401k: Why not only after-tax?

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international001
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401k: Why not only after-tax?

Post by international001 » Mon Sep 17, 2018 5:33 pm

(after you get the match)

My idea is that I want to use Roth instead of pre-tax. I have more pre-tax now and I'm betting that marginal taxes will increase in a few years. Or perhaps I'll get a raise

My Fidelity 401k allows me to invest in Roth 401k. I can put this funds on BrokerageLink and invest on whatever ETFs I want. But I cannot separate pre-tax and Roth on an ETF basis. And one I mixe pre-tax and Roth in BrokearageLink, I cannot separate them. I want to have some ETFs in pre-tax and some ETFs (the most aggressive) on Roth

If I do only after-tax 401k (forget traditional 401k pre-tax and 401k Roth), I can convert it into a Roth IRA once a year. I would have to pay some little amount on taxes, but it would be better long term.

Is anybody doing this?

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David Jay
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Re: 401k: Why not only after-tax?

Post by David Jay » Mon Sep 17, 2018 5:38 pm

I have seen a number of threads where people are balancing pre-tax and after-tax in their 401K accounts.

The bottom line: It is more efficient to use pre-tax if you expect to be in a lower tax bracket at withdrawal, it is more efficient to use after-tax if you expect to be in a higher tax bracket at withdrawal.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

jehovasfitness
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Re: 401k: Why not only after-tax?

Post by jehovasfitness » Mon Sep 17, 2018 5:43 pm

David Jay wrote:
Mon Sep 17, 2018 5:38 pm


The bottom line: It is more efficient to use pre-tax if you expect to be in a lower tax bracket at withdrawal, it is more efficient to use after-tax if you expect to be in a higher tax bracket at withdrawal.
+1

We are in 22% bracket and max out our 401k options first

retiredjg
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Re: 401k: Why not only after-tax?

Post by retiredjg » Mon Sep 17, 2018 5:56 pm

international001 wrote:
Mon Sep 17, 2018 5:33 pm
If I do only after-tax 401k (forget traditional 401k pre-tax and 401k Roth), I can convert it into a Roth IRA once a year. I would have to pay some little amount on taxes, but it would be better long term.
This could be true if you are in a very low tax bracket or in a lower tax bracket and expecting a pension.

Tax-deferral is a good thing for most people.

international001
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Re: 401k: Why not only after-tax?

Post by international001 » Tue Sep 18, 2018 3:53 am

For me the optimal is a balance between pre-tax and Roth. I want my marginal tax rate now to be equal to my marginal rate when I'm retired. This depends on the amount of SS and the amount of pre-tax

But this is not my question. My question is wether it's a good strategy to use only after-tax 401k. So I can flexibly decide which funds go to pre-tax and which funds go to Roth (after mega backdoor conversion) Or there is something I didn't think about?

Daryl
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Re: 401k: Why not only after-tax?

Post by Daryl » Tue Sep 18, 2018 4:07 am

The current year tax deferral is at my marginal tax rate. In three decades, when I take RMDs, I'll be "filling in" the lowest tax brackets first and my effective tax rate in retirement will be significantly less than my current marginal tax rate. When that happens, "tax deferral" essentially turns into "tax savings".

Juice3
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Re: 401k: Why not only after-tax?

Post by Juice3 » Tue Sep 18, 2018 4:39 am

international001 wrote:
Tue Sep 18, 2018 3:53 am
But this is not my question. My question is wether it's a good strategy to use only after-tax 401k. So I can flexibly decide which funds go to pre-tax and which funds go to Roth (after mega backdoor conversion) Or there is something I didn't think about?
You must decide how much fund pre tax 401K and after tax 401K / Roth 401K BEFORE you make the contributions. It is possible that your personal answer would be 0 pre tax and all after tax.

The advantage of after tax 401K contributions is they allow you to increase you annual maximum Roth contribution. However, because after tax 401K earnings are taxed as ordinary income, it is not recommended to allow investments to linger. Rather after tax 401K contributions should be converted to a Roth because earnings in the Roth are not taxed.

In other words, you have already decided how much you are funding pre tax and after tax when you make the 401K contribution. It would be silly to not actually complete the mega back door conversion of the after tax contributions to a Roth. Of course this all assumes the 401K plan allows both after tax contributions AND in service rollovers i.e. Mega Back Door Roth.

