Long story short, this year my wife and I should begin making more than the amount that would allow us to qualify for Roth IRA contributions. We're faced with, I think, two practical options for maximizing our retirement savings:
- Contribute to a Roth 401(k) and a Roth IRA through backdoor conversions
- Contribute to a traditional 401(k)
The sticking point is that we'd like to retire sometime soon: in 10 years, perhaps. Maybe 15 if we still enjoy working. At that point, it would be better to have more money in a 401(k) since we could then begin to do yearly Roth IRA conversions, keeping our taxable income (and thus taxes) extremely low. On the other hand, this limits the amount that we can save in tax-advantaged accounts to the maximum 401(k) contribution for two people.
On the other hand, if we contribute to a *Roth* 401(k), this allows us to continue contributing to our Roth IRAs through backdoor conversions. This maximizes the *total* amount we save now, but guarantees us an almost worst-case tax rate. If we tried with this strategy while contributing to a traditional 401(k), when we eventually roll the funds into an IRA (for instance, when changing jobs), to keep doing conversions we'd essentially have to convert *all* of the existing IRA funds in order to get tax-free compounding on the new contributions. This is an even worse situation, tax-wise, as it would bump our income even higher for that year.
I support one possible alternative is to try and have the best of both worlds with 401(k) contributions, but *not* rolling them over into IRAs when I change employers. This way, I can keep performing backdoor conversions into a Roth IRA while still keeping some money in pre-tax accounts, so I can convert it nearly tax-free during my retirement years. But it has the possibility of being significantly more complicated, and some employer retirement plans effectively force you into performing a rollover once you've left the company, otherwise sticking you in extremely expense-ratio-heavy, low-return funds until you do.
So, what's the best strategy here? *Is* there a best strategy?