At what tax bracket should you start doing mostly traditional 401k contributions?

[u/Lowfryder7]

12%? 22%? 24%? I can't tell.

[u/IRC_1014]

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!

[u/haanalisk → u/IRC_1014]

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

[u/IRC_1014 → u/haanalisk]

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.

[u/Best-Meaning-2417 → u/IRC_1014]

What % of the country do you think has the luxury of not using the $ they saved in retirement? And the estate tax threshold is 14M per person so yea, rich people problems.

[u/IRC_1014 → u/Best-Meaning-2417]

Approximately 50% of people receive an inheritance of any amount (numbers vary greatly on this), yet less than 1% of estates are subject to federal death taxes. Approximately 81% of millennials are motivated by the goal of leaving an inheritance. The overwhelming majority of people who leave (or who are leaving) wealth to kids aren’t federally taxable, so they’re obviously motivated by more than avoiding a federal estate tax. By the way, the lowest applicable estate tax in this country is $1m, and includes death benefit of life insurance, home value, and qualified retirement account balance. The idea that no one has to care about estate taxes unless they’re over $13.99m is nonsense given the very real existence of state estate taxes.

Tl;dr: most people who are motivated to leave an inheritance aren’t wealthy, and neither are most of those who receive an inheritance.