Portfolio Review Request (Trad vs. Roth 401k + TLH question)

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Topic Author
optimizator
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Joined: Wed Jun 01, 2022 12:07 am

Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by optimizator »

Emergency funds: Covered w/ $20k I-Bonds (purchased $10k in 12/21 and 01/22) and $15k cash in HYSA (planning on releasing cash once $10k I-bonds reaches 1 year).

Debt:
Personal Loan: $6k @ 2.99%
Mortgage: $160k @ 2.875% (Rental property, rent currently covers mortgage)

Tax Filing Status: Single

Tax Rate:
22% Federal
0% State (Military income not state taxable + additional income falls below tax level for state)
1.5% Local (Only on non-military income ~$20k in 2021)

State of Residence: Ohio

Age: 26

Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 40% of stocks

Approx. Portfolio Size: ~250k (not including rental equity)

Current retirement assets

Taxable (a bit of a mess of funds, planning on moving to a-g listed)
---Want to move money into following plan (allocation 25% for a & b and 10% for c-g)---
a. 5% Vanguard S&P 500 (VOO) (.03%)
b. 5% Vanguard S&P Small Cap 600 Value (VIOV) (.15%)
c. 2% Advantis International Small Cap Value (AVDV) (.36%)
d. 1.5% Vanguard Extended Duration Treasury (EDV) (.06%)
e. 2% Vanguard FTSE Developed Markets (VEA) (.05%)
f. 2% Vanguard FTSE Emerging Markets (VWO) (.08%)
g. 2% Wisdom Tree Emerging Small Cap Dividend Fund (DGS) (.58%)
----------
h. 15% cash
i. 18% Vanguard Total Market (VTI) (.03%)
j. 9% Vanguard Growth (VUG) (.04%)
k. 1.5% Vanguard Total International Stock (VXUS) (.07%)

Roth TSP (Military 401k)
23% Lifecycle 2060 (L2060) (.05%)

Match into Traditional TSP up to 5% of basic pay
Traditional TSP
4% Lifecycle 2060 (L2060) (.05%)

Roth IRA (HFEA)
5.5% ProShares UltraPro S&P500 (UPRO) (.93%)
4.5% Direxion Daily 20+ Year Treasury 3x (TMF) (1.0%)

Contributions

New annual Contributions
$20k to Roth TSP (can only allocate percentage due to interface, will not be able to max)
$3.7k to Trad TSP (employer match)
$6k to Roth IRA
$45 taxable

Available funds (TSP)

Lifecycle funds (every 5 years from 2025-2065) (.05%)
Govt. Securities (.043%)
Fixed Income (.058%)
Common Stock Fund - S&P 500 index (.043%)
Small Cap Fund - DJ US Completion Total Stock Index (.059%)
International Fund - MSCI EAFE index (.053%)

Narrative
In addition to modest income from an investment property, I also hold a part time job that I work when it does not interfere with my military duties. I can scale hours up to ~20/week as I desire, but it pays somewhat less than my base pay. I try to live off my housing allowance, investment property income, and part-time wages and invest the remainder of my military base pay. Occasionally, I dip into the base pay and taxable deposit for recreational purposes, etc.

I acknowledge that I will probably catch flack for the high expense ratios present in some of the products I'm invested in. For the taxable account, I would like exposure to the small cap funds, and these higher expense ratios seem to come with the territory.

I was previously considering moving my entire taxable investment portfolio into VUG until I needed greater stability (likely at least 10 years off). I'm not entirely sure that the tech-fueled growth will continue as it has previously, and while researching investment strategies, I stumbled across factor investing. I believe this approach to diversification is most-well suited to my personality and investment strategy (I would be interested in discussing further in the comments if this is controversial).

I also acknowledge that I am currently taking a beating in my IRA fund. My initial plan was to not allocate more than 15% of my portfolio to HFEA, as you can see it is now down to 10%. That said, I do plan to stick with this allocation and purchase additional shares with my IRA contribution in the future. I believe that Roth is the vehicle for this long term, but would be willing to discuss transferring (or future contributions directed) to traditional. My execution here sucked given the massive market downturn from January 1, but I will be sticking through. (I would prefer discussion on the questions below, but open to discussion on this as well).

