Hi Andre - This is super helpful! Quick question. If I only have the ability to put in $23K for the 401K, would you suggest putting it into the traditional pre-tax 401K or Roth 401K? Leaning towards the later since not having the deduction won't change my tax bracket and I can let it grow without having to pay any future tax on the gains.
Hi Andre - This is super helpful! Quick question. If I only have the ability to put in $23K for the 401K, would you suggest putting it into the traditional pre-tax 401K or Roth 401K? Leaning towards the later since not having the deduction won't change my tax bracket and I can let it grow without having to pay any future tax on the gains.
There are lots of different factors at play when deciding the split on pre/roth. If I was in a state without income taxes and early career leaning into Roth 401k wouldn't be a bad idea. It probably would end up as wash one way or the other. Not worth overthinking too much. Again, lots of variables.
Hi Steven - I know I'm late to the game here since you asked this two months ago but wanted to chime in anyway if it would help. Generally speaking it makes more sense to make the pre-tax 401k contribution and take the deduction if you're a high earner. Even if it won't change your marginal tax bracket, you'll still benefit from the deduction.
For instance, if you're in the 35% tax bracket, contributing $23,000 to the pre-tax 401k reduces your taxable income by that amount, all else equal (even though you're still in the 35% bracket), meaning you pay $23,000 x 35% = $8,050 less in fed tax. Getting money into a Roth when you otherwise couldn't (due to high income) is nice, but when the trade-off is not getting the 401k deduction, you're "paying" tax at your current marginal rate to get the money into the Roth now. As a high earner, there's less of a chance you'll be in a higher bracket when you ultimately withdraw the Roth money in retirement, since you're contributing at the 35% bracket (in this example).
Hi Andre - This is super helpful! Quick question. If I only have the ability to put in $23K for the 401K, would you suggest putting it into the traditional pre-tax 401K or Roth 401K? Leaning towards the later since not having the deduction won't change my tax bracket and I can let it grow without having to pay any future tax on the gains.
There are lots of different factors at play when deciding the split on pre/roth. If I was in a state without income taxes and early career leaning into Roth 401k wouldn't be a bad idea. It probably would end up as wash one way or the other. Not worth overthinking too much. Again, lots of variables.
Hi Steven - I know I'm late to the game here since you asked this two months ago but wanted to chime in anyway if it would help. Generally speaking it makes more sense to make the pre-tax 401k contribution and take the deduction if you're a high earner. Even if it won't change your marginal tax bracket, you'll still benefit from the deduction.
For instance, if you're in the 35% tax bracket, contributing $23,000 to the pre-tax 401k reduces your taxable income by that amount, all else equal (even though you're still in the 35% bracket), meaning you pay $23,000 x 35% = $8,050 less in fed tax. Getting money into a Roth when you otherwise couldn't (due to high income) is nice, but when the trade-off is not getting the 401k deduction, you're "paying" tax at your current marginal rate to get the money into the Roth now. As a high earner, there's less of a chance you'll be in a higher bracket when you ultimately withdraw the Roth money in retirement, since you're contributing at the 35% bracket (in this example).