Author Topic: Maxing out 401k versus Non-Max Roth 401k  (Read 559 times)


  • 5 O'Clock Shadow
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Maxing out 401k versus Non-Max Roth 401k
« on: September 19, 2019, 09:28:44 AM »
Right now, my wife and I are maxing out a traditional 401k and a backdoor Roth IRA.  With the eventual goal of being able to retire early.  I am 34 and she is 32. 

One thing that I have not seen calculated, is whether as a couple we are better off doing a 401k and being able to max it out versus doing a Roth 401k but not being able to max it out because we need the income.  For example, to maintain the same take home pay, we would not be able to max out the Roth 401k.  In that scenario, what would be the better option?  Is there a formula out there to determine when it makes sense to switch to the Roth 401k.  Knowing that we are contributing yearly to a Roth IRA and that we both have a pension through our respective companies.


  • Handlebar Stache
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Re: Maxing out 401k versus Non-Max Roth 401k
« Reply #1 on: September 19, 2019, 09:58:26 AM »
What is your current marginal tax rate, and what do you think your marginal tax rate will be in retirement?

If your current marginal tax rate is higher than your retirement tax rate, do traditional.
If you think your retirement tax rate will be higher than your current tax rate, do Roth.

For example, our gross household income in $100k, which puts us in the 12% bracket. If I were retired right now, I would probably withdraw ~$60k/year, which is also in the 12% bracket, so it doesn't make too much of a difference which method I choose. I actually do about 81% traditional and 19% Roth, after maxing my HSA.

It's also dependent on factors outside our control. I personally don't anticipate that the tax rates for middle class will change significantly enough that it's worth worrying about.


  • Walrus Stache
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Re: Maxing out 401k versus Non-Max Roth 401k
« Reply #2 on: September 20, 2019, 10:21:34 AM »
This is the situation where the current vs. future marginal tax rates are really the only consideration. When you can max it out either way then there's sort of a tiebreaker in favor of the Roth because you're essentially able to put more in there since it's post-tax money instead of pre-tax money, but if you can't max it out then it's really just a question of how you expect your tax rate to change by the time you withdraw the funds. Of course it's impossible to know for sure what your future marginal tax rates will be, but you just have to make the best guess you can.