Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

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Topic Author
sf_work
Posts: 8
Joined: Mon Oct 15, 2018 12:23 pm

Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by sf_work » Thu Feb 13, 2020 11:56 am

Hi Folks,
I am evaluating my options for future contributions to my 401(k) plan. Please help me decide if I can go 100% Roth or should I keep a mix of traditional and Roth options.

401(k) Options - My employer offers both traditional and Roth 401 with 6% match on both Roth and Traditional 401(k) plan. I have good choices of mutual funds from Vanguard.

Target
- Retire at 56(4 years left) or 2.5MM investment level whichever happens first.
- Plan to work part-time as a consultant post-retirement. SS option available but no pension.

Current situation
Age - Self 52, wife 45(home maker), I am the single earner
Kids- independent, I have almost zero expenses in that area

Investments ($1.57MM)
- Rollover IRA - $500k
- Traditional (401k) - $470k, maxing out for the last 15+ years.
- Roth (401k)- $20k ( I learned late about Roth), current 50%
- Ally brokerage - $330k distributed in FAANG, TESLA and BYND
- Company Stock Plan (ESPP) - $250k

Assets
- Home Value - $750k

Liabilities
- Homes - Paid off
- Cars - Paid off
- Student Loan - None

Monthly expenses
- $4,000/months (simple lving in Southern CA)

Besides Roth vs traditional question, any other suggestions is also welcome.

Thanks,

niceguy7376
Posts: 2611
Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by niceguy7376 » Thu Feb 13, 2020 12:01 pm

What tax bracket will you now be while working?
That will factor a lot into the decision.
Also, what does your SS benefit say at the 3 different eligible years.

jeroly
Posts: 78
Joined: Wed Jan 24, 2018 2:07 pm

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by jeroly » Thu Feb 13, 2020 12:04 pm

1. Do you think that your tax rate will be higher or lower in retirement than it is now?
- Higher or the same —> Roth is better
- Lower —> Traditional is better

2. Do you want to boost the amount of income that will eventually be generated from tax sheltered investments, but are already maxed out on 401(k) / Roth IRA / HSA? Since Roth contributions are already post tax you wind up with more (at the cost of having paid the taxes already).

retiredjg
Posts: 39356
Joined: Thu Jan 10, 2008 12:56 pm

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by retiredjg » Thu Feb 13, 2020 12:05 pm

What is your tax bracket? How much are you saving each year and in what accounts?

bloom2708
Posts: 7220
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by bloom2708 » Thu Feb 13, 2020 12:08 pm

Do you expect your income needs to be in that $4k/month range during retirement?

What does your combined SS picture look like?

Why no regular Roth IRAs for either? You could be doing the back door method if over the $186k income limit for regular Roth.

You are at the point where getting more Roth might be a good idea. But, you will also likely be in a pretty low tax bracket until SS. That means you could do Roth Conversions at a low rate for some of the pre-tax.

Does your work 401k offer a Post-Tax with Roth Conversion option? aka Mega Back Door Roth.

You have 1/3 of your investments in 4 stocks. I probably would do something about that. One way would be to sell ESPP or the individual stocks to live off and "transfer" to your Roth 401k and Post-Tax to Roth 401k (if offered).

Essentially reducing taxable to blast in ~$50k of Roth each year. Match dollars are always pre-tax, so those stay pre-tax.

I'd turn off dividends on those stocks and start paring them down. ESPP should be pared down, at least sell new shares with little gain when you get them.

I actually think you'd be fine stick with pre-tax, but having more in Roth at low tax rates isn't a bad option.

Hopefully other give you some ideas.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

JBTX
Posts: 5873
Joined: Wed Jul 26, 2017 12:46 pm

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by JBTX » Thu Feb 13, 2020 12:09 pm

sf_work wrote:
Thu Feb 13, 2020 11:56 am
Hi Folks,
I am evaluating my options for future contributions to my 401(k) plan. Please help me decide if I can go 100% Roth or should I keep a mix of traditional and Roth options.

401(k) Options - My employer offers both traditional and Roth 401 with 6% match on both Roth and Traditional 401(k) plan. I have good choices of mutual funds from Vanguard.

Target
- Retire at 56(4 years left) or 2.5MM investment level whichever happens first.
- Plan to work part-time as a consultant post-retirement. SS option available but no pension.

Current situation
Age - Self 52, wife 45(home maker), I am the single earner
Kids- independent, I have almost zero expenses in that area

Investments ($1.57MM)
- Rollover IRA - $500k
- Traditional (401k) - $470k, maxing out for the last 15+ years.
- Roth (401k)- $20k ( I learned late about Roth), current 50%
- Ally brokerage - $330k distributed in FAANG, TESLA and BYND
- Company Stock Plan (ESPP) - $250k

Assets
- Home Value - $750k

Liabilities
- Homes - Paid off
- Cars - Paid off
- Student Loan - None

Monthly expenses
- $4,000/months (simple lving in Southern CA)

Besides Roth vs traditional question, any other suggestions is also welcome.

Thanks,

- what is your tax bracket, both state and federal?
- what is your target income in preretirement while consulting?
- when do you plan on drawing SS?
- what will you do about benefits after you are no longer an employee but before Medicare?
- what sort of goals, if any, do you have about leaving money to heirs, and potentially leaving any of that in trusts?

