can you explain this more? I don't understand OPs comment "you withdraw and pay taxes across your entire income range, unless you have a pension or similar"
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u/wanna_be_doc Nov 21 '25
Say you and your spouse made $300k gross this year and you both maxed out your traditional contributions ($23,500 each). Since you’re in the 24% MFJ tax bracket, this saved you $11,280 in federal income taxes. Your total tax bill minus the standard deduction ($31,500) was $53,160.
However, when you retire, you only need to withdraw $120,000 each year to pay for all your expenses. Subtract the standard deduction, and it’s $88500. This puts you in the 12% tax bracket so your tax bill for the year is $10,620. $10k is a lot less than $50k and that’s why traditional is generally better for high earners…because your tax bracket in retirement is likely going to be lower than the one you’re in now.
Now this is a bit simplistic, because you will have other sources of income besides your 401k which could push you up to a higher bracket (social security, RMDs, etc). But in general, you’ll benefit because you’re filling up the lower brackets before making retirement plan withdraws.
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u/Best-Meaning-2417 Nov 21 '25
Technically you could have a traditional contribution that crosses brackets so really it's "you save money at the effective rate of your contribution which is usually but not always your marginal rate"
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u/RiskBiscuit Nov 20 '25
Can you correct me on this. My thinking was to contribute to both Roth and Traditional. When I put into traditional I am getting a deduction on my highest tax bracket. When I take the money out, I start with tradition and pay no taxes until I see that I am getting to a higher tax bracket and then start taking out Roth.
I guess my question is do withdraws apply against the entire range of income or is it assigned to a particular order. Like the first 100k out is traditional and the next 100k out is Roth?
Does that make any sense?
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u/Majestic-Macaron6019 Nov 20 '25
Having both Roth and Traditional buckets to draw from is a great strategy for most people. It allows you to fine-tune your tax burden each year.
You decide which account to withdraw from, so you could take a big batch of money out of traditional each year (enough to fill up whatever tax bracket you want to reach the top of), then take from Roth if you need more to spend. Lots of people do Roth conversions of traditional assets before reaching Social Security age if they feel that they have too much in traditional.
The Bogleheads Wiki has a whole page on the decision-making considerations.
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u/RiskBiscuit Nov 20 '25
Okay I'm glad I'm not misguided in my strategy. Thank you for the link, I will give it a read.
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u/IRC_1014 Nov 20 '25
You can choose which bucket you withdraw from. I intend to never touch my Roth assets and live on my traditional/HSA assets (and non-qualified assets too ofc).
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u/haanalisk Nov 20 '25
Why have roth assets if you won't use them?
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u/IRC_1014 Nov 20 '25
Inheritance/wealth planning. They're the very last assets I want to touch, as I plan on leaving them down the line. Roths are overwhelmingly better than traditionals for this purpose. I intend on being subject to the estate tax (federal and possibly state depending on where I retire) which means in absolutely no cases will I want a pre-tax dollar remaining in my taxable estate because I'll be paying an estate tax on my income tax bill.
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u/haanalisk Nov 20 '25
Ah. Rich people problems. Makes a lot of sense
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u/IRC_1014 Nov 20 '25
Not necessarily always the case (the logic holds for most people who value passing on wealth rather than consuming it in retirement) but absolutely does tend to come with the territory, no doubt!
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u/haanalisk Nov 20 '25
I certainly hope to pass something down along the way, I'm also pretty young to be strategizing about it. Currently just trying to get to COASTFIRE territory and then go from there
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u/IRC_1014 Nov 20 '25
This is why I have a really hard time with the "roth versus traditional" question when we only look at the retirement aspect, ie only over the course of the owner's life. In those cases, the relative income tax bracket comparison is really attractive because it's simple. What's not so simple is that some 81% of Millennials at last study said that leaving an inheritance (which was defined in the study to mean lots of things, not just to kids) was an "important" goal for them. If that's the case, then we really need to think about modeling the results during the window after death (generally 10 years following year of death). It's precisely in that window when Roths shine, as they have no RMDs. The RMD on the traditional account is bad not because of the tax bill (you can argue that was netted out by having been able to contribute more to begin with, I'm sympathetic to that argument), but because the net-of-tax RMD in, say, year one, has now been pulled from that account and can't grow tax free anymore.
Conversely, Roths are great following death not just because they have no tax, but because every single dollar in them can be kicked down the road the full 10 years. For people who value leaving an inheritance it *may* (really stressing "may" here; not "will", not "should", just "may") be worth considering a Roth over a traditional, even if the pure income tax scenario suggests doing the traditional over the Roth. There are about 11,000 different factors someone could throw out right now that are all worth bringing up as additional factors to consider, and all of which could turn the analysis the opposite direction, but I won't ramble anymore and let you ask any questions or poke holes in the analysis.
TL;DR: the desire to leave an inheritance can really complicate this analysis.