Questions:
1. Should I start allocating to Traditional TSP rather than Roth TSP? I'm looking for some assistance in framing and evaluating this. I plan to continue to contribute as close to the maximum TSP contribution ($20.5k) as possible. I am not wed to the military, but will be in for approximately 5 more years before I have the option to leave. I believe that tax rates will rise in the future (at least to the 2026 levels if not higher), but I also plan to continue working even if I hit the possibility of retiring early, (I would consider taking a significant pay cut, perhaps contributing less to retirement and living off the new, lower salary?).

2. Will I be okay sell off my VTI, VUG,VXUS, reap the TLH and purchase the other holdings (a-g)? I do not believe any of the other funds are "substantially identical," as they are much more specific, but figured another opinion would be good so I don't miss something obvious.

3. Should I TLH a-g into similar funds? I initiated my investment into these in late 2021/early 2022, and now seems like a good time to find alternatives (I found several on the BH TLH wiki page).

Conclusion
I've done some planning with my investments, but overall feel as though I have gotten extremely lucky and somehow stumbled into this currently advantageous tax position, which really drives at the heart of my first question (Trad vs. Roth TSP). I do feel a little bad capitalizing on it, but figure since I'm already here, I might as well try to make the best of it.

Thanks in advance for your help on this. I'm a long time lurker and appreciate how active and helpful everyone is here.
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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by FiveK »

optimizator, welcome to (posting on) the forum.

1. Traditional vs. Roth is all about the marginal tax rate you can save with traditional contributions now vs. the marginal rate you expect to pay when withdrawing from traditional accounts in the future. Do you know the marginal tax rate (not necessarily the same as the tax bracket) you would save now? Have you estimated what your withdrawal marginal tax rate will be?

2&3. It appears you have done your due diligence and understand that "similar" is OK but "substantially identical" is not when it comes to avoiding wash sales. You should be willing to hold anything you trade into "forever," just in case that fund never shows a loss after you buy it.
Topic Author
optimizator
Posts: 7
Joined: Wed Jun 01, 2022 12:07 am

Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by optimizator »

FiveK wrote: Mon Jun 20, 2022 10:53 pm optimizator, welcome to (posting on) the forum.

1. Traditional vs. Roth is all about the marginal tax rate you can save with traditional contributions now vs. the marginal rate you expect to pay when withdrawing from traditional accounts in the future. Do you know the marginal tax rate (not necessarily the same as the tax bracket) you would save now? Have you estimated what your withdrawal marginal tax rate will be?
Thanks! Happy to be here.

I calculated my current marginal tax rate as 23.5%. This is 22% federal tax + 1.5% (approximately) local tax. I was a little confused on how to estimate withdrawal marginal tax rate. How do I factor in tax-free (Roth) withdrawals when calculating this (e.g. the amount I have in my Roth account at retirement could change which tax bracket I am in)?
FiveK wrote: Mon Jun 20, 2022 10:53 pm 2&3. It appears you have done your due diligence and understand that "similar" is OK but "substantially identical" is not when it comes to avoiding wash sales. You should be willing to hold anything you trade into "forever," just in case that fund never shows a loss after you buy it.
Wonderful, I plan to use the securities I'm going to buy into as my taxable portfolio for the long term, now just have to hope the judgement call works out.
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retired@50
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Location: Living in the U.S.A.

Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by retired@50 »

optimizator wrote: Tue Jun 21, 2022 9:28 am I calculated my current marginal tax rate as 23.5%. This is 22% federal tax + 1.5% (approximately) local tax. I was a little confused on how to estimate withdrawal marginal tax rate. How do I factor in tax-free (Roth) withdrawals when calculating this (e.g. the amount I have in my Roth account at retirement could change which tax bracket I am in)?
The amount in a Roth IRA shouldn't have an impact on your marginal income tax bracket if you're making withdrawals according to the rules since they'd be tax-free. If you're withdrawing early you could face taxes on earnings and possibly a penalty.

See the colorful chart on the Roth IRA wiki page: https://www.bogleheads.org/wiki/Roth_IRA#Notes

Regards,
This is one person's opinion. Nothing more.
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retiredjg
Posts: 48361
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by retiredjg »

optimizator wrote: Mon Jun 20, 2022 8:51 pm
Questions:
1. Should I start allocating to Traditional TSP rather than Roth TSP?
Maybe. Probably. If you will not be getting a military pension, you will want some money in traditional accounts and you have very little at this point. I would not go to completely traditional, but I think some will suggest that you do that.