Topic Author
sf_work
Posts: 8
Joined: Mon Oct 15, 2018 12:23 pm

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by sf_work » Thu Feb 13, 2020 12:10 pm

niceguy7376 wrote:
Thu Feb 13, 2020 12:01 pm
What tax bracket will you now be while working?
That will factor a lot into the decision.
Also, what does your SS benefit say at the 3 different eligible years.
25% tax rate expected
Not planning to take SS before 67.5 so max SS benefit is expected. Not sure about $ figure

123
Posts: 5544
Joined: Fri Oct 12, 2012 3:55 pm

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by 123 » Thu Feb 13, 2020 12:17 pm

Based on your age, assets, and retirement plans in your situation I would got 100% Roth 401(k). Yeah the tax bracket matters but you've got a great base in the existing traditional IRA and traditional 401k balances that could grow substantially by your RMD time at age 72.

We've been in a somewhat similar situation and gone over to Roth 401(k) contributions, the size of our tradtional IRA/401K balances has started to scare us when we start to plot out our expenses and likely RMDs (that damn bogleheads mentality can't help but grow your assets higher than you ever thought possible).
The closest helping hand is at the end of your own arm.

Topic Author
sf_work
Posts: 8
Joined: Mon Oct 15, 2018 12:23 pm

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by sf_work » Thu Feb 13, 2020 12:26 pm

123 wrote:
Thu Feb 13, 2020 12:17 pm
the size of our tradtional IRA/401K balances has started to scare us when we start to plot out our expenses and likely RMDs (that damn bogleheads mentality can't help but grow your assets higher than you ever thought possible).
You have spoken my mind. Thank you :happy

retiredjg
Posts: 39356
Joined: Thu Jan 10, 2008 12:56 pm

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by retiredjg » Thu Feb 13, 2020 12:34 pm

123 wrote:
Thu Feb 13, 2020 12:17 pm
Based on your age, assets, and retirement plans in your situation I would got 100% Roth 401(k). Yeah the tax bracket matters but you've got a great base in the existing traditional IRA and traditional 401k balances that could grow substantially by your RMD time at age 72.
This was my first thought as well, but retiring at 56 gives one a very long time to do conversions at lower rates. Maybe. Still waiting for more information.

Topic Author
sf_work
Posts: 8
Joined: Mon Oct 15, 2018 12:23 pm

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by sf_work » Thu Feb 13, 2020 12:48 pm

JBTX wrote:
Thu Feb 13, 2020 12:09 pm


- what is your tax bracket, both state and federal?
- what is your target income in preretirement while consulting?
- when do you plan on drawing SS?
- what will you do about benefits after you are no longer an employee but before Medicare?
- what sort of goals, if any, do you have about leaving money to heirs, and potentially leaving any of that in trusts?
- Current 28% tax rate plus CA state taxes
- Expecting <$100k/year post retirement consulting income
- SS drawing at full retirement age 66 (14 years away)
- I haven't yet researched the medical coverage options between 56 and Medicare starting point. Any suggestion ?
- Kids will probably going to be richer than I am :happy . My post-retirement goal is to live simple and healthy life, not run out money before I die and leave left-over money to charity and to my heirs

JBTX
Posts: 5873
Joined: Wed Jul 26, 2017 12:46 pm

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by JBTX » Thu Feb 13, 2020 1:01 pm

sf_work wrote:
Thu Feb 13, 2020 12:48 pm
JBTX wrote:
Thu Feb 13, 2020 12:09 pm


- what is your tax bracket, both state and federal?
- what is your target income in preretirement while consulting?
- when do you plan on drawing SS?
- what will you do about benefits after you are no longer an employee but before Medicare?
- what sort of goals, if any, do you have about leaving money to heirs, and potentially leaving any of that in trusts?
- Current 28% tax rate plus CA state taxes
- Expecting <$100k/year post retirement consulting income
- SS drawing at full retirement age 66 (14 years away)
- I haven't yet researched the medical coverage options between 56 and Medicare starting point. Any suggestion ?
- Kids will probably going to be richer than I am :happy . My post-retirement goal is to live simple and healthy life, not run out money before I die and leave left-over money to charity and to my heirs
Purely by the numbers and based on probabilities going with traditional probably works best. If your combined tax rate is over 30% it is hard to pass up that deduction.

The alternative is doing Roth conversions down the road. It doesn't appear you will ever be in a very low bracket.

As to medical benefits, you may have employer cobra which you can get for 18 months, possibly longer in some cases, but you have to pay for 100% of the benefits. There is always ACA exchange. If you have over $100k you probably won't get subsidies. The reason I asked is with ACA if you have low income in pre retirement you can get subsidies, and income like Roth conversions can erode your subsidies.

As to estate planning, if you plan to leave kids substantial ira money in trusts, with new tax laws isn't terribly favorable for traditional IRAS.

jeroly
Posts: 78
Joined: Wed Jan 24, 2018 2:07 pm

Re: Should I completely dump my traditional 401(k) and go 100% with Roth 401(k)?

Post by jeroly » Thu Feb 13, 2020 7:32 pm

sf_work wrote:
Thu Feb 13, 2020 12:48 pm
JBTX wrote:
Thu Feb 13, 2020 12:09 pm


- what is your tax bracket, both state and federal?
- what is your target income in preretirement while consulting?
- when do you plan on drawing SS?
- what will you do about benefits after you are no longer an employee but before Medicare?
- what sort of goals, if any, do you have about leaving money to heirs, and potentially leaving any of that in trusts?
- Current 28% tax rate plus CA state taxes
- Expecting <$100k/year post retirement consulting income
- SS drawing at full retirement age 66 (14 years away)
- I haven't yet researched the medical coverage options between 56 and Medicare starting point. Any suggestion ?
- Kids will probably going to be richer than I am :happy . My post-retirement goal is to live simple and healthy life, not run out money before I die and leave left-over money to charity and to my heirs
Your full retirement age will be 67 not 66.

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