It says that if you are in the 10% bracket you should favor the Roth, if you are in the 25% bracket you should favor the traditional, and if you are in the 15% then you should be indifferent...then it went on to say later that if you expect to get a pension in retirement then you should lean towards roth.
Given that my wife and I will each get a pension right at age 48 and will each get social security later, I think we might be a case where we would NOT be as indifferent in the 15% bracket as the typical person. And since we didn't even pop into the 15% bracket last year, that should make it even more compelling to up the Roth.
Given the pensions and your excellent saving to date, there is a good chance that Roth will indeed be favorable for you going forward. Once caveat: the Bogleheads article mentions marginal tax rate, not bracket, and notes that "marginal rate is not necessarily the same as your tax bracket; see the marginal tax rate wiki article for details."
Finally, the fact that we are currently at 11k Roth vs 72k traditional each year has me a little uneasy. Even if I were merely at a point of indifference, then logically that would mean my contributions should be more even than it already is. If I just switched MY 403 to a Roth 403, then that would make it 29k roth vs 54k traditional. That would likely only involve me paying a couple thousand more in taxes each year, and will let me even out the roth vs traditional scales a bit.
Rather than "even out" you might look at apportioning your contributions based on marginal rates: use traditional for any savings with higher rates than you expect when retirement starts, and Roth for any contributions beyond that.
It'll take a little work to estimate things, but...there's a certain pleasure in assigning homework to teachers. :)
My new understanding of Marginal Tax RatesAlright, did a little more reading about what you wrote about marginal tax rates. My understanding is that a marginal tax rate is the TOTAL amount of extra tax you have to pay as a PERCENT on the last dollar you claimed to have earned. The difference is that I have to add them all up. For example, if I'm in the 15% tax bracket, but live in Michigan with it's 4.25% income tax, then my marginal tax rate is 19.25% on the next dollar I'll earn. And once I go into the 25% bracket, then it'll actually be 29.25%
And along with what I think David was saying earlier, you have to ADDITIONALLY look to see if claiming that extra income bumps you out of credits or deductions that you'd have otherwise snagged had you shown the lower income. If it causes that outcome, then this too much be considered.
A little projecting:I looked at the Federal Income tax brackets for various years over the decades. A few things pop out.
1. The tax bracket percentages change a lot depending on what congress and the president comes up with.
2. The dollar amount that puts you into the 25% bracket or the closest thing to it increases over time to reflect inflation.
3. Our taxes are REALLY low right now historically.
What does this mean:My guess is that if things keep progressing about how they are now, then when I retire in 15 years, the 25% bracket would start around 100k of earned income. That's about what I project our pensions to amount to, so my guess is that anything that comes out of my 403 or 457 will be around a 29.25% marginal tax rate or higher, depending on how much I draw out in any given year.
Right now I am paying around 15% federal + 4.25% state, so about 19.25% for a marginal tax rate.
I think mathematically the optimal solution should be to:
1. switch my 403b to a roth 403B which means that next year I'd be doing 29k roth and 54k traditional.
2. see where this moves my marginal tax rate fall when all is said and done.
3. continue to increase the percentage of roth contributions if my marginal tax rate is still far lower than 29.25%, and increase traditional contributions if marginal tax rate gets the same or higher.
Does what I'm saying sound more correct than where I was at a couple days ago? Are there other things I need to consider?
