Stop contributing to pre-tax (401K)?

[djadziadax]

I need some advise - I am about 1 year away from pulling the plug, and the market has been so good to us (and seems everyone else) that now I am worried about having too much money in pre-tax accounts. I am wondering if it is not better for this last year to plow the 20K into a Roth 401K rather than a pre-tax one that I usually do. DH will continue to contribute to his 401K. We will be able to save about 120K all in in 2022. Our marginal rate will be 22%.

DH will continue to work for another 2 years after I pull the plug, so we will have our expenses covered from that cash flow. After I can start doing a Roth ladder, while living off of brokerage and cash. I know there is a real risk of having too much in taxable, but I am not aware of how to model that risk...any ideas will be appreciated.

Pre tax accounts (all in) - $810K
Roth Ira - $123K
Brokerage - $500K
Cash - $40K

[jsap819]

Someone more knowledgeable will probably answer these more specifically for you. But I'll take a stab at it. Unless you're going to end up in a higher tax bracket in retirement, I would still max out your 401k over the Roth 401k. The savings is 22%.  I would look at this way, why would you pay 22% in taxes to invest the remaining amount after taxes?

[djadziadax]

Someone more knowledgeable will probably answer these more specifically for you. But I'll take a stab at it. Unless you're going to end up in a higher tax bracket in retirement, I would still max out your 401k over the Roth 401k. The savings is 22%.  I would look at this way, why would you pay 22% in taxes to invest the remaining amount after taxes?

This is a good way of looking at it, thanks! I know it sounds like a rookie question, but I was probably overthinking the "too much in pre-tax" portion of the equation.

Is there any resource out there telling us what is "too much" in pre-tax v. after tax?

[EvenSteven]

Someone more knowledgeable will probably answer these more specifically for you. But I'll take a stab at it. Unless you're going to end up in a higher tax bracket in retirement, I would still max out your 401k over the Roth 401k. The savings is 22%.  I would look at this way, why would you pay 22% in taxes to invest the remaining amount after taxes?

This is a good way of looking at it, thanks! I know it sounds like a rookie question, but I was probably overthinking the "too much in pre-tax" portion of the equation.

Is there any resource out there telling us what is "too much" in pre-tax v. after tax?

I would say if your combined pension, social security, inherited IRAs, and RMDs would put you in a higher tax bracket than you are now, then you have too much in tax deferred.

If you think you will be charitably inclined in your later years with lots of money, qualified charitable distributions can satisfy your RMDs from tax deferred accounts.

Edit: Add in interest, dividends, and distributed capital gains in taxable accounts to the above for estimating future tax rate.

[jsap819]

Someone more knowledgeable will probably answer these more specifically for you. But I'll take a stab at it. Unless you're going to end up in a higher tax bracket in retirement, I would still max out your 401k over the Roth 401k. The savings is 22%.  I would look at this way, why would you pay 22% in taxes to invest the remaining amount after taxes?

This is a good way of looking at it, thanks! I know it sounds like a rookie question, but I was probably overthinking the "too much in pre-tax" portion of the equation.

Is there any resource out there telling us what is "too much" in pre-tax v. after tax?

Your age may play a huge factor with the right answer to this question. If you're young and have over funded your 401k, you may have years or decades to do some roth conversion before RMD's kick in up to a certain favorable tax bracket to lower the balance of the 401k. Otherwise, having too much in your 401k is a good problem to have. There are ways to solve that problem if or when you get there.

[djadziadax]

Some great points, thank you so much jsap819 and EvenSteven. We have 25 yrs to RMDs, and only have SS and pre-tax (no inherited money, pension etc) so I cannot imagine that we will ever be in a tax bracket over 22% at that time, even if rates "creep down". Our max spend will be 80K and I cannot imagine 80K MFJ will ever be taxed at more than 22% (unless we migrate to European style taxation with rates at 45% starting at 50K euro, but I do not see that happening).

All of your comments crystalized all these points for me, thank you again!