Author Topic: Breakout b/w Taxable & Tax Deferred  (Read 877 times)


  • Bristles
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Breakout b/w Taxable & Tax Deferred
« on: June 16, 2019, 11:57:05 AM »
I'm wondering if I should max out my i401k pre-tax or post tax for 2019 and future years? Opinions please.....

Here's a breakdown of our assets as of 5/31/19 (we're late 30's/early 40's with 2 kids):

401k (H) - $411k
i401k (W) - $235k - almost time to file form 5500...
Roth (H) - $17k
Roth (W) - $36k
HSA - $18k
Taxable Inv. (J) - $236k - 90% is highly appreciated index funds

Assets in wife's (my) name only:
Bene IRA - $505k, ~10k RMD
TOD Taxable  - $450k

Total taxable - $686k
Total tax deferred - $1.15M
Total Roth - $53k
Total HSA - 18k
Grand Total - $1.907M

In-laws have established 529 plans for children - they each have $40k, we are not planning to make contributions from our funds at this time.

Our gross income is around $190k. We're maxing Roth every year as well as all pre-tax contributions at husband's job - HSA, dep. care FSA, 401k.

I will make about $60k in self-employment income this year.  The max i401k contribution is about $30k.  I'll need to pull from my inherited taxable account to fund the contribution. I realize this is co-mingling in the case of divorce.  I have already co-mingled in the past for family vacations, etc. so that's a done deal and I'm fine with it. Our relationship is stable but seeing what I've seen in my life, I understand that anything can happen, and I'm okay with that.  We may buy a new house in a year or two depending on what happens with the economy/housing market.  I don't think we'd need any cash for the purchase as we would roll the equity we have in our currently house ~$250k. Husband is worried about converting taxable funds to tax deferred and "locking them up" for the next 20 or so years.

Should I make the full i401k contribution?
Should I consider a Roth i401k contribution? Maybe 50/50? I hate turning down the current year tax break!!!



  • Senior Mustachian
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  • Posts: 10795
Re: Breakout b/w Taxable & Tax Deferred
« Reply #1 on: June 16, 2019, 12:44:26 PM »
Should I make the full i401k contribution?
Probably.  See How to withdraw funds from your IRA and 401k without penalty before age 59.5.
Should I consider a Roth i401k contribution? Maybe 50/50? I hate turning down the current year tax break!!!
Depends on the tax rate you would save from traditional now, vs. the tax rate you expect to pay when withdrawing.  See Investment Order for one way to estimate the withdrawal tax rate.


  • Magnum Stache
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Re: Breakout b/w Taxable & Tax Deferred
« Reply #2 on: June 16, 2019, 01:38:18 PM »
Roth vs traditional always comes down to marginal rate now vs (expected) marginal rate in retirement. One twist is that now, with the 199a pass through deduction on qualified business income, traditional solo 401(k) contributions reduce the deduction while Roth contributions do not. What this does is reduce the marginal tax savings of a traditional solo 401(k) contribution by 20% making Roth more attractive relative to how the number used to work out. Traditional may still be the way to go, but Roth is more likely to be the way to go than it used to be.

At your income level you're probably in the 22% bracket, but maybe close the 24% bracket depending on your other deductions (like whether your husband's 401(k) contributions are traditional or Roth). Contributing to traditional solo 401(k) will save you 17.6% or  19.2% respectively. Even a moderately mustachian budget in retirement that all comes from tax deferred (as opposed to some coming from taxable or Roth) would have tax rates below that meaning traditional is the way to go, and if you expect state taxes to be lower in retirement that would also favor traditional. As you can see, once the QBI deduction is factored in it's a lot closer to Roth making sense though, so if you have a low state tax rate now, making Roth contributions would be pretty close to an ok idea (not totally optimal, but reduces some future tax rate uncertainty).