2. Will I be okay sell off my VTI, VUG,VXUS, reap the TLH and purchase the other holdings (a-g)? I do not believe any of the other funds are "substantially identical," as they are much more specific, but figured another opinion would be good so I don't miss something obvious.
Yes, but you should know that what you are selling is more tax-efficient than what you want to buy. Probably not greatly, but at least some.

Why do you want to break up the total funds (US and foreign) into parts?

3. Should I TLH a-g into similar funds? I initiated my investment into these in late 2021/early 2022, and now seems like a good time to find alternatives (I found several on the BH TLH wiki page).
Personal choice. Having some tax losses is nice, but it also lowers the cost basis of what you do hold. Eventually, if you sell from taxable, you may end up paying more in tax (because the gain will be larger).
Topic Author
optimizator
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Joined: Wed Jun 01, 2022 12:07 am

Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by optimizator »

retired@50 wrote: Tue Jun 21, 2022 9:35 am
optimizator wrote: Tue Jun 21, 2022 9:28 am I calculated my current marginal tax rate as 23.5%. This is 22% federal tax + 1.5% (approximately) local tax. I was a little confused on how to estimate withdrawal marginal tax rate. How do I factor in tax-free (Roth) withdrawals when calculating this (e.g. the amount I have in my Roth account at retirement could change which tax bracket I am in)?
The amount in a Roth IRA shouldn't have an impact on your marginal income tax bracket if you're making withdrawals according to the rules since they'd be tax-free. If you're withdrawing early you could face taxes on earnings and possibly a penalty.

See the colorful chart on the Roth IRA wiki page: https://www.bogleheads.org/wiki/Roth_IRA#Notes

Regards,
Thanks for the reply! I wasn't probably clear enough in my wording - doesn't my withdrawal marginal tax rate depend on the proportion I allocate into Traditional vs. Roth today? I.e. if I decide to max out Traditional today, I'll be due tax on withdrawal - how do I compare that with the non-taxable withdrawals if I were to max out Roth?

I figure I could possibly take the portion I expect to contribute to retirement with my taxable account and then compute the marginal rate for option 1 - Traditional and then option 2 - Roth:

Compute marginal w/ projected ($taxable + $traditional)?
Compute marginal w/ projected $taxable?

To get withdrawal marginal tax rate, I want to just take LTCG tax on the $taxable and $traditional, but I am probably missing SSI and qualified dividend income? I will admit I'm not very good with reasoning about the withdrawal rates. I would really appreciate it if someone would be willing to walk through an example for me or point me towards some resources. Most of the examples saw on the wiki page seem to be related to current marginal withdrawal.
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retiredjg
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Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by retiredjg »

I think you may be thinking that you will pay capital gains rates on the money in your traditional tax-deferred accounts. Not so. That is ordinary income.

In retirement, ordinary income is usually pension, interest, all bond dividends (unless tax-exempt), non-qualified stock dividends, SS, short term capital gains and withdrawals from tax-deferred accounts. Long term capital gains and qualified dividends are taxed at the lower cap gains rates. There may be some things I've forgotten.

You are a long time away from retirement and your marginal rate then is very difficult to guess. But generally, a couple is often in a lower tax bracket than your current 22% in retirement. Singles can be in a lower bracket than your current 22%, but probably not most singles with your assets.

A 22% tax rate is fairly low. I don't think it will hurt you to continue using some Roth TSP while also using some traditional TSP.

You might see if using all traditional TSP would get your income low enough to qualify for the saver's credit.

Keep this in mind - traditional vs Roth gets a lot of discussion, but it is more important to just save money than where you put it (which is less important).
invest4
Posts: 1069
Joined: Wed Apr 24, 2019 2:19 am

Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by invest4 »

* Roth vs Traditional: I would encourage you to read the following post to expand your thinking and help inform your decision.

viewtopic.php?t=318512

More generally:

* Simplicity: Do not underestimate the value of simplicity in your portfolio.

- Investments in your portfolio that do not have a reasonably significant % is simply not going to make a difference and not worth it (looking at you... taxable account).

- Optimization of ones portfolio is often on the mind and we look for ways to squeeze out the best returns including tilts to this or that, etc. While there is nothing wrong with this if you have a solid sense for the portfolio you want (ex: long term allocation to small caps), it has the potential to get messy, cost more in expenses, and often not achieve the desired out performance vs a simpler approach. Personally, I think anything more than 5 funds or so and you should probably have a think on it. YMMV.

