Investment Vehicles

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moeck602
Posts: 1
Joined: Thu Nov 07, 2019 3:45 pm

Investment Vehicles

Post by moeck602 » Thu Nov 07, 2019 4:31 pm

Hello folks,

I've just begun my retirement investment 'career' and I'm deciding between a t401(k) and a r401(k) and any input would be greatly appreciated.

Here is my situation:

I currently have a tIRA and I'm planning to convert it to a rIRA before the end of the year because I'm theoretically in the lowest tax bracket I will ever be in again (I made pennies this year). Also, I believe that I will be in a higher tax bracket when I retire than I will be throughout my career, which I will explain.

I work for the federal government, so I am eligible for the Federal Employees Retirement System (FERS). It's comprised of three parts: Social Security, Basic Benefit (pension), and Thrift Savings Plan (401(k) equivalent). I think my tax bracket will be higher in retirement because my pension will be slightly higher than the average of my three years of highest salary and I will eventually be receiving distributions from my 401(k), IRA, and Social Security.

Also, I have a mandatory retirement age of 57.

So, it would seem to me that a r401(k) would be advantageous over a t401(k) given my likely future tax situation. Would there be any advantages to have a t401(k)?

Thanks,
Tyler

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FiveK
Posts: 7741
Joined: Sun Mar 16, 2014 2:43 pm

Re: Investment Vehicles

Post by FiveK » Thu Nov 07, 2019 11:26 pm

moeck602 wrote:
Thu Nov 07, 2019 4:31 pm
So, it would seem to me that a r401(k) would be advantageous over a t401(k) given my likely future tax situation. Would there be any advantages to have a t401(k)?
No, if your situation plays out exactly as you project.

Yes, if you (voluntarily or involuntarily) retire prior to age 57.

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Watty
Posts: 17437
Joined: Wed Oct 10, 2007 3:55 pm

Re: Investment Vehicles

Post by Watty » Thu Nov 07, 2019 11:48 pm

There is a wiki on this choice if you have not seen it.

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

To me it seems really hard, but not impossible, to justify a Roth over a deductible traditional when you are above the 12% federal tax bracket unless you are in a real high income career path like a doctor.

If you are in the 22% federal tax bracket then under the current tax laws the next higher tax bracket is only 2% higher at 24% so that is not a huge payoff either.

One other thing to keep in mind is that your marital status could be different when you retire and if you are single now then if you are married when you are retired then you could easily be in a lower tax bracket.

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