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Make about $170k per year and about 15 years aways from retirement with about $450k currently in it and can't contribute maximum. Always contributed to the traditional but will wondering if I'm better off contributing to the Roth option. Thanks
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Make about $170k per year and about 15 years aways from retirement with about $450k currently in it and can't contribute maximum.

Why aren't you able to contribute the maximum? Is it because you're a highly compensated employee? Or because you can't seem to carve out the $18,500 (2018) or $19,000 (2019) out of your paycheck? I would strongly suggest that with $170k in income, you should be putting a minimum of $25,500 away each year (15%) in either 401(k), IRA or taxable accounts for your retirement. And if you have a partner, they should also be doing the same.

$450k is only about 2.6 times your annual compensation, and by age 50 (15 years before retiring at 65), it's recommended that you have 10 times your annual income put away - so you are way behind on your retirement savings. That means that you might want to bump your retirement savings up to 20% - 25% instead of a minimum of 15% Again - it doesn't have to be an account labeled '401(k)' or 'IRA' to be savings for retirement - taxable accounts work, too. And it's often best to have some of each kind - tax-deferred (Traditional 401(k) or IRA); tax-free (Roth 401(k) or IRA) and taxable (regular brokerage) - that way, you will be able to manage your tax rate in retirement by adjusting which accounts you draw from.

Always contributed to the traditional but will wondering if I'm better off contributing to the Roth option.

It depends on what you think your tax rate will be in retirement vs. what it currently is. Considering that the current tax rates are scheduled to go back up in 2026, if you are planning on keeping the same standard of living, it's likely that your tax rates will be higher in retirement, so doing the Roth now would probably be a reasonable choice.

That said, with how much you currently have saved, it's unlikely that you will be able to keep the same standard of living. Even if you were to max out your 401(k) for 15 years, and have a 6% CAGR, you might have $1.5MM in your 401(k). At a 4% safe withdrawal rate (for 30 years) that would mean that you could only withdraw $60k/year - only about 35% of your current income. If you have a pension that you are willing to count on (and I would strongly suggest checking your pension's annual IRS form 5500 before you start counting on it - if it's less than 90% funded, I would question whether it will be able to provide you with your expected income), that would add some, and SS should also provide you with some, but you are still probably going to fall below your current $170k in income. If your income will be lower in retirement, then your tax rate will probably be lower, too. That would mean that making contributions to a Traditional account will probably be better for you in the long run.

AJ
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Sorry AJ that was a typo. I ALWAYS contribute maixume and my employer contributes about $6k on top of that and I put another $6k in individual account.
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Also I will have pension of about $5k month starting at 60.
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As AJ said, the original question about tax rates now vs. retirement still apply, despite the typo on your contribution rate. If you believe your tax rate in retirement will be less than it is now, then it makes sense to continue contributing to the Traditional 401k and defer your tax liability until then. If you think your tax rate could be lower now than in retirement, then it may make more sense to contribute to a Roth 401k now and pay your taxes this year, taking your retirement distributions tax free.

Note that even if you make Roth 401k contributions, your 6% company match will be to your Traditional 401k. One other consideration is that having a mix of both Roth 401k and Traditional 401k contributions and earnings could give you some tax flexibility when it comes to taking retirement distributions that only having Traditional 401k contributions and earnings.

I'm not sure that has any actual beneficial impact but my approach, when I've had access to a Roth 401k, has been to contribute to the Roth IRA for the simple reason that I'd like to deal with taxes while I have employment income and reduce the hassle of dealing with taxes when living off a fixed income.

The important thing is to take the next 15 years to continue contributing and investing your retirement savings, perhaps adding some less aggressive, more conservative investments to begin transitioning a portion of your savings from a growth focus to a capital appreciation focus. And about 5-8 years from retirement, start setting aside the cash you'll need while living in retirement so that you are not impacted by market drops like we are currently experiencing.

One other thing to consider, and this may or may not apply to you but may be of interest to others. The income phase-out range for a Roth IRA for a single filer is $120k-$130k in 2018 ($122k-$137k in 2019), and the phase-out range for a married, filing jointly household is $189k-$199k in 2018 ($193k-$203k in 2019). However, this only applies to a Roth IRA.

