If that same couple made $130k in retirement income and retired at 52, they would pay taxes on $105,600 plus pay the 10% penalty. Which comes out to $14,949 plus the $13,000 penalty, totaling 21.5% (this is less than the marginal rate of 22%). So they would still pay less with only a traditional 401k and traditional IRA. I am honestly floored by this.
The effective rate is lower than 22% for this level of income, but marginal tax rates still do matter here. You're paying 32% on the portion of taxable income that goes over the bottom of the 22% bracket, at least until you turn 59½. You would therefore be better off saving enough in Roth to cover any spending over this threshold prior to age 59½.
My wife and I are in our late 20s and she is planning on going back to becoming an employee soon, she is currently a stay at home mom and honestly works harder than I do, so our income will jump up from $130,000 to $170,000. If we both maximize pre tax accounts including our own 401ks and an IRA for each of us as well as an HSA, we would be sheltering $57000/year, and after the standard deduction we would roughly be paying taxes on $88,600. Which after the $4000 credit for having 2 kids means about $7200 in taxes or an effective tax rate of 4.24% but still having a marginal rate of 22% which would be our rate for any Roth contributions made.
At that income level you probably won't be able to deduct traditional IRA contributions anymore. The ability to do so starts to phase out at $103k of MAGI, and disappears entirely at $123k. Certain things like pre-tax 401(k) contributions and HSA contributions and payroll-deducted health insurance premiums will bring down your $170k gross, but probably not enough to get below $123k. In that case you'll be "forced" into Roth IRA contributions.
Another issue I just realized with Roth accounts is that to get to the $6000 dollar Roth IRA maximum, you lose 7320 each in take-home pay. Whereas a traditional IRA you only pay in the $6000. That combined $2460 if invested into a taxable account over 25 years would grow unsheltered from taxes and end up likely adding more annual ncrease than you would have paid to originally upcharge the traditional IRA to a Roth IRA.
I think I get what you're trying to say here: that if you have equal tax rates now and in retirement you're better off maxing out pre-tax and investing the tax savings than maxing out Roth. That's not actually correct. Given equal marginal tax rates now and in retirement, investing one pre-tax dollar in traditional vs. Roth will come out exactly the same. However as you note, the number of pre-tax dollars you can put in Roth is higher since the contribution limit is assessed on after-tax dollars in the Roth's case.
You recognize that the correct comparison is maxing out the Roth vs. maxing out traditional and investing the tax savings in a taxable account. In this latter scenario the traditional comes out slightly behind because you'll pay a small amount of tax on the dividends and capital gains in the taxable account, at least while your income is still above the 0% capital gains bracket. This isn't a huge factor, but it can act as a small tiebreaker in Roth's favor if you expect an identical marginal tax rate in retirement and are able to max out all of your available tax shelters.
Note however that the higher your savings rate is, and the more you have in Roth, the more likely it is for your tax rate to be
lower in retirement than it is now.
Now it isn't looking like there is any real benefit to Roth accounts other than no penalty for withdrawal of principle (after 5 years) for a Roth IRA for early retirees.
You can freely withdraw your Roth contributions at any time. You only have to wait five years for the portion of principal that came from a taxable traditional-to-Roth conversion.
Did I swing to far in the other direction with my thinking? What am I missing?
The ACA can make a difference. The premium tax credit is calculated such that the second-cheapest silver plan would have a net cost after tax credit pegged to a set portion of your income. This is effectively a few extra percentage points added on to your nominal tax rate, tacking on 2%-9.5% depending on what your income is. If your reportable MAGI happens to be over 400% of the poverty level ($65,840 for a couple or $100,400 for a family of four) you get no tax credit at all. That can make a big difference! Furthermore if your reportable MAGI is under 250% of the poverty level ($41,150 for a couple or $62,750 for a family of four), there are "cost sharing subsidies" that grant you access to plans with lower deductibles and coinsurance amounts than you can buy at higher income levels.
What do I do personally? My family is in a similar ballpark of income to what you expect, and we put as much into pre-tax retirement accounts as we can. Because we make too much to deduct IRA contributions we do Roth for those. My wife and I have both worked at companies that have a mega backdoor Roth option, and we've taken advantage of that as well. Any savings beyond that goes into taxable. This gives us a nice diversity of options for how to get at our money in retirement, pushing our income up or down as it suits us.