Question about maxing 401/403

[Driko]

So my current situation is I am 31 years old. I make about 80-90k per year. I am new in my career field so my yearly salary will only go up over time. Currently I have been maxing my 403b 18k and maxing my Roth IRA at 5500. Everything else I have been throwing in my taxable brokerage. Currently I am at:

403 27k
roth 12k
taxable 5k

I have been following the advice here to max out these accounts and I think I would always max the roth regardless, but I started thinking and eventually I would like to have multi-family properties. My income will only go up over the years and I think it is plausible that I may make more in my 60s than I am currently making which would make the 403 take more of a tax hit which would defeat the purpose. Also, if I have most of my funds in the taxable I could pull them out in a few years to purchase a multi-family and start venturing off into real estate. I feel like mathematically there is a right answer but the variables seem confusing and I am not sure what the right path is. Any advice would be appreciated! :)

[MDM]

I feel like mathematically there is a right answer but the variables seem confusing and I am not sure what the right path is.

It boils down to what percentage you would save on traditional contributions today, vs. the percentage you would have to pay on withdrawal - again, due to those traditional contributions.

If a person did all Roth and had no other source of income in retirement, that person would be paying 0% on withdrawal - so some traditional would have been better.

If a person did all traditional, plus had a pension, rental income, etc., and was paying a higher rate in retirement than while working, some Roth would have been better.

You have to take your best guess at the marginal rate you'll be paying in retirement.  If your current marginal rate is the same or higher, choose traditional now - otherwise choose Roth.  Remember, the less you use traditional now the lower your marginal retirement rate will be.

Also, you should revisit your choice every year or so, because your expected retirement rate can change depending on past contributions, market returns, your real estate ventures, etc.

[PhysicianOnFIRE]

Does your 403(b) plan allow Roth contributions?

If yes, then you could consider making some or all of your 403(b) contributions Roth contributions. I think it makes sense if you are in the 25% tax bracket or below. At higher tax brackets, I'm in favor of traditional tax deferred contributions, but it depends on your future plans and outlook.

Best,
PoF

[Driko]

There isn't an option for a roth 401k sadly. I am thinking I will just contribute to the match and then invest in the taxable until I have a better understanding of where I will end up in retirement. If I maxed out my 403 each year it would take me a while to get enough cash to buy investment properties. I guess I will have to reassess every year.

[MDM]

FWIW, for a single person saving $18K/yr into a traditional plan, earning 5% real, and expecting to use a 5% withdrawal rate, it will take ~27 years before the tax on the traditional withdrawals (or Roth conversions if applicable) would go above the 15% marginal bracket - assuming brackets increase with inflation.

If you expect other income, it will take fewer years of traditional contributions.  If you expect to file MFJ, it will take ~38 years (of course, if you both contribute $18K/yr the time would stay at 27 years).

For most people in the 25% bracket, traditional will be better in the long run.  That's most, not all.