Hi, first post here. I've been lurking here for quite some time and learning a ton. Here's a quick overview of my current financial state before I get into my main question(s):
I'm 34, currently saving around 50% of my income and plan to do so until we reach FI. I just started saving in earnest this past year so I don't have much built up yet. I'm hoping to reach FI in around 10-12 years.
My current savings strategy (for our family of 5) includes the following:
- Contribute 6% to my company 401(k) to get the 6% match
- Max out Roth IRA every year ($5500 per year)
- Remainder into taxable accounts (index funds like VTSAX, etc…) (approx. $28K per year)
So…I know most folks here recommend maxing out your 401(k) before contributing to taxable so here's where my questions come in. We're currently in the 15% tax bracket and I expect to stay there throughout my working life. My income will soon be high enough to start to make that difficult, but i'm planning to ramp up my 401(k) allocation as necessary to keep us in the 15% bracket.
I also expect to be firmly in the 15% bracket during retirement. I know most people plan to be in a lower tax bracket during retirement but we're looking at retiring with plenty of money and have plans to do some traveling. I can fairly confidently say it's very likely we'll remain in the 15% bracket for most if not all of retirement. On the other hand, I don't foresee us going over the 15% bracket either. The cap on that is $72K/year and once you throw deductions in there we're looking at being able to spend in the mid 90K's before going over. That's more than twice what we're spending now and we have a mortgage and 3 kids still at home.
At this point i'm having trouble seeing the major advantages of either the 401(k) (aside from the match) or the Roth. They both provide additional inflexibility with not much benefit (that I can see) for my particular situation at least. I'd like you all to tell me if i'm wrong here :)
With the 401(k) I can avoid taxes now, but i'm still paying tax at the same 15% rate on withdrawal. As far as I know the math works out the same in this situation.
With the Roth, I pay taxes now, and get tax-free growth, but as I understand it that's exactly the same situation as with my taxable accounts. If we remain in the 15% bracket and I continue with my buy-and-hold strategy I won't be taxed on long-term capital gains either.
The way I see it, as long as i'm not missing out on significant tax advantages with my current strategy, i'd much prefer to have my money in a taxable account for maximum flexibility. I guess my initial questions are...
- Am I crazy for not maxing out my 401(k) each year?
- Any reasons why I shouldn't just stick with my current plan of having a majority of my investments going into taxable accounts?
- Anything i'm missing here?