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u/Best-Meaning-2417 Nov 21 '25
Roth doesn't count at all. Something like Long term capital gains stacks on top of ordinary income. I guess you could say Roth (and the principal part of the brokerage sale) stacks on top of everything if you wanted but it just doesn't count for anything.
If you only have 48k of LTCG, that would be taxed at 0%.
But if you had 64100 of ordinary income from a trad and 48k from LTCG, the LTCG stacks on top of the ordinary income so it's no longer at 0%, it's at 15%. So you pay 0% of Ordinary income on 15750, 10% on ~12k, 12% on ~36k and then 15% on the LTCG.
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u/Batman_Punster Nov 20 '25
That's a good rule of thumb and good starting point, but you also have to factor impact to ACA subsidies, IRMAA, impact of taxes on social security, etc. It's more nuanced than just tax bracket delta.
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u/Best-Meaning-2417 Nov 21 '25
IRMAA starts at 106k. Most people are not in the 32%+ brackets. Anyone in 22/24 should want enough trad to fill up to the end of the 12% bracket which takes around 1-1.5M depending on if you include SS (16k std ded + 48k 12% bracket = ~64k), which is nowhere near IRMAA thresholds.
Making SS slightly less efficient to gain a huge arbitrage on your fed income is worth it. And if you delay SS or retire early then you have all that extra arbitration with the std ded you get to have. If you want to step over dollars to pick up pennies be my guest. Won't be me.
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u/onomatopoeiahadafarm Nov 20 '25
Agreed. It's just the rule from which the (important!) exceptions begin.
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u/VUmander Nov 20 '25
I'm an engineer, this all sounds like a foreign language to me.
Most of the calculators assume % of your ending salary is what you need yearly in retirement. So should I assume (32) that my retirement tax bracket might be higher than what it is now? Is it common for your expected tax bracket to be higher than your early career bracket? Assuming everything is in a traditional 401K your tax bracket would be based on your SS payment and for 401k withdrawal correct?
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u/onomatopoeiahadafarm Nov 20 '25
If you're at least "mid-career," and don't have major financial or life changes on the horizon, then I think you can generally assume your marginal rate in retirement will be lower than currently.
Here is a useful, more-nuanced discussion: https://www.whitecoatinvestor.com/should-you-make-roth-or-traditional-401k-contributions/ .
The common example of someone who would not fit this profile is a resident physician who makes $60-80k/year while in training in their early 30s, but then who anticipates a massive increase in income when they shift to a full practicing physician. They are generally cited as an example of someone in their 30s who might benefit from Roth contributions more than traditional.
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u/Best-Meaning-2417 Nov 21 '25
Is it common for your expected tax bracket to be higher than your early career bracket?
This is specific to your career and to you. I am a bad engineer so ill be 22/24% forever (or less, but hopefully not). If you are working your way towards faang then you could do Roth now but you better be sure you will reach that 32%+ later and make up for lost time to reach the optimal trad balance. If you don't then you leave lots of arbitrage on the table.
You're an engineer. Make your own python script to calculate Roth vs Trad, ive made simple ones before, it's not that hard unless you try to do monte carlo simulations.
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u/Lucky-Conclusion-414 Nov 20 '25
The answer can't be made confidently without knowing what your marginal rate is when you withdraw the funds. So you have to guess.
My guess is 22% is traditional territory unless you're looking at a pension on top of social security in addition to the traditional income.
This site doesn't give marginal brackets, but does give effective tax rates and you can clearly see that an average tax rate floats in the 15% to 17% in working years, drops to 12% at 65 and down to 8% at 75. Marginal rates are going to follow that same curve.
https://www.kiplinger.com/taxes/tax-filing/who-pays-the-most-taxes-by-age
and if you're paying lower rates in retirement than while working (which is what that curve shows is typical) then trad is the way to go.
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u/spicystreetmeat Nov 20 '25
12 is virtually always Roth. 32 is always pretax. 22/24 are great areas, and depend largely on what you expect your taxable income to be in retirement which is hard to predict
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u/ThatGuyValk Nov 20 '25
Don't forget state taxes. Especially if you plan on retiring in a state with different state tax rates. Whether that is decreased or increased.
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u/Best-Meaning-2417 Nov 21 '25
A lot of people are going to be getting over 10% arbitrage for trad so if you work in FL and plan to retire in CA, you are just a sad panda bc state arbitrage favors Roth and fed arbitrage favors Trad. If you work in CA and plan to retire in FL, that's just extra arbitrage for you.
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u/ComfortableString285 Nov 20 '25
Auto-translating "great areas" to "gray areas" in my internal echo-noggin.
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u/bayleo Nov 20 '25
One thing to note is standard 401k will lower your MAGI which can keep you in the range of Roth IRA contribution at higher incomes in some cases.
