AKA "Another Traditional Vs. Roth IRA Thread"
I understand the rationale behind this section in the Investment Order thread:
...
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
...
But my specific situation is confusing to me. I've read tons of articles on "traditional vs roth IRA", but I'm still not confident in what to do. Here's my situation:
Estimating $85,000 gross for this year, but expecting a $5-7,000/yr raise, starting next week. Pay is variable from week to week, but $85,000 is probably pretty close to what I'll earn this year
Was in debt until recently, now contributing a little more to my 401(k) up to company match, and haven't increased it significantly because I'm trying to figure out what to do.
All debt recently paid off, so I'm saving 45-55% of my take-home pay to establish a $10,000 emergency fund. I'm at 7,000 for the emergency fund.
Once the emergency fund is complete, I'll continue investing at the same 45-55% rate
Now, the problem I'm having:
To qualify for the partial tIRA tax deduction, I would have to reduce my MAGI to <$72,000 by December 31, correct?
This year, I've contributed only $2,700 to my 401(k) (= MAGI $82,300)
I would need to contribute an additional >$10,300 to my 401(k) to lower my MAGI enough to qualify for the tIRA tax deduction, plus max out the tIRA ($5,500) to fully-use said benefit
That means I would want to raise my 401(k) contributions to 36% ($7,083 estimated gross monthly income *.37 = ~2,600... over 4 months = $10,400)
It seems like I'm cutting it way too close by starting out so late. I also might end up with a gross income of more than $85,000 if this raise ends up being more than expected. If I don't reduce my MAGI to <$72,000, then I don't qualify for a tIRA tax deduction at all, and therefore am missing out on the biggest benefit of a tIRA, correct? So in that case, I'd be better off just playing it safe & maxing out a Roth this year, then bumping up my 401(k) contributions to match the remaining 45-55% savings rate I'm at currently, and then switching my efforts to a tIRA next year when I know I can drop my MAGI down enough to qualify for the deduction? Or would tIRA still be the way to go for me for the rest of 2017 regardless of the deduction?
I'm probably making it more complicated than it is, but I just can't wrap my head around it. I would appreciate any input.