- Easier to track and manage...less to think about. I did not really see the value until I joined this forum a few years ago (age 50 this year). You are already well ahead of the game by finding this place.

Best wishes.
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retired@50
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Location: Living in the U.S.A.

Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by retired@50 »

optimizator wrote: Tue Jun 21, 2022 9:59 am
retired@50 wrote: Tue Jun 21, 2022 9:35 am
optimizator wrote: Tue Jun 21, 2022 9:28 am I calculated my current marginal tax rate as 23.5%. This is 22% federal tax + 1.5% (approximately) local tax. I was a little confused on how to estimate withdrawal marginal tax rate. How do I factor in tax-free (Roth) withdrawals when calculating this (e.g. the amount I have in my Roth account at retirement could change which tax bracket I am in)?
The amount in a Roth IRA shouldn't have an impact on your marginal income tax bracket if you're making withdrawals according to the rules since they'd be tax-free. If you're withdrawing early you could face taxes on earnings and possibly a penalty.

See the colorful chart on the Roth IRA wiki page: https://www.bogleheads.org/wiki/Roth_IRA#Notes

Regards,
Thanks for the reply! I wasn't probably clear enough in my wording - doesn't my withdrawal marginal tax rate depend on the proportion I allocate into Traditional vs. Roth today? I.e. if I decide to max out Traditional today, I'll be due tax on withdrawal - how do I compare that with the non-taxable withdrawals if I were to max out Roth?

I figure I could possibly take the portion I expect to contribute to retirement with my taxable account and then compute the marginal rate for option 1 - Traditional and then option 2 - Roth:

Compute marginal w/ projected ($taxable + $traditional)?
Compute marginal w/ projected $taxable?

To get withdrawal marginal tax rate, I want to just take LTCG tax on the $taxable and $traditional, but I am probably missing SSI and qualified dividend income? I will admit I'm not very good with reasoning about the withdrawal rates. I would really appreciate it if someone would be willing to walk through an example for me or point me towards some resources. Most of the examples saw on the wiki page seem to be related to current marginal withdrawal.
Estimating your future income taxes is difficult, if not near impossible.

Let's just start there, and realize that guesses about what will happen 35 - 45 years into the future are just that, guesses.

The first thing to understand is current law on how everything is taxed. Every dollar withdrawn from a traditional IRA or traditional 401k is currently treated as ordinary income. Then, you've got other potential sources of income including interest, dividends, capital gains, etc. It's a whole zoo of income sources and tax treatments.

Let's just suppose that you've got $1,000,000 in a traditional IRA and you're 72 which is the current RMD start age.
Link: https://smartasset.com/retirement/rmd-table
According to the link above, you'd have to withdraw $1,000,000 / 27.4 = $36,496.35 for the year. So, you'd have at least that much income, plus all the other stuff (pension (if you have one), Social Security, interest, dividends, capital gains (if any), etc.) Let's just round all that other stuff up to $30,000 for the sake of this example. So, for the year you turn 72, you'll have around $67,000 of income.

Link: https://www.nerdwallet.com/article/taxe ... x-brackets
If we look at the current income tax bracket tables (linked above) for a single person who has $67,000 of income, we see that they are in the 22% tax bracket. Of course this is a bit of a simplification because we haven't deducted your standard deduction (unknown amount) but this year it's around $13,000 so your taxable income would fall to $54,000.

The main point to keep in mind is that when you completely zero out your wages or salary, there isn't all that much left to push you into the super high tax brackets unless you have a huge taxable investment account that is throwing off all kinds of dividends and capital gains distributions every year.

This is why many retirees find themselves in a lower income tax bracket during retirement than they were in while they were in their prime wage earning years.

This website (linked below) may help you visualize the various tax treatments and income categories.
https://engaging-data.com/tax-brackets/

Hope this helps.

Regards,
This is one person's opinion. Nothing more.
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FiveK
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Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by FiveK »

optimizator wrote: Tue Jun 21, 2022 9:28 amI was a little confused on how to estimate withdrawal marginal tax rate. How do I factor in tax-free (Roth) withdrawals when calculating this (e.g. the amount I have in my Roth account at retirement could change which tax bracket I am in)?
Ignore Roth amounts. As retired@50 and retiredjg said, unless you take early withdrawals from Roth accounts, they don't affect your marginal tax rate at all.