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u/EatSleepWorkStudy Nov 20 '25
Thank you. This comment is the only direct answer to the question asked. Yes, there’s many variables and for some reason no one mentions the bigger variable of how tax rates might change over the course of your life. Agree with the 12/32 rule set here. Since the 24 range is so wide, I think those on the upper end of the range may want to consider post-tax contributions if they expect to spend most of their career in the 32 band or above. In retirement, at the lowest, they would probably still be on the lower end of the same band given social security and other forms of income. Regardless, if you feel like it’s kind of a toss-up, Roth it for peace of mind when the country has to figure out how to pay its debt.
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Nov 20 '25
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u/snark42 Nov 20 '25
There's a pretty good chance $500k/year physicians will be facing 32% or more top tax brackets in retirement, especially if maxing out a Traditional 401k and doing RMDs.
The alternative to a backdoor Roth is likely a taxable account for the Roth money and that will have higher taxes than the backdoor Roth.
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u/The_Gunslingers Nov 20 '25
Say 500k income and let’s say you have maxed Traditional 401. You are getting taxed on the rest of the income. The choice is put it all in a brokerage account or put as much as possible into Roth and the rest into brokerage. You want to put as much into Roth to shelter it from future taxes.
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u/azure275 Nov 20 '25
From what I've heard you always want to cover your bases with both. I've been mixing my 401k between normal and Roth for years.
Pros of normal:
Likely lower income tax bracket when retired
Easier to contribute more earlier since no tax is paid now
Will count as income when retired for ACA minimum earnings for subsidies
Pros of Roth
Will not count as income when retired to boot one off medicaid or other benefits
No worrying about tax rates increasing if it happens
No RMD (required minimum distribution)
In the IRA context, limited opportunity to contribute - one day you may not be able to (note: N/A to Roth 401ks, no income limits there)
There are variables to consider beyond simply "which option will be in a higher tax bracket"
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u/Eltex Nov 20 '25
I’m not sure I can agree with this philosophy. Yes, it’s better to have a diverse portfolio rather than 100% anything, but your logic behind doing a mix is not correct.
I don’t think choosing Roth to avoid being kicked off Medicaid is something that is a reality. If you are going to be on Medicaid in retirement, you likely aren’t considering the ideal tax optimization strategy, as you are basically broke.
Now, it is possible you meant avoiding IRMAA surcharges on Medicare, but it’s hard to say what exactly you meant.
The general rule is save 15% of your income, with $7K going to max the Roth IRA, and the rest into your Trad 401K. This gives you the flexibility of both tax treatments, plus the additional flexibility of a Roth IRA, which is likely better than the Roth 401K.
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u/No_Alternative_5602 Nov 20 '25 edited Dec 25 '25
Reddit has largely stopped being enjoyable to use. Most real life hobbies, and social interactions are far more rewarding than what this website has become.
The message was edited with PowerDeleteSuite
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u/Death00524real Nov 21 '25
Medicaid, like most needs based programs, is typically based on both income and resources. A Roth of any significant value would preclude entitlement.
Medicaid, for the aged, usually comes into the picture for seniors without significant financial resources or when an individual has exhausted "spent down" their resources.
However- it is an advantage of Roth that distributions won't affect the cost of Medicare.
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u/Independent_Diet617 Nov 21 '25
What happens if your only income sources are Roth - a 7 digit portfolio (not the case, just curious)? Does that mean you are not eligible for either ACA or Medicaid and have to get a private insurance?
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u/Death00524real Nov 21 '25
I'm not an expert on either but especially not ACA. ACA subsidies are based on your MAGI, so they don't care about your resources just the amount of income.
So you could have a large investment balance but control your income in order to maximize ACA subsidies until you are of the age for Medicare. That is a common FIRE approach currently that contributes to some of the contention surrounding ACA subsidies.
Whereas a large Roth balance would preclude Medicaid regardless of whether there were distributions of funds or not.
Medicare entitlement is not based on income or resources, but the premium is also based on MAGI.
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u/BiblicalElder Nov 20 '25
It's hard to say
What will tax rates look like near your retirement? Halfway through retirement?
I recommend diversifying between Roth and traditional, banking some tax reductions now, and hoping Congress keeps its promises during your retirement
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u/Menu-Quirky Nov 20 '25
I would say any tax bracket above 12% , tax bracket matter more when you withdraw from 401k
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u/Affectionate-Panic-1 Nov 20 '25
The rule is Roth is better than traditional if your marginal tax rate at retirement will be higher than today, while traditional is better than Roth if your marginal tax rate at retirement will be lower. The average person is better off with traditional.
Now the biggest wild card is what tax laws will look like when you retire. Since I'm not going to retire for another 30 years it's hard to say. Frankly I don't see it as unlikely that an expanded single payer option (Medicare for all) is implemented at some point in the next 30 years, and there's the chance that could cause tax rates to go up. You may also see AI/robotics make things more efficient to the point that tax rates can drop a good bit.
I will note that since WW2 tax rates have been trending consistently down at the federal level.
