Probably the most common question on this forum is some variance of debt payoff versus investing.
I think the most common advice is that you should stick as much as humanly possible in a pre-tax account, essentially because your tax bracket will be lower in retirement than it is now. This is a fair assumption -- one can expect to make more money while working than when they are in retirement, and thus taxes should be lower in retirement.
However, what has me pausing to invest *too much* into pre-tax is RMDs and their effect on my taxes. I did some quick compound interest and then RMD math and found that if I went hog-wild on pre-tax investing, my RMDs would be astronomically higher than my current tax rate.
In one simulation, in which I leveraged almost as much pre-tax investing as currently possible, our investment accounts would total $11.49M at age 70. Using the Schwab RMD calculator (assuming equal retirement accounts of $5.75M), we could expect RMD's of $210,000 EACH. This would be $420,000 income for the year, which would put us in quite easily the highest of tax brackets.
And in that scenario, my tax rate this year is mostly 12%. Am I not better off just taking this money and paying off debt, or investing in brokerage accounts and/or Roths, than stuffing way too much into tax-deferred accounts?
I understand that a lot of this money would be from gains, but it's hard for me to conceptualize and/or calculate how much of my *investment* was taxed versus how much of my *investment plus gains* are being taxed.
But that said, I'm starting to believe that you could invest *too much* in pre-tax when you could be paying off debt, investing in post-tax accounts (Roth, brokerage, etc.).
Thoughts?