Iced,
I consider you a much wiser forum member than myself, and I am mostly posting in this thread to follow along. I am torn with the same dilemma. I recently switched to 100% Roth 401k. In small because I am deep in the same tax bracket as you & I would have to back off a lot to drop it, and largely because I still fear working (at a retired age) due to medical benefits.
Maybe I am wrong? Definitely looking forward to others' responses.
I think it isn't that long of a walk: if you're anywhere close to equivalent in tax burden now vs. retirement, Roth first, last, and always for the full amount.
In my case it comes off the top, and because I'm working two gigs in the 35% federal + 10.3% or higher California (yes I know I should move and save a boatload of cash) there's no hope of my EVER making a similar amount in retirement (short of winning the lottery which I do not play at all) and as such it's always traditional 401K for me because at call it 45% that's a long way for additional growth to make it up even if the tax laws change.
I view a Roth as a financial hedge and I don't think it's a bad one unless there's an extreme disparity in what it would cost to contribute: capital gains are probably one of the things which are going to be up for debate over the next call it 50 years in my case, and as such having a Roth + Traditional I think makes the most sense if one can swing it.
Just for me I expect to go from high income to much lower in retirement and as a result I'd rather push the tax burden substantially out.
Also, really if I'm making as much in retirement as I am now, I'm not going to worry about the longer term tax penalty especially when my expenses will almost assuredly drop: doing some simple math on what I spent this year (I absolutely love Personal Capital for this sort of thing) I'd cut pretty much 50% of it out by the time I hit retirement. That may even be sooner: I'm getting really tempted to just buy a place in Texas and call that home if I'm spending 80 hr/week working from home anyway, sunshine tax doesn't make any sense.
@iced wrote:
That fact keeps throwing me on this decision - why would I do Roth when I'm making more with earned income now than then? If my earned income is going to be more than halved in retirement, does Roth really make sense knowing that my tax bracket is all but guaranteed to be lower in retirement as a result? It probably does, but it's not intuitive.
I get excited (and maybe blinded?) by the thought of all the tax-free growth. Even if the risk is still there.
We have the same dilemma and my decision is for the next several years we will do Roth 401K and then reevaluate.
My reasons:
We are relatively young in our mid/late twenties and decades from retirement age. There is a lot of potential taxable growth that we will be able to save taxes on if we choose Roth early.
Our income is project to increase substantially in a few years and tax bracket will change accordingly from the current 24% to a higher one. So if we want to take advantage of Roth at all, better do it sooner rather than later.
I personally don’t think the average investors like me who rely on public information can truly maximize investment without due risks. That’s why I chose diversification. Roth for now and maybe traditional 401K in a few years to hedge our risks. I think it reflects my risk adverse nature when it comes to finances. YMMV.
