The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: ZiziPB on December 14, 2017, 09:56:30 AM
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I'm planning to FIRE at the end of March 2018 and need to make a decision whether I want to max my 401k contributions during the first 3 months of the year or am I better off contributing just enough to get the match (6%) and putting money into the taxable account instead. I will be 50, so I can do the regular contribution and the catchup. Expected income for the first 3 months will likely be in $150K+ range due to a bonus and RSU vesting that takes place in March. Filing status is single. I currently have about $600K in taxable and about $750K in tax deferred accounts which I am planning to convert Roth over time. My expectation is that I will not be able to convert it all over 20 years and that I will be taking some RMDs.
ETA: RSUs don't count towards the 401k contributions so I expect an income of about $100K that would be the basis of the deferrals. So we're talking about contributing 6% or 24% of that.
Thoughts?
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Here is my back of the napkin "analysis".
Normally, I'm in the 33% federal bracket plus 6.50% for the state. So maxing out the 401k was a no brainer. Assuming no new tax bill, I'd be in the 28% federal bracket plus 6% for the state in 2018. I don't think I'll be able to stay in the 15% bracket in retirement. I may end up in 25%.
Is that enough of a difference to max the 401k instead of investing in taxable? What say you?
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I'd put it in the 401K. Your spending could be lower than projected, you could move, tax rates can change (such as a lot of the 25% bracket becoming a 22.5% bracket in the near term). All of these things can swing both ways of course, but 34% is a pretty big savings today.
Luckily, we're only talking about a little under 2% of your total investments, so even if you pick wrong for these last $24K deferral dollars, you're gonna be just fine overall.