The scenarios where all after tax make sense is when your current margin tax rate is lower/same as you expect your future rate to be AND that you can afford to lock up your money with the Roth withdraw rules AND that you can pay the current taxes. I have most often heard people apply mega door when they are converting taxable after tax savings to Roths.

401K plans allowing after tax contributions and in service widthdralws seems to be the exception not the rule.

rkhusky
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Re: 401k: Why not only after-tax?

Post by rkhusky » Tue Sep 18, 2018 6:03 am

Make sure you have considered the effects of SS taxation and taxes on qualified dividends and cap gains. Both can cause marginal rates to be higher than one might expect. See https://www.bogleheads.org/wiki/Taxatio ... y_benefits

I see no reason to want marginal tax rates to be the same now and in retirement. I want the lowest now and lowest in retirement, such that my overall after-tax value is highest.

Do you get employer matching on after-tax contributions? Can you do after-tax contributions, without first maxing Traditional or Roth 401k contributions?

B. Wellington
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Re: 401k: Why not only after-tax?

Post by B. Wellington » Tue Sep 18, 2018 6:07 am

David Jay wrote:
Mon Sep 17, 2018 5:38 pm
I have seen a number of threads where people are balancing pre-tax and after-tax in their 401K accounts.

The bottom line: It is more efficient to use pre-tax if you expect to be in a lower tax bracket at withdrawal, it is more efficient to use after-tax if you expect to be in a higher tax bracket at withdrawal.
DW and I have wondered about this as well and what is the "best" choice for us? We have decided to do both for various reasons. IRA is (almost) all Roth long term holdings.

We pay taxes to the state each year so I increased the amount of pre-tax 401K for what little deduction we can get. A huge tIRA (t401K) balance would also come into play with RMD's later in life, something to think about as well. As always, YMMV...

retiredjg
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Re: 401k: Why not only after-tax?

Post by retiredjg » Tue Sep 18, 2018 6:36 am

international001 wrote:
Tue Sep 18, 2018 3:53 am
But this is not my question. My question is wether it's a good strategy to use only after-tax 401k. So I can flexibly decide which funds go to pre-tax and which funds go to Roth (after mega backdoor conversion) Or there is something I didn't think about?
I don't think your question is very clear. Regardless, it is probably not a good strategy to use only after-tax 401k. Maybe if you are in a lower tax bracket and only talking about 1 year - that might be OK.

In general, the tax-deferred vs already taxed decision should be based on taxes not funds. And it is a decision that should come before "which fund goes in which account".

international001
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Re: 401k: Why not only after-tax?

Post by international001 » Wed Sep 19, 2018 3:33 am

rkhusky wrote:
Tue Sep 18, 2018 6:03 am
Make sure you have considered the effects of SS taxation and taxes on qualified dividends and cap gains. Both can cause marginal rates to be higher than one might expect. See https://www.bogleheads.org/wiki/Taxatio ... y_benefits

I see no reason to want marginal tax rates to be the same now and in retirement. I want the lowest now and lowest in retirement, such that my overall after-tax value is highest.

Do you get employer matching on after-tax contributions? Can you do after-tax contributions, without first maxing Traditional or Roth 401k contributions?
YEs, I do matching if I contribute a percentage of pre-tax or Roth. But that's not an issue. I'm talking about the rest.

I would like to know the marginal tax rate to be lowest now or in retirement, of course, to make choices. But it's difficult to predict, because rate will depend on my choices as well. I'll suspect I'll have considerable amount of retirement money and my tax bracket at retirement will be high. So I don't want to have too much in pre-tax. I want to put some in Roth, particularly now that tax rates are low. If I'm paying 24% now for Roth, I want to make sure that I don't have to pay more than 24% for pre-tax when I retire it.

You can make your assumptions in a spreadsheet (consider returns, time...), but as a general rule of thumb I think it's a good strategy to try keep both rates in the same level. Upon uncertainty, right now I'm willing to max out my 24% bracket

international001
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Re: 401k: Why not only after-tax?

Post by international001 » Wed Sep 19, 2018 3:38 am

retiredjg wrote:
Tue Sep 18, 2018 6:36 am
international001 wrote:
Tue Sep 18, 2018 3:53 am
But this is not my question. My question is wether it's a good strategy to use only after-tax 401k. So I can flexibly decide which funds go to pre-tax and which funds go to Roth (after mega backdoor conversion) Or there is something I didn't think about?
I don't think your question is very clear. Regardless, it is probably not a good strategy to use only after-tax 401k. Maybe if you are in a lower tax bracket and only talking about 1 year - that might be OK.

