international001 wrote: ↑Fri Nov 16, 2018 6:38 am

KlangFool wrote: ↑Thu Nov 15, 2018 9:38 am

international001,

<<Investing after 40 only in 401k pre-tax the max, I think I can get to 1.25M at 65. >>

Do the math and show us how this is possible.

It is not between Trad. 401K versus Roth 401K. It is between

**Trad. 401K with Roth IRA** versus Roth 401K only,

<<Given all the uncertainties of the tax code and my personal life, I'm assuming the difference between 22% and 24% is not meaningful.>>

Given the uncertainties, you should have tax diversification: Trad 401K with Roth IRA. It is possible that the government may choose to tax Roth. Why would you put all your money into one tax basket?

<< I'll get 33k in SS

I'll get 50k in 401k pre-tax distributions (let's assume I have 1.25M in 401k pre-tax distributions and I follow the 4% rule)>>

If we assume that the tax law stays the same, the tax bracket will adjust upward due to the annual inflation adjustment. After 40 years, the tax bracket will at least double.

<<From 25 till 40, I'll invest in Roth. I'll be in the 22%-24% tax bracket>>

You can do both. Trad. 401K with Roth IRA. So, why only do Roth?

KlangFool

P.S.: This is your money. If you do Trad. 401K and Roth IRA, you will pay less tax and be rich quicker. It is worthwhile for you to run the numbers and be sure.

??? I have been arguing to do both Trad 401k and Roth IRA. Only question is how much of each. If you are able to calculate, do the Roth you need at the beginning of your working life.

I'm also making all the numbers inflation adjusted

Investing 23k (include employer match) from 40-65 years should/could give me 1.25M. Just assume 7% annual returns gives me around 1.579M. At 5%, it gives me 1.175M. So it's in that ball park.

In anycase, my point is that with current taxes you should hit to have a marginal tax of 22% at retirement accounting the amount of pre-tax you will have. For the rest, use Roth. Calculate the 401k you may need and prefer to do it for the years where your tax bracket is higher.

international001,

<<I have been arguing to do both Trad 401k and Roth IRA. Only question is how much of each. >>

Max up the Trad. 401K and put the tax savings into Roth IRA is the best combination even in the early years.

<<

**I'm also making all the numbers inflation adjusted**>>

You forgot to inflation adjust the standard deduction and tax bracket.

2018 numbers

standard deduction 12K

Rate Individuals Married Filing Jointly

12% $9,526 to $38,700 $19,051 to $77,400

22% 38,701 to $82,500 $77,401 to $165,000

24% $82,501 to $157,500 $165,001 to $315,000

32% $157,501 to $200,000 $315,001 to $400,000

In 40 years, all those numbers will at least double.

So, the standard deduction is 24K.

Rate Individuals

12% 20K to 80K

22% 80K to 164K

24% 164K to 300K

<<Investing 23k (include employer match) from 40-65 years should/could give me 1.25M. Just assume 7% annual returns gives me around

**1.579M**. At 5%, it gives me 1.175M. So it's in that ball park.>>

You need around

** 2.5 million** (100K X 25) to reach 22% tax bracket. So, in your example, the person is paying 12% marginal tax rate.

KlangFool