One reasonably simple way to estimate your withdrawal situation, based on where you are now, is this:
(future income from traditional withdrawals) = (current pre-tax balance) * (1 + i)^n * WR
i = real return on pre-tax investments, %
n = number of years until retirement
WR = withdrawal rate from pre-tax accounts after retirement, %/yr

Use current tax law to determine the marginal tax rate for income on top of that amount.

Reasonable guesses for i, n, and WR can vary widely within (and even outside) the following ranges:
i - from 2% to 6% (depends on market behavior and asset allocation within the pre-tax accounts)
n - from ? to ? (very dependent on individual circumstances)
WR - from 3% (e.g., those who think the "4% rule" is optimistic) to 8% (e.g., those who want to reduce pre-tax balances before starting SS and RMDs)

There can be other income streams in retirement, with pensions usually the most significant prior to Soc. Sec., but as you'll see if you try different values for the three inputs above, this is not an exact science, especially for one far from retirement.

But you can take your best guess, act accordingly this year, then repeat the process in years to come. You may not get it perfect, but contributing at all is most important - whether you choose traditional or Roth for a given year is secondary.
Topic Author
optimizator
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Joined: Wed Jun 01, 2022 12:07 am

Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by optimizator »

retiredjg wrote: Tue Jun 21, 2022 10:11 am I think you may be thinking that you will pay capital gains rates on the money in your traditional tax-deferred accounts. Not so. That is ordinary income.

In retirement, ordinary income is usually pension, interest, all bond dividends (unless tax-exempt), non-qualified stock dividends, SS, short term capital gains and withdrawals from tax-deferred accounts. Long term capital gains and qualified dividends are taxed at the lower cap gains rates. There may be some things I've forgotten.

You are a long time away from retirement and your marginal rate then is very difficult to guess. But generally, a couple is often in a lower tax bracket than your current 22% in retirement. Singles can be in a lower bracket than your current 22%, but probably not most singles with your assets.

A 22% tax rate is fairly low. I don't think it will hurt you to continue using some Roth TSP while also using some traditional TSP.

You might see if using all traditional TSP would get your income low enough to qualify for the saver's credit.

Keep this in mind - traditional vs Roth gets a lot of discussion, but it is more important to just save money than where you put it (which is less important).
Thanks for the feedback! I definitely had a wire or two crossed. I might be obsessing a little too much over optimizing things... I will look into the saver's credit!
Topic Author
optimizator
Posts: 7
Joined: Wed Jun 01, 2022 12:07 am

Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by optimizator »

invest4 wrote: Tue Jun 21, 2022 11:24 am * Roth vs Traditional: I would encourage you to read the following post to expand your thinking and help inform your decision.

viewtopic.php?t=318512
That post is a great resource, thanks for listing it!
invest4 wrote: Tue Jun 21, 2022 11:24 am
* Simplicity: Do not underestimate the value of simplicity in your portfolio.

- Investments in your portfolio that do not have a reasonably significant % is simply not going to make a difference and not worth it (looking at you... taxable account).

- Optimization of ones portfolio is often on the mind and we look for ways to squeeze out the best returns including tilts to this or that, etc. While there is nothing wrong with this if you have a solid sense for the portfolio you want (ex: long term allocation to small caps), it has the potential to get messy, cost more in expenses, and often not achieve the desired out performance vs a simpler approach. Personally, I think anything more than 5 funds or so and you should probably have a think on it. YMMV.

- Easier to track and manage...less to think about. I did not really see the value until I joined this forum a few years ago (age 50 this year). You are already well ahead of the game by finding this place.

Best wishes.
Probably need to tighten some things up. Tracking and managing does take a good deal of time, probably why it took me so long to write this post to begin with... Will definitely ponder this
Topic Author
optimizator
Posts: 7
Joined: Wed Jun 01, 2022 12:07 am

Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by optimizator »

retired@50 wrote: Tue Jun 21, 2022 11:51 am
optimizator wrote: Tue Jun 21, 2022 9:59 am
retired@50 wrote: Tue Jun 21, 2022 9:35 am
optimizator wrote: Tue Jun 21, 2022 9:28 am I calculated my current marginal tax rate as 23.5%. This is 22% federal tax + 1.5% (approximately) local tax. I was a little confused on how to estimate withdrawal marginal tax rate. How do I factor in tax-free (Roth) withdrawals when calculating this (e.g. the amount I have in my Roth account at retirement could change which tax bracket I am in)?
The amount in a Roth IRA shouldn't have an impact on your marginal income tax bracket if you're making withdrawals according to the rules since they'd be tax-free. If you're withdrawing early you could face taxes on earnings and possibly a penalty.

