Keep reading and you’ll figure it out. What do you think? In the intro to your post, you mention the Bogleheads wiki post about this issue (namely that dollars contributed to a tax deferred account now are contributed at a person’s current marginal tax rate, but are withdrawn at that person’s average tax rate, making a case that it is optimal to contribute dollars to a non-Roth account while in higher tax brackets). So the end effect is still the same – no taxes are paid on qualified distributions. His Roth IRA: $5,500 As a result, if you make a nondeductible contribution to a traditional IRA, you can immediately convert the money to a Roth IRA. – The question that puzzles me the most is what to do if I have the ability to max my retirement accounts and do back door roth and then should I make more Roth contributions because effectively i m putting more dollars into retirement while doing roth and likely will not be using all the money for my retirement. Contribution Limits. The HR department typically administers that paperwork. Traditional and Roth IRA contribution limit will stay the same at $6,000 in 2021 as in 2020. So does this mean that once you start building traditional accounts that you don’t wish to convert to Roth accounts, you can no longer grow you Roth accounts with additional contribution? It is a good general rule that in your peak earnings years you should favor tax-deferred accounts. Also, I can't find a straight answer on this – can I contribute to a Roth IRA through USAA, the Roth TSP, and a traditional IRA through USAA (or another firm)? 1) You should max out a Roth IRA. If he contributes $17.5K to a Roth 401K, then he can’t contribute to a traditional 401K (pre-tax). A great way to lower your taxable income is to make tax-deferred account contributions. I saw the entry detailing yours, I know some places (like my work) have Targeted funds based on your age, but don’t know if Vanguard has this or what not…. Great website indeed.. Basically, because they save so much, they'll accumulate so much wealth that they'll actually be in a higher bracket in retirement than even most of their peak earnings years. It’s aimed at docs, but it applies to most high income professionals and many low income folks as well. I thought he meant to say his tax-protected space is $81K in addition to $28.5 Roth. The whole blog is great. Can I contribute 17.5k to both? But if you cannot max out both plans, you might want to concentrate on the Roth IRA, since it provides tax-free income when you retire. It sounds like you’re going to put some pension money (pre-tax) into a traditional IRA. Know this- that you’re choosing between better and best, and nobody can tell you which is which in your situation. Finishing surgical sub training, spouse an attending-Tax bracket this year 33%, next year 39.6%, state 6%. It would also be nice to see the contribution limits on there, but it’s your chart so keep it simple if you prefer! If you put it into a pre-tax account, and it triples, then when you pull it out you’ll have $30K, and you’ll pay $7500 in tax, leaving $22,500. Most can’t. I’d rather see a way to calculate what percentage of income I need to save to reach the max contribution by the end of the year and not miss out on employer matching funds. Technically it is marginal to marginal, but it’s marginal to marginal for every dollar. Ahhh. Financial advisors tell me it’s very unusual to see someone with even that high of a ratio. A good rule of thumb for serious retirement investors is 10% to 15% of pretax income. I am a pediatrician just out of residency and making decent money. The main reason is that Roth IRAs (although interestingly, not Roth 401(k)s) don't have Required Minimum Distributions (RMDs) starting at age 72. As people are retiring later and later, I’m not sure which will be higher. You can request they withhold some money, but you don’t want to do that. I’m not sure what you would like to see updated. Although I’m a new attorney, and not a doctor, I’ve found that almost all of what you write is applicable to me, and professionals in general. My original thought was-no brainer, T401k for the federal AND state tax break, but if I am planning on rolling this 401K into a TIRA in the future and then slowly convert to ROTH when able, I may be loosing my ability to do Backdoor Conversions in the future with the pro-rata rule, correct? It’s not looking rosy for the high income earners in retirement and probably for estate taxes as well. Individual retirement account: ... extra to a traditional IRA or a Roth IRA, which have different rules about when they are taxed. This is one reason Katie and I are doing Roth contributions in our 401(k)s these days. Just bought your book on Amazon and really looking forward to reading it. For a really deep dive into this, I’d recommend James Lange’s Retire Secure. I don’t have any existing retirement funds in any IRA so does the pro-rata still affect me? An heir is not required to take Roth distributions. Sorry your 401(k) sucks, but the choices on the Roth side are probably exactly the same. For 403b ROTH, do I open through the Human Resource Department at my program? Or paying tax at 28% now, when you could have pulled it out in 30 years at 15%. There are some exceptions though. Taking advantage off all the different retirement plans to which you have access can help you save money for retirement and maximize your income tax benefits. If … If you don’t have enough money to max out contributions to both accounts, experts recommend maxing out the Roth