Even if you are contributing the max to your Roth or Traditional 401k, you can still contribute to your Traditional IRA. Assuming you are age 50 or older, that is $6500 in 2018 (and $7000 in 2019). That's $6000 in 2018 and $6500 in 2019 if you are under age 50. If you've got the cash and are not already doing so, this is a way you can give your savings plan a little boost.

https://money.cnn.com/2018/05/10/pf/401k-vs-roth-retirement-...

Fuskie
Who notes that while you can start taking distributions from both a Traditional and Roth 401k or IRA starting at age 59 1/2, with a Traditional 401k or IRA, you will have to begin taking Required Minimum Distributions (RMDs) at age 70 1/2, so that could be another benefit to stashing a portion of your retirement savings in a Roth 401k and then rolling it over into a Roth IRA, which would not be subject to RMDs, prior to age 70 1/2...

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Sorry AJ that was a typo. I ALWAYS contribute maixume and my employer contributes about $6k on top of that and I put another $6k in individual account.

Okay, that's good. It's still good to have money in taxable accounts, too, though. Also - be sure that in the year you turn 50, you max out the 'catch-up' contribution, too.

AJ
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Also I will have pension of about $5k month starting at 60.

Before you count on that pension, I would urge you to confirm that it's at least 90% funded. Googling for the name of the plan sponsor, followed by "Form 5500" should get you information on the funding levels.

AJ
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Even if you are contributing the max to your Roth or Traditional 401k, you can still contribute to your Traditional IRA. Assuming you are age 50 or older, that is $6500 in 2018 (and $7000 in 2019). That's $6000 in 2018 and $6500 in 2019 if you are under age 50. If you've got the cash and are not already doing so, this is a way you can give your savings plan a little boost.

Caveat: If you are over the income limit, the Traditional IRA deduction won't be deductible. If you make a non-deductible contribution to a Traditional IRA, you will have to track it on a Form 8606 to establish the basis that was already taxed. That allows you to not have to pay taxes on some of the withdrawals.

Or, if you have no other IRAs with pre-tax money, you do a back door Roth IRA contribution by converting the amount in the Traditional IRA to a Roth IRA shortly after making the contribution.

AJ
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As AJ said, the original question about tax rates now vs. retirement still apply, despite the typo on your contribution rate. If you believe your tax rate in retirement will be less than it is now, then it makes sense to continue contributing to the Traditional 401k and defer your tax liability until then.

Here are a couple items that may affect this decision beyond the simple question of "is my marginal tax rate higher now or in retirement:"

1. Once you start taking social security, whether SS is taxed or not (and whether 50% or 85% is taxed) depends on your "provisional income." That gets calculated in part by your taxable income. So, if you pull money out of your regular IRA or 401k, all of it is (probably) taxable. If you pull it out of a non-tax-advantaged account, some of it is usually taxable (and maybe at a lower long-term capital gains rate). If you pull the money out of a Roth account, it's not taxed. So, converting before you start taking Social Security may be a wash in and of itself, but a better choice because of avoiding pushing your SS into a taxable state.

2. You can put more money into a Roth than a regular IRA. Even though the amounts you can contribute are the same, the taxes you pay on the Roth are paid now and don't count against the limit. So, if you can max out either a Roth or a regular IRA, you don't have the future amount that you withdraw reduced by taxes.

Another one I just thought of: No RMDs on Roths (well, *your* Roth, not an inherited Roth).
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No RMDs on Roths

Actually, there are RMDs on Roth 401(k) accounts. So if you have a Roth 401(k) and don't want to be forced to take RMDs, be sure to roll the Roth 401(k) account over into a Roth IRA before the year you turn 70 1/2, unless you are still working and your plan allows for you to delay RMDs on your 401(k) until you retire.

(well, *your* Roth, not an inherited Roth).

If the beneficiary is a non-spouse, there are RMDs on an inherited Roth IRA. If the beneficiary is a spouse, they can treat the inherited IRA as their own, and there will be no RMDs.

AJ
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You can put more money into a Roth than a regular IRA. Even though the amounts you can contribute are the same, the taxes you pay on the Roth are paid now and don't count against the limit. So, if you can max out either a Roth or a regular IRA, you don't have the future amount that you withdraw reduced by taxes.

The questions was about 401k, not IRA. Now if you are comparing equal amounts to Roth IRA versus deductible traditional IRA, you are not making an apples to apples comparison.

PSU
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