In general, the tax-deferred vs already taxed decision should be based on taxes not funds. And it is a decision that should come before "which fund goes in which account".
Let me rephrase. My choice, that I already made, was having some money on Roth and some in pre-tax. This is to deal with the uncertainties of my tax bracket in retirement. Also, my choice, the common strategy often discuss in BH: If you have roth and pre-tax, use roth for more aggressive funds (let's say small cap) and pre-tax for less aggressive (let's say bonds)

roth and pre-tax above may refer in general, to IRA or 401k

Now, my problem is that roth 401k is not flexible enough. I'd rather prefer to have it in Roth IRA. So my strategy for doing so is to only do after-tax 401k (ignore the employer match for simplicity, let's say I can do 55k). I do a mega backdoor conversion and move it to a ROth IRA. Does it sound reasonable?

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Re: 401k: Why not only after-tax?

Post by bada bing » Wed Sep 19, 2018 4:29 am

I believe I understand your question. In a limited circumstance it would be a reasonable choice.
If you have determined:
You want all of your contributions to end up as Roth (forego the deduction now)
and You want all of your contributions rolled into a Roth IRA (outside of your 401k)
and You still get the benefit of your company match for after-tax non-Roth 401K contributions
-then it would be reasonable.

Most people end up better off with pre-tax contributions. The mega-backdoor is useful for
most people that do it as a way to shelter additional funds after they use the full qualified
contribution limit - not in lieu of pre-tax contributions. If that is your situation it is not typical.

retiredjg
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Re: 401k: Why not only after-tax?

Post by retiredjg » Wed Sep 19, 2018 7:17 am

international001 wrote:
Wed Sep 19, 2018 3:38 am
Now, my problem is that roth 401k is not flexible enough. I'd rather prefer to have it in Roth IRA. So my strategy for doing so is to only do after-tax 401k (ignore the employer match for simplicity, let's say I can do 55k). I do a mega backdoor conversion and move it to a ROth IRA. Does it sound reasonable?
I do not believe this is a reasonable strategy long term. You are putting less important things (how you place your funds) ahead of more important things (deferral of taxes until a time when your tax rate is lower).

If you feel woefully short on Roth space, I don't see a problem doing this for a year or two while in a lower tax bracket, in order to bump up your Rothness. But long term? I would not suggest it.

Tax-deferral can be a powerful tool for increasing the amount of money you have later in life. Most people should use their tax deferred space. There are some exceptions, but it is not apparent that you are one of them.

Fund placement, either traditional or Roth, may be of some limited importance in the long run, but it is not more important that tax-deferral on a reasonable amount of your income when you can.

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whodidntante
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Re: 401k: Why not only after-tax?

Post by whodidntante » Wed Sep 19, 2018 7:38 am

If you are in a high tax bracket today, say 24% fed + state tax, I would invest on a pre-tax basis up the limit of 18,500. I would also max an HSA and do a Roth or backdoor Roth IRA. If you have money left, then invest in an after tax 401k and do a mega backdoor Roth. If your current tax rate is low, prioritize Roth contributions and max those, then do after tax contributions if you have money left (doubtful).

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Re: 401k: Why not only after-tax?

Post by rantk81 » Wed Sep 19, 2018 8:00 am

Everyone's situation is different. In my case, while working at a (what I consider to be) high-income career, I want to take the opportunity to shield as much of my income as possible from the IRS. I live on only a fraction of my salary, and my tax burden each year is higher than nearly all of the rest of my other expenses, combined. I don't anticipate a large increase in spending after I retire. It makes perfect sense for me to defer taxes as much as possible.

international001
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Re: 401k: Why not only after-tax?

Post by international001 » Thu Sep 20, 2018 2:57 am

IT looks most answers gravitate towards a pre-tax vs Roth position

I thought it had been settled in other BH posts that the best option is having a mix of them when there is uncertainty. If I knew the returns on the future and m retirements plans, I would just put it on a spreadsheet. Currently taxes are lower that are likely to be in the future. On top of this, I may retire in a higher tax country. I already have lots of pre-tax, so I want to build some Roth. Also, RMD may be a pain to avoid in a pre-tax 401k. Also, it's considered better to have some more Roth while young and pre-tax later in life (when you are more likely to have a higher salary). Unfortunately, nobody made me think about it when I was younger (didn't know about BH).

For those of us who want to have some Roth, any reason to have it on a 401k Roth instead of a Roth IRA?