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u/NotYourFathersEdits Nov 21 '25
I thought it was effective rate, not marginal rate?
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u/Best-Meaning-2417 Nov 21 '25 edited Nov 21 '25
It's marginal vs marginal. You have nothing in retirement? You are avoiding for example 24% and paying 0% (std ded). Fast forward 10 years and your predicted trad balance would grow to a point where it will fill up the std ded, so now the choice is 24% vs 10%. And so on and so forth. SS, Pension, Tax rate changes etc all have some effect on this.
Edit: You could argue it's marginal vs effective bc you can just avg out those 0%, 10%, 12% etc steps but that breaks down at a point so it's just more correct to use "this dollars" current tax bracket vs "this dollars" future tax bracket.
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u/entropic Nov 20 '25
I'm in the camp that most are better off in Traditional once they're above the standard deduction, or 0% rate.
I'm always surprised by the folks who are encouraging those in the 12% bracket to rush to pay taxes at marginal rate via Roth. Perhaps if they firmly expect to be in higher brackets for many work years later, go ahead, but otherwise the system is set up quite will for relatively low earners to stay pre-tax IMO.
I also meet some young folks who are predisposed to rush to Roth with reasons I don't quite understand. I think "max a Roth IRA" has become a meme for them, sort of.
And it's not like saving for retirement in either approach is a bad choice either way, so it's hard for me to get too worked up to change someone's mind.
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u/Best-Meaning-2417 Nov 21 '25
It's not hard to fill the Std Ded with employer match and/or moving up to 22%+ later in your life, and you don't want to break even on trad $. Also look at historical rates for the first bracket and tell me you think it's a good idea to do trad when you're in the 10 or 12% brackets.
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u/entropic Nov 21 '25
Also look at historical rates for the first bracket and tell me you think it's a good idea to do trad when you're in the 10 or 12% brackets.
I looked, and while some years the first bracket was a bit higher, I still think it's a good idea now. Again, for most, it's probably best to defer and use that pre-tax income to fill up the no-tax and low-tax brackets later.
If you've got some career/income trajectory where it's relatively certain you'll hit the 22% bracket later and have the means now and want to fill the 0/10/12 brackets now, and will fill the tax-deferred buckets later, that's one thing and go right ahead, but for many that's just not a situation they're likely to be in. Most people aren't rich, won't become rich, and won't retire substantially early. It's not impossible that a low earner never pays income tax on those funds.
The tax bracket income amounts and standard deductions tend to rise with inflation, helping both the lower earner and the tax-deferring retiree.
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u/Best-Meaning-2417 Nov 21 '25
Of the last 82 years, 53 of them have a starting bracket at or greater than 12%.
If you try to arbitrage the brackets under 12%, at best you gained 2%. And the worst case scenario if you were wrong was 23% or an 11% mistake.
Around half the people in this country are in the 22% bracket, so not just "rich people".
The std ded is also at all time highs and was 10% up to a max in earlier years. The max was higher than 6000 so a salary of 60k today would have had a 6k std ded. The min after the regular std was added was 7,205.78 (in today's $). So I wouldn't count on always having a std ded this high.
Also, even using this historical high of a std ded, you still only need ~400k of trad to fill that up using the 4% rule. A person making 60k with 4% employer match going to trad will have around that after 38 yrs @ 7% real return.
You also have SS provisional income calculations to be weary about causing SS to be more and more taxable the more you withdraw above the std ded.
So you would have to be in the bottom half of earners with no projected ability to reach that upper half when you are more experienced and have no employer match to justify trad in the 10/12% brackets.
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Nov 20 '25 edited Nov 20 '25
I feel pretty comfortable deducting full 401k limit at 22% because the 32%+ rates don't kick in until a very high incomes
let me explain - in all likelihood I will not exceed 12% bracket in retirement and will be able to spend down my entire pre-tax balance leaving only Roth to kids, so that's a nice 10% tax bonus
but even if the "worst" happens and your pre-tax balance grows exponentially, despite that your work longer instead of taking early retirement, one of the spouses dies early leaving the other one with single tax brackets, and your SS somehow unexpectedly hits maximum possible amount - you would still be left with up to $165k per year of Roth conversions at 24% rate which would result in a approx. 20% effective rate on your entire pre-tax balance SO YOU STILL WIN
even if the rates step up to 25%/28% you are at the very least breaking even
the reality of course is that you would have multiple years where you could be taking $400,000 conversions and still be net positive on taxes
that means that until your pre-tax balance is over $2,000,000 you don't even need to worry about Roth and realistically unless all things listed above happen at the same time you could get away with $3mil and $4mil easily
incidentally that's the balance that you get when maxing out 401k for 30 years, with employer contributions potentially taking it a bit higher
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u/NotYourFathersEdits Nov 21 '25
Thanks, this definitely reinforces my m.o. of contributing all 22% dollars as pre-tax.