See the colorful chart on the Roth IRA wiki page: https://www.bogleheads.org/wiki/Roth_IRA#Notes

Regards,
Thanks for the reply! I wasn't probably clear enough in my wording - doesn't my withdrawal marginal tax rate depend on the proportion I allocate into Traditional vs. Roth today? I.e. if I decide to max out Traditional today, I'll be due tax on withdrawal - how do I compare that with the non-taxable withdrawals if I were to max out Roth?

I figure I could possibly take the portion I expect to contribute to retirement with my taxable account and then compute the marginal rate for option 1 - Traditional and then option 2 - Roth:

Compute marginal w/ projected ($taxable + $traditional)?
Compute marginal w/ projected $taxable?

To get withdrawal marginal tax rate, I want to just take LTCG tax on the $taxable and $traditional, but I am probably missing SSI and qualified dividend income? I will admit I'm not very good with reasoning about the withdrawal rates. I would really appreciate it if someone would be willing to walk through an example for me or point me towards some resources. Most of the examples saw on the wiki page seem to be related to current marginal withdrawal.
Estimating your future income taxes is difficult, if not near impossible.

Let's just start there, and realize that guesses about what will happen 35 - 45 years into the future are just that, guesses.
I certainly agree with the difficult part :D. I don't really want to acknowledge that I will be guessing, but I think you're right, I probably shouldn't sweat this too much and I appreciate the walk through!
retired@50 wrote: Tue Jun 21, 2022 11:51 am
This website (linked below) may help you visualize the various tax treatments and income categories.
https://engaging-data.com/tax-brackets/

Hope this helps.

Regards,
This website is an awesome resource, I had never seen it before, very helpful at visualizing the tinkering.
Topic Author
optimizator
Posts: 7
Joined: Wed Jun 01, 2022 12:07 am

Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by optimizator »

FiveK wrote: Tue Jun 21, 2022 12:19 pm
optimizator wrote: Tue Jun 21, 2022 9:28 amI was a little confused on how to estimate withdrawal marginal tax rate. How do I factor in tax-free (Roth) withdrawals when calculating this (e.g. the amount I have in my Roth account at retirement could change which tax bracket I am in)?
Ignore Roth amounts. As retired@50 and retiredjg said, unless you take early withdrawals from Roth accounts, they don't affect your marginal tax rate at all.

One reasonably simple way to estimate your withdrawal situation, based on where you are now, is this:
(future income from traditional withdrawals) = (current pre-tax balance) * (1 + i)^n * WR
i = real return on pre-tax investments, %
n = number of years until retirement
WR = withdrawal rate from pre-tax accounts after retirement, %/yr

Use current tax law to determine the marginal tax rate for income on top of that amount.

Reasonable guesses for i, n, and WR can vary widely within (and even outside) the following ranges:
i - from 2% to 6% (depends on market behavior and asset allocation within the pre-tax accounts)
n - from ? to ? (very dependent on individual circumstances)
WR - from 3% (e.g., those who think the "4% rule" is optimistic) to 8% (e.g., those who want to reduce pre-tax balances before starting SS and RMDs)

There can be other income streams in retirement, with pensions usually the most significant prior to Soc. Sec., but as you'll see if you try different values for the three inputs above, this is not an exact science, especially for one far from retirement.

But you can take your best guess, act accordingly this year, then repeat the process in years to come. You may not get it perfect, but contributing at all is most important - whether you choose traditional or Roth for a given year is secondary.
Thank you for the math! It was just what I was looking for. I will work through it with my numbers when I can think a bit more clearly
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retiredjg
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Re: Portfolio Review Request (Trad vs. Roth 401k + TLH question)

Post by retiredjg »

optimizator wrote: Tue Jun 21, 2022 10:32 pm Probably need to tighten some things up. Tracking and managing does take a good deal of time, probably why it took me so long to write this post to begin with... Will definitely ponder this
You have $250k in savings and a bit of rental property and you are only 26 years old. You could kick back and save a ridiculously small amount like $5k a year from now on and still be very comfortable in retirement.

Optimize all you want if you enjoy it. But realize that none of that is needed for a successful future. A simple savings routine with simple funds will be more than enough.
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