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marklearnsbogle
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Re: 401k: Why not only after-tax?

Post by marklearnsbogle » Thu Sep 20, 2018 11:53 am

David Jay wrote:
Mon Sep 17, 2018 5:38 pm
I have seen a number of threads where people are balancing pre-tax and after-tax in their 401K accounts.

The bottom line: It is more efficient to use pre-tax if you expect to be in a lower tax bracket at withdrawal, it is more efficient to use after-tax if you expect to be in a higher tax bracket at withdrawal.
+1
"Nothing is simpler than owning the stock market and holding it forever, and that’s essentially the idea behind the index fund.” - Bogle.

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Re: 401k: Why not only after-tax?

Post by Jags4186 » Thu Sep 20, 2018 12:03 pm

international001 wrote:
Tue Sep 18, 2018 3:53 am
For me the optimal is a balance between pre-tax and Roth. I want my marginal tax rate now to be equal to my marginal rate when I'm retired. This depends on the amount of SS and the amount of pre-tax

But this is not my question. My question is wether it's a good strategy to use only after-tax 401k. So I can flexibly decide which funds go to pre-tax and which funds go to Roth (after mega backdoor conversion) Or there is something I didn't think about?
The easiest solution is to do pretax and then invest your tax savings into a Roth IRA or if that is already filled/you’re ineligible you use a traditional account. In the 22% bracket after putting $18,500 into your pretax 401k you save $4,070 in taxes. Use that to find a taxable account.

Don’t be so sure about taxes being higher in the future. The overall trend in income taxes has been down for many many years. My goal is to accumulate as many dollars as possible and then worry about how to deal with taxes later.

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Re: 401k: Why not only after-tax?

Post by deltaneutral83 » Thu Sep 20, 2018 12:59 pm

Also with pre tax you have the option during lean years (taking time off, gap between jobs, retire before 70, etc. etc.) to convert to Roth at an even lower rate than your earning and/or retirement years.

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whodidntante
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Re: 401k: Why not only after-tax?

Post by whodidntante » Thu Sep 20, 2018 10:28 pm

marklearnsbogle wrote:
Thu Sep 20, 2018 11:53 am
David Jay wrote:
Mon Sep 17, 2018 5:38 pm
I have seen a number of threads where people are balancing pre-tax and after-tax in their 401K accounts.

The bottom line: It is more efficient to use pre-tax if you expect to be in a lower tax bracket at withdrawal, it is more efficient to use after-tax if you expect to be in a higher tax bracket at withdrawal.
+1
If you also invest the tax savings and also let that investment compound, pre-tax leads to even better outcomes. There is also the advantage that you don't drawdown all in one transaction, so that money compounds for the rest of your life, partly.

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Re: 401k: Why not only after-tax?

Post by MotoTrojan » Thu Sep 20, 2018 10:37 pm

I am confused by your comment about after-tax 401k (different than Roth) and rolling it into a Roth IRA and paying taxes... this is something you can do after maxing a 401k, but why wouldn't you just go straight to Roth 401k to start?

Also to those simplifying it to what your marginal tax rate will be in retirement, don't forget that you may be able to fill up lower tax brackets using pre-tax assets and then Roth once you reach your maximum tax-bracket... Don't oversimplify things.

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Re: 401k: Why not only after-tax?

Post by MotoTrojan » Thu Sep 20, 2018 10:38 pm

international001 wrote:
Thu Sep 20, 2018 2:57 am

For those of us who want to have some Roth, any reason to have it on a 401k Roth instead of a Roth IRA?
An IRA is almost always better, unless your 401k has a fancy fund unavailable elsewhere (maybe a stable value fund).

I think maxing a pre-tax 401k and then a Roth IRA is a great goal and diversifies the taxes nicely too.

international001
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Re: 401k: Why not only after-tax?

Post by international001 » Fri Sep 21, 2018 5:45 pm

MotoTrojan wrote:
Thu Sep 20, 2018 10:37 pm
I am confused by your comment about after-tax 401k (different than Roth) and rolling it into a Roth IRA and paying taxes... this is something you can do after maxing a 401k, but why wouldn't you just go straight to Roth 401k to start?
Essentially, I'm already contributing from 18k to 54k in after-tax. I'll convert them into a Roth IRA
The first 18k are going into a Roth 401k

I'm just thinking if I should also put the 18k into an after-tax. I'll convert them into a ROth IRA as soon as I can

The inconvenient I find are the little taxes I'll have to pay for the few months the after-tax are generating earnings (before I do the conversion)

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Re: 401k: Why not only after-tax?