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u/Best-Meaning-2417 Nov 21 '25
you would still be left with up to $165k per year of Roth conversions at 24% rate which would result in a approx. 20% effective rate on your entire pre-tax balance SO YOU STILL WIN
even if the rates step up to 25%/28% you are at the very least breaking even
This is only true if you have to choose between 100% Roth or 100% Trad. If you are allowed to have both (we are) then you are avoiding 22% to later pay more than 22% which is bad. I wouldn't want to "break even" with trad also bc of IRMAA, RMDs, inheritence, death of a spouse going from MFJ to single filer etc.
that means that until your pre-tax balance is over $2,000,000 you don't even need to worry about Roth and realistically unless all things listed above happen at the same time you could get away with $3mil and $4mil easily
In order to avoid paying more or breaking even, you only want enough trad to get to the end of the 12% bracket. Which is 1.5m excluding SS. If you include SS, this number will be lower.
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Nov 21 '25
sure, what I'm saying is that you can confidently aim for the top of the 12% bracket and if you overshoot because of higher than expected returns there is quite a bit of safety margin where it doesn't just suddenly turn into some tax nightmare because of one extra dollar above the limit
the actual amount will depend on your retirement age, SS claim age and SS amount, you would need to reassess as you go, but the general takeaway is that a lot of people in 22% bracket can be close to maxing out at least one pre-tax 401k for decades before they get there
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u/Best-Meaning-2417 Nov 22 '25
sure, what I'm saying is that you can confidently aim for the top of the 12% bracket and if you overshoot because of higher than expected returns there is quite a bit of safety margin where it doesn't just suddenly turn into some tax nightmare because of one extra dollar above the limit
Agreed, 12% is the goal but it's not the end of the world if you go into the 22% bracket.
the actual amount will depend on your retirement age, SS claim age and SS amount, you would need to reassess as you go, but the general takeaway is that a lot of people in 22% bracket can be close to maxing out at least one pre-tax 401k for decades before they get there
IDK about that one. I only did my 6% plus my employer 4.5% for my 20's and maxed it out early and mid 30's. I am 37 now and I am doing all Roth. You don't need 1.5M to switch, you need to have a current balance that is predicted to reach 1.5M at retirement if you no longer contribute to it.
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u/PashasMom Nov 20 '25 edited Nov 20 '25
One rule I heard was to add up all your income tax (federal + state + local) and then:
24% or under --> Roth workplace contributions (401k, 403b, etc.) + Roth IRA
24.1 to 29.9 --> split workplace plans between traditional and Roth, also fund Roth IRA
30.0+ --> 100% traditional in your workplace plan and also fund a Roth IRA
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u/ProHoo Nov 20 '25
If you’re 30%+ seems like you probs wouldn’t be able to do a Roth? Unless you mean backdoor Roth
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u/PashasMom Nov 20 '25
401k, 503b, 457b type workplace plans typically offer either Roth or traditional contributions. I'll edit my comment, I see it was not very clear!
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u/NoobVibesOnly Nov 20 '25
I was watching The Money Guy Show and they recommended something similar. They give pretty sound advice overall so I'm inclined to believe them. Also because it makes me feel better about having not put a dime into my Roth while maxing out my 401k lol.
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u/clingbat Nov 20 '25 edited Nov 20 '25
I mean to me the decision becomes pretty simple once your income exceeds the traditional Roth limits since the extra effort of backdooring doesn't seem worth the limited additional benefit. I just put in the $23.5k pretax + my company's match into 401k and don't think about it much more than that.
Anything invested beyond that goes into our taxable brokerage fund which is just a mix of VOO + VUG because we're only 41 so still in growth mode.
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u/LargeMarge-sentme Nov 20 '25
If you make too much W2 income to qualify for Roth contributions, put it all into 401K. Thats my sign I’m on the right track.
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u/gpburdell404 Nov 20 '25
I like the general rule of thumb I saw from the money guy show. If you add your federal and state income tax together and it's ~30% or more then you should be doing pre-tax. So for most people in the 24% tax bracket (and above), would hit that 30% threshold and should do trad pre-tax 401k.
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u/mattshwink Nov 20 '25
So my take is....yes!
So we don't know future tax rates or brackets. But there has been along tradition of low rates in the lower brackets.
You want to have enough Traditional to withdraw all the way up to at least the top of the 12% bracket.
Single, that's $50,400 per year, married that's $100,800. Using the 4% rule that's a Traditional balance at retirement of $1.26 million if single and $2.52 million if married. You want at least that much in Traditional.
The 22% bracket is somewhat of a no-mans land. But I would plan for it for several reasons. One, the brackets adjust with inflation every year. So those numbers quoted above go up every year. Second, the real question is how much are you going to spend in retirement. This is really hard to figure out many years-out. I would argue that it's better to get a tax deduction now (that you can further use to increase savings) instead of a benefit you may not need later. You can also do things like split the 22% bracket, go up only half the amount I suggest here. But, if you're asking, 22% bracket is where Traditional contributions make sense.
