Author Topic: Next steps after maxing Roth 401k/HSA  (Read 1505 times)

mountainstache7

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Next steps after maxing Roth 401k/HSA
« on: March 02, 2017, 12:49:10 PM »
Hello,

I have a couple of questions regarding next steps after maxing my Roth 401k/HSA. House is paid off and the income is such that we don't have anything to writeoff anymore, pure standard deductions. Current salary is 130k. That said, i'm open to changing it if there are some advantages to be gained. A good majority of my 401k that is built up is pre-tax, only in the last couple of years have I started doing Roth 401k and this year so far has been all Roth 401k.

Details: Married, wife is a stay at home mom, 1 child.

We have maxed my Roth 401k/HSA with my employer. What are our next best steps. Traditional IRAs for both? Roth IRA in the wife's name? After tax index fund account?
« Last Edit: March 02, 2017, 01:11:13 PM by mountainstache7 »

TheAnonOne

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Re: Next steps after maxing Roth 401k/HSA
« Reply #1 on: March 02, 2017, 12:52:41 PM »
Hello,

I have a couple of questions regarding next steps after maxing my Roth 401k/HSA

Details: Married, wife is a stay at home mom.

We have maxed my Roth 401k/HSA with my employer. What are our next best steps. Traditional IRAs for both? Roth IRA in the wife's name? After tax index fund account?
After we do HSA, IRA and 401k we just do a taxable account.

That being said, are you planning on your taxes being HIGHER in retirement? If not, you're making a bit of an error using a roth anything.

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dandarc

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Re: Next steps after maxing Roth 401k/HSA
« Reply #2 on: March 02, 2017, 12:53:06 PM »
More information please.  Tax situation is very different depending on income, long-term plans and the like.

mountainstache7

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Re: Next steps after maxing Roth 401k/HSA
« Reply #3 on: March 02, 2017, 01:09:59 PM »
Added more details in the original post.

dandarc

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Re: Next steps after maxing Roth 401k/HSA
« Reply #4 on: March 02, 2017, 01:56:36 PM »
Still not much info.  Pre-tax is "built up"?  Do you have over a million in there?  If not, you probably don't have too much in there then.

Wife and I are in the ballpark of your income figure, although we have no kids.  We go traditional with every dollar we can.  Why?  Because Roth sucks (http://www.gocurrycracker.com/roth-sucks/) for us.  If you're looking for a more typical american retirement (smallish percentage for 30-40 years, then relatively short, relatively expensive retirement), it might not for you.

With $130K salary and not much in the way of deductions, you're in the 25% tax bracket.  You'll save a lot in tax today by favoring traditional.  Note that given what you've said, it seems likely that you cannot deduct a traditional IRA contribution, but your wife probably can, so I'd go tIRA for her, Roth IRA for you.  Switch 401K to traditional.  Taxable for anything else (assuming you don't have megaBackdoorRoth at your disposal).

mountainstache7

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Re: Next steps after maxing Roth 401k/HSA
« Reply #5 on: March 02, 2017, 02:36:20 PM »
401k is pushing 230k, 10k(roth contributions, the rest is pre-tax). Unfortunately no backdoor Roth. Ok i can definitely go for traditional push the taxable income as far down as possible. Based on dandarc's response, i assume only one IRA possible per person? Meaning we can't open a Traditional and Roth for my wife? I guess the order would be:

Traditional 401k
HSA
tIRA for wife
rIRA for myself
taxable after that for whatever we have left after maxing the the top 4.

dandarc

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Re: Next steps after maxing Roth 401k/HSA
« Reply #6 on: March 02, 2017, 02:46:20 PM »
That's what I'd go with, absent any other information.  You are filing jointly, right?  Because if you're filing separately, that's a whole other ball of wax.

You get $5500 (2017) each that you can contribute to IRAs.  You can split that money however you'd like between Roth and traditional IRAs.  In your shoes, it looks like you cannot deduct a traditional IRA contribution (you should verify this for yourself, of course), so Roth is the obvious choice.  Your wife, since she doesn't have a retirement plan at work, has a higher income limit for the deduction, so she probably can deduct her $5500.  That'll save you 25% + any state income taxes.

The traditional Roth decision isn't too difficult - do you think your marginal tax rate will be lower when you convert or withdraw than it is today?  Then go Traditional.  Think it will be higher?  Then Roth.

You could get on some tax software, or pull out a paper 1040, and play around with different allocations with all of your available info to see how this affects your income tax bill.

moof

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Re: Next steps after maxing Roth 401k/HSA
« Reply #7 on: March 02, 2017, 05:50:21 PM »
Answer depends on how much you make, since different things phase out.

Usually for a working stiff with high taxes now, and low taxes during a modest retirement the priority should be:
1)  Pre-tax traditional 401k contributions, unless you expect to miraculously be in a higher tax bracket in retirement (justify this).
2)  HSA if you qualify.
3)  Pre-tax traditional IRA's if you and your spouse are eligible.  I can do a sousale IRA for my wife, but make too much to do a traditional one under my name.
4)  Roth IRA if you make too much to do a traditional IRA.
5)  Brokerage

MDM

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Re: Next steps after maxing Roth 401k/HSA
« Reply #8 on: March 02, 2017, 06:43:29 PM »
See Investment Order, including links therein regarding traditional vs. Roth.

At only $230K in the traditional account, you probably have a lot more room before Roth would be better.

mountainstache7

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Re: Next steps after maxing Roth 401k/HSA
« Reply #9 on: March 05, 2017, 10:00:49 PM »
Thanks all for the replies. I did read the investment order previously but needed further details based on my current position. Also, that spousal IRA will be a nice addition to the portfolio.