Post by MotoTrojan » Fri Sep 21, 2018 5:46 pm

international001 wrote:
Fri Sep 21, 2018 5:45 pm
MotoTrojan wrote:
Thu Sep 20, 2018 10:37 pm
I am confused by your comment about after-tax 401k (different than Roth) and rolling it into a Roth IRA and paying taxes... this is something you can do after maxing a 401k, but why wouldn't you just go straight to Roth 401k to start?
Essentially, I'm already contributing from 18k to 54k in after-tax. I'll convert them into a Roth IRA
The first 18k are going into a Roth 401k

I'm just thinking if I should also put the 18k into an after-tax. I'll convert them into a ROth IRA as soon as I can

The inconvenient I find are the little taxes I'll have to pay for the few months the after-tax are generating earnings (before I do the conversion)
So you don't have an option to do a Roth 401k for the $18.5k? Not sure I follow your mixing comment about your brokerage.

If you are saving this much I imagine you are in a tax-bracket where pre-tax money would be useful. Why not stick with your current plan so you have a diverse mix of pre-tax and post-tax assets? Do recall that you don't only pay marginal tax in retirement...

international001
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Re: 401k: Why not only after-tax?

Post by international001 » Fri Sep 21, 2018 5:49 pm

deltaneutral83 wrote:
Thu Sep 20, 2018 12:59 pm
Also with pre tax you have the option during lean years (taking time off, gap between jobs, retire before 70, etc. etc.) to convert to Roth at an even lower rate than your earning and/or retirement years.
I agree in general.. But right now I think I'll be better by doing only roth for a few years

international001
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Re: 401k: Why not only after-tax?

Post by international001 » Fri Sep 21, 2018 5:53 pm

MotoTrojan wrote:
Fri Sep 21, 2018 5:46 pm
So you don't have an option to do a Roth 401k for the $18.5k? Not sure I follow your mixing comment about your brokerage.

If you are saving this much I imagine you are in a tax-bracket where pre-tax money would be useful. Why not stick with your current plan so you have a diverse mix of pre-tax and post-tax assets? Do recall that you don't only pay marginal tax in retirement...
I'm extra-saving to make up for lost time, so for a few years I want to do Roth up to the $54k limit. I already have enough pre-tax

I do have Roth 401k for the first $18k, but I'm thinking it's better to use them in after-tax and converting them to a Roth IRA. Roth IRA sounds better than Roth 401k

international001
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Re: 401k: Why not only after-tax?

Post by international001 » Fri Sep 21, 2018 5:58 pm

MotoTrojan wrote:
Thu Sep 20, 2018 10:38 pm

An IRA is almost always better, unless your 401k has a fancy fund unavailable elsewhere (maybe a stable value fund).

I think maxing a pre-tax 401k and then a Roth IRA is a great goal and diversifies the taxes nicely too.
My Roth 401k is pretty good. But as I mentioned in the OP, one of the problems is that I cannot separate what funds I want for Roth 401k and which ones for pre-tax 401k

I undestand also that is easy to withdraw contributions from a Roth IRA (before retirement). So it seems Roth IRA is more flexible

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Re: 401k: Why not only after-tax?

Post by QoolQat » Fri Sep 21, 2018 6:12 pm

I have a similar situation (a lot of pre-tax) and decided to contribute to the company's Roth 401K and After Tax (in plan conversion to the Roth 401K) total of $55K in 2018. This is my second year doing this and I feel good about the decision so far.
My thoughts were:
1. Tax rate now is most likely lower than it will be in retirement
2. After tax contributions are worth more than pretax contributions (essentially able to save more)
3. Will roll Roth 401K in to Roth IRA in late 60's to avoid RMD's at 70.

Hope this makes sense.

qq

international001
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Re: 401k: Why not only after-tax?

Post by international001 » Sat Sep 22, 2018 9:49 am

Yes.. makes sense.. and you brought an extra point. If you are already maxing at $55k, it's better to do Roth because it effectively means more $$ saved (limit is the same whether is taxed or pre-tax)

But my point is why even Roth 401k at all. Isn't it better Roth IRA also during your contribution years?

QoolQat
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Re: 401k: Why not only after-tax?

Post by QoolQat » Sat Sep 22, 2018 10:19 am

international001 wrote:
Sat Sep 22, 2018 9:49 am
But my point is why even Roth 401k at all. Isn't it better Roth IRA also during your contribution years?