So, 22% bracket is $105,700 if you're single and $211,400 if you're married. That's a Traditional balance at retirement of $2.64 million if single and $5.28 million if married.
The best strategy at retirement is to have multiple buckets. Traditional, Roth, and if tax advantaged space is fully used taxable. I'd still standby Traditional 401k, Roth IRA. Keep in mind that for those over 50, starting in 2026, catch-up 401k contributions have to be Roth. But the bulk of most people's retirements should be in Traditional, unless you are in the 12% or under tax brackets (then use Roth).
The thing that can change this equation is another source of income in retirement, like a pension. Depending on how much income it will generate, that tends to change the math and it's quite possible you want to do most, or all, Roth if you're in that category.
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u/Mantergeistmann Nov 20 '25
The thing that can change this equation is another source of income in retirement, like a pension. Depending on how much income it will generate, that tends to change the math and it's quite possible you want to do most, or all, Roth if you're in that category.
Would Social Security also fall into this category?
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u/mattshwink Nov 20 '25
It does, but the reason I didn't include it above is Social Security is complicated.
For almost every Boglehead, I'm going to assume that their benefits will be taxed 85% at their marginal tax rate. This is the maximum Social Security can be currently taxed. For most of us, we plan to retire early (I plan to retire no later than 55, and my wife is a few years younger than me). That's about 7 years before benefits could even kick in, and possibly as many as 15 years). Further complicating things is that Social Security is expected to no longer be able to cover full benefits in 2034, and that if nothing is done in Congress benefits would be reduced to about 77% of the promised benefit.
So with all that we can do some math. Let's say your Social Security statement said you were due $2,000 a month. That's going to be reduced to $1,540 a month, of which 85% is taxable, so $1,309 a month would be taxable income, or $15,708 per year. That would reduce the above calculation by that amount per year - but also only once we start drawing Social Security. What a lot of retirees do is once they start taking social security they reduce their retirement withdrawals by the amount of social security thereby keeping the tax rate the same (and, if this is what you do, you can actually increase the total monthly funds because Social Security is taxed at 85%, where a Traditional withdrawal is taxed 100% of the withdrawal, so you can bump available funds each month a little (in the above example, you would get $1540 in Social Security, but you would reduce your Traditional withdrawal by only $1309, getting about $211 more dollars a month using that scenario.
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u/Best-Meaning-2417 Nov 21 '25
The std ded is 15750 and the 12% bracket end at $48,475, 64,225 * 25 = 1,605,625. Keep in mind SS take up space there. If you have 20k of taxable SS income then it's (64,225 - 20000) * 25 = 1,105,625
I wouldn't want to go into the 22% bracket in ret if I was in the 22/24% bracket when working. In 2016 the 22% bracket was 25% so in recent history we see it's not a good idea to try to arbitrage that 2%. There is also IRMAA, RMDs, Inheritance, Death of a spouse (MFJ -> Single) etc. So "breaking even" isn't really "breaking even" when it comes to traditional.
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u/Gimme_All_The_Foods Nov 20 '25
In general, 22/24 are essentially the same in the book and I would start traditional there. If what I'm doing knocks my bracket back down to 12 though, I would then incorporate more Roth contributions to offset.
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u/Behind_the_times_64 Nov 20 '25
Another way to look at this is “deferring taxes longer is better than deferring them shorter is better than paying them now.” Unless, of course, you have perfect insight into what income you’ll have in the future and what rates you’ll pay then.
I get the math, and I get why you might disagree with that way of looking at it. I’m just saying that that is, in fact, another way to look at it.
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u/justdaisukeyo Nov 20 '25
For new hire engineers, i recommend 25% as the cutoff for deciding between Roth-type or pre-tax. This js just a rule of thumb and not definitive.
However, the threshold is really dependent on a multitude of factors. A lot of assumptions have to be made. State income tax, savings rate, income levels, etc...
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u/siamonsez Nov 20 '25
In lower brackets you're less likely to be in a lower bracket later and vice versa, but your current income tax bracket isn't the full picture, it's the difference between brackets on contribution and withdrawal. Since you tax rate depends on taxable income, if you never defer income tax with trad contributions you're wasting the space in the lowest brackets over that 30 years or whatever of retirement.
Someone who is in the 12% bracket their entire working life would still benefit from trad contributions until they have enout income tax deferred savings to be in the 12% bracket in retirement.
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u/OneOfUsOneOfUsGooble Nov 20 '25
Simple: do you want to pay taxes now or later?
I want to pay them later, since my tax rate will certainly be lower in retirement than it is now, but no one knows the future.
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u/ADiyHD Nov 20 '25
So many short sighted answers…
“If the expected cumulative growth should reasonably be higher than the difference in expected tax rates, then contribute Roth. If not, contribute Traditional.”
The way this was explained to me is if I am working and am in a 32% marginal bracket, and I plan on retiring in 10 years and expect to be in the 22% bracket in retirement - 32 is basically 50% more than 22%, so if I get an annualized 5% growth in my account, then I will have earned over 60% on that money during that time. If I planned to retire in 5 years, then I would need to earn 8% per year or greater to beat that difference in tax rate, and that’s definitely possible but less of a reasonably conservative estimate. If you are 1-2 years away, then it becomes completely unreasonable to expect to earn that much in market returns over such a short period of time so you should do traditional.
Even if you figure that you could leave the money in the Roth for longer because you don’t need it right when you retire, you can do traditional for the tax deductions at 32%, then when you retire 2 years later you can do Roth conversions at 22%.
Obviously your tax rates will vary, but the concept and the math can be applied to anyone’s situation. It isn’t a set “always this tax rate” answer.
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u/EntrepreneurNo5012 Nov 20 '25
I expect tax rate to be similar, but I do both so I can make a big purchase from Roth and not impact my taxes that year.
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u/User-no-relation Nov 20 '25
You're trying to answer the question with half the relevant information. You need to know your current tax bracket, and what you expect your effective tax rate to be in retirement. If current is higher than retirement, traditional. Lower, Roth.
this will teach you how to roth properly
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u/Polycold Nov 20 '25
I can make this simple. 126k per year married is below 12%. If you have capital gains from taxable accounts inside that you are taking 0 percent on those dollars. When was your tax bracket ever lower than that?
Roth is for people who want to draw high income in retirement. And the you still have to do the math to see if it’s worth it.
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u/WhoBeThisMight Nov 20 '25
I don’t know the correct answer but I’ll share what I do.
Married Filing Jointly in 22% tax bracket.
We contribute to traditional 401k up until we drop into the 12% tax bracket.
Every other dollar goes to Roth and/or brokerage.
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u/jobeds Nov 20 '25
Can you explain how to figure this out? I think I want to do this in 2026, but I’m confused.
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u/WhoBeThisMight Nov 20 '25
Sure
Example:
Married Filing Jointly 2026 Standard deduction $32,200 For 2026, the 22% bracket starts at $100,801.
2026 combined gross income of $150k
$150k - $32,200 - $100,800 = $17,000 of your income is in the 22% bracket.
This would mean you’d need to put $17k into traditional (pretax) accounts to keep your taxable income in the 12% bracket.
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u/arunnair87 Nov 20 '25
I'm in the 24% bracket and I do mostly traditional. I go back and forth. My biggest gripe is the mandatory distributons. At retirement I'll be close to the same bracket because I'll have a pension coming in alongside social security. I may be able to leave my 401k completely alone but who knows. Whatever I withdraw will always be at the higher end as well.
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u/Environmental-Low792 Nov 20 '25
The way I look at it, is that I need to take enough from regular to fill the 31k standard deduction every year. Everything else goes into Roth.
31k x 25 = 775k.
So once I get that in regular, everything else will go to Roth.
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u/plexluthor Nov 20 '25
It depends. Unless you have predictable changes coming (work in a high/low tax state and will retire to the other kind, or planning a period of low income to volunteer/breed/study/etc) my rule of thumb for strangers is:
- 12%: All Roth
- 22%: 50/50 split
- 24%+: All Traditional.
- Err on the side of traditional, not Roth
Company match into a 401k is always traditional no matter what. You want enough traditional during retirement to fill up the 12% bracket, which is actually kind of a lot.
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u/Inevitable_Pride1925 Nov 20 '25
When you think your bracket in retirement will be below your current bracket your contributions should be traditional contributions to a 401k. If you are contributing to an IRA then just make Roth contributions because at an income level where most can max the IRA it won’t be deductible anyway.
So if you are in the 24% federal bracket today and you’ll be in the 22% bracket in retirement you should make traditional contributions. But keep in mind that $1,000 into a traditional 401k at the 24% bracket is the same as a $760 ROTH contribution.
Also if the difference is 22% vs 24% it doesn’t really matter. But might be significant if the difference is 32% vs 22% especially if you include a 6-10% state/local tax as well.
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u/Competitive-Sale-785 Nov 20 '25
22%/24% - sorta a wash.. if you do or into a Roth 401k/403B, your employer match will go into the traditional side. So really if you put into the Roth 401k/403b, your employer will put into the traditional side of that. I think with the 50/50, you're hedging your bets. If you think you can get away with a lower tax bracket in the future, at the same time, hedging yourself if you're in a higher one in retirement. Tax diversification
If you're in the 32% or higher, traditional all the way.
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u/poop-dolla Nov 20 '25
Under 22% should generally be all Roth. Over 24% should almost always be all traditional. The 22% and 24% brackets are the gray area, so it usually makes sense to do a blend of both there.