Our 401K with Fidelity automatically converts (daily) any after tax contributions to the Roth 401K.
Fidelity's Brokerage Link option gives me all the investment options I need.
401K's have much more legal protection than IRA's, if you ever need it.

MotoTrojan
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Re: 401k: Why not only after-tax?

Post by MotoTrojan » Sat Sep 22, 2018 5:41 pm

I would wager any benefit you gain is overshadowed by the tax drag of converting to Roth IRA. I think you are over analyzing the idea of using Roth for aggressive assets and pretax for less aggressive.

I’d just do the Roth $18.5 401k and then after tax.

international001
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Re: 401k: Why not only after-tax?

Post by international001 » Mon Sep 24, 2018 4:41 am

What do you mean over analyzing? Don't you think it's advantageous? Over the long term, if you get 8% in Roth and 6% on pre-tax, It would make quite a bit difference vs having 7% on both. This would seem to overweight any costs for after-tax -> Roth IRA conversion

YMMV

aristotelian
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Re: 401k: Why not only after-tax?

Post by aristotelian » Mon Sep 24, 2018 9:48 am

OP, read these threads before determining in advance that your retirement tax rate is going to be higher.
viewtopic.php?t=87471
https://www.gocurrycracker.com/roth-sucks/
https://www.gocurrycracker.com/the-go-c ... 013-taxes/

Usually retirement taxable income will be significantly lower, especially if you plan for it. Only exception may be if you are a student or very low income with expectation of a high income future career.

Nate79
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Re: 401k: Why not only after-tax?

Post by Nate79 » Mon Sep 24, 2018 10:14 am

Remember the that you are contributing at your marginal tax rate but will withdraw at a lower effective rate due to tax brackets. So effectively you need to have a significant size of pre tax funds to fill up the lower tax brackets first. You can calculate how much this would be (@4%SWR) before worry about having a higher tax rate in retirement.

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Re: 401k: Why not only after-tax?

Post by JBTX » Mon Sep 24, 2018 10:30 am

international001 wrote:
Fri Sep 21, 2018 5:45 pm
MotoTrojan wrote:
Thu Sep 20, 2018 10:37 pm
I am confused by your comment about after-tax 401k (different than Roth) and rolling it into a Roth IRA and paying taxes... this is something you can do after maxing a 401k, but why wouldn't you just go straight to Roth 401k to start?
Essentially, I'm already contributing from 18k to 54k in after-tax. I'll convert them into a Roth IRA
The first 18k are going into a Roth 401k

I'm just thinking if I should also put the 18k into an after-tax. I'll convert them into a ROth IRA as soon as I can

The inconvenient I find are the little taxes I'll have to pay for the few months the after-tax are generating earnings (before I do the conversion)
It really depends on the specifics of your situation, but on balance if you are getting $36K a year already in mega backdoor Roth, I'd keep the $18K pre tax.

The only reasons you may not want to do pretax

- You are in low tax bracket (12% or below federal), but you aren't eligible for Saver's credit
- and/or contributing to pretax will not lower your AGI enough to contribute to Roth IRA
- and You have already saved a substantial amount in pretax (projected to grow to over $500K)
- and/or you will have substantial income in retirement (like a pension or real estate investments, or substantial work)
- and/or you do not plan to retire early, and will take social security shortly after you retire.
- OR - you are not committed to reinvesting the tax savings of a pre tax traditional into another investment account (Roth, or taxable) and keeping it there to retirement

MathWizard
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Re: 401k: Why not only after-tax?

Post by MathWizard » Mon Sep 24, 2018 12:14 pm

If you were in the top bracket, and expect to be in the top bracket when you retire (huge taxable account),
then I guess it could make sense to have your entire 401k contribution be after-tax, but any company match will be
still be pretax.

I think that this would be a rare situation.

international001
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Joined: Thu Feb 15, 2018 7:31 pm

Re: 401k: Why not only after-tax?

Post by international001 » Tue Sep 25, 2018 6:24 am

I understand the difference between effective and marginal tax rate at retirement. This is why I want to have a mix of pre-tax and Roth. My current marginal rate is 24%. I don't know what will it be for retirement, but my bet is that there is an asymmetrical risk. It is possible that goes down a little but it's also possible that it goes up a lot. So I'm comfortable paying 24% while these new tax brackets last. I may contribute some more pre-tax in the future.

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