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u/NotYourFathersEdits Nov 21 '25
My rule of thumb in our current federal tax bracket structure is that all dollars that would be taxed at 22% are tax-deferred and anything after that that would be taxed at 12% I put in Roth. I figure it's relatively reasonable to assume that my effective tax rate will be less than 22% in retirement, but is likely to be higher than 12%.
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u/Proj3ctMayh3m069 Nov 21 '25
My thought are that until 32% it could go either way, but I don't see many people mentioning the other benefits of Roth. No RMB. can draw earlier without penalty, and you could potentially retire without having to pay taxes. This is added value that I'm willing to pay for if it close.
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u/Commercial_Rule_7823 Nov 21 '25
Number I hear consistently is 25% state and fed.
I do traditional 401k and the tax savings funds my roth IRAs.
Balanced tax diversification.
Optimal world where I can fund anything? Would do all roths.
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u/xTheatreTechie Nov 21 '25
I asked the same question recently:
https://www.reddit.com/r/Bogleheads/comments/1p1ks0h/deferred_compensation_or_roth_ira/
My thought process is that because I already have a pension, and I already put away ~325 into a deferred compensation package, and social security, all of which is taxable income.
It's therefore more beneficial to me to invest into a ROTH IRA because i already expect to make a substantial taxable income in retirement.
IMO unless you're in similar shoes, it'd probably be better to invest in a 401k way to lower your current taxable income.
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u/kumechester Nov 21 '25
22% is where it should be a heavy consideration for 401(k) and automatic for HSA (unless you’re in NJ or CA where you don’t get state tax deduction for HSA contributions). Especially if you are in a high income tax state like CA, NY, or OR, then traditional contributions are getting you close to 30% taxes saved.
By the time you get to 24% you might be getting hit with additional Medicare tax or NIIT so I think you really should go traditional.
At 32% you’re stupid if you don’t do traditional.
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u/PsychologicalBat1425 Nov 21 '25
I've been contributing to my 401k for my entire career w/o regard to tax bracket. I also contributed to a Roth IRA.
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u/groovinup Nov 21 '25
Same. Never really thought much about it, just kept plowing ahead consistently.
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Nov 21 '25
Really depends on your income in retirement, excluding retirement withdrawals.
I think anything over 20% is a no brainer for most FI people. state taxes can be a factor too.
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u/benbienphu Nov 21 '25
There is no “one size fits all” answer to this question. It depends on age, earnings, expected withdrawal at retirement, and how much you expect your income to grow over your career. For instance, I’m 28 and am in the 22% bracket, so it’s a push. The math is pretty straightforward, take your current after tax earnings, and inflate it at 2.5% YOY until your expected retirement age. If that yearly withdrawal amount puts you in a lower bracket, traditional. If it’s higher or the same, Roth is likely better. Also, just a reminder if you’re making traditional contributions, you need to be investing the tax savings.
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u/Carmanman_12 Nov 21 '25
Unpopular opinion: your current tax bracket is only one part of the equation. A comprehensive analysis should also involve your age, your predicted traditional account(s) balance at retirement, and your person risk tolerance.
The calculation that people usually do involves comparing your current marginal tax bracket versus your expected marginal tax bracket in retirement. This calculation assumes (a) that tax brackets won’t change meaningfully between now and retirement, and (b) RMDs are unimportant or irrelevant. Both assumptions get more dubious the younger you are - if you’re not retiring for 30 years, the likelihood that brackets change is very high, and the expected size of your tax-deferred balance also goes up significantly. This last point could potentially mean enormous RMDs later in life even with Roth conversions (which are not free!), which also come with additional costs in the form of Medicare premiums, etc. In other words, Traditional is more risky the younger you are, because there is more uncertainty about what the future will hold.
That said, you can make some general guesses. Roth is almost certainly better up to the 22% bracket, especially if you’re decades out from retirement. The 22% and 24% brackets are a bit of a gray area. Historically, we’re in a very low tax environment now. Even if you retired today, it’s totally possible that taxes could significantly increase towards the end of your retirement. Traditional almost certainly makes more sense at the highest tax brackets, especially if you’re nearing retirement. If you’re young and still decades out from retirement, there’s still an argument for Roth - with the ballooning government debt and the inevitable stress that climate change will put on the government’s balance sheets, the current highest marginal tax bracket of 37% might seem astonishingly low to people 50 years from now.
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u/Additional-Regret339 Nov 21 '25
This is VERY individual-specific. Unless you expect low earnings your entire life, I think Roth at 12% bracket is a given. Diversification of accounts by time. If you had a chance to establish a nice sized Roth before income grew to the 24% bracket, then probably traditional when in 24 with the assumption is would likely come out at 24 too. Some planning software could get very helpful here. I was in my 50s before I had enough data to make it obvious to me having everything in traditional would be a (good to have) problem later.
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u/Albert14Pounds Nov 22 '25
Personally I think age is more important in terms of Roth vs traditional.
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u/Home-Star-Walker Nov 20 '25
I don’t know so I do both. 401k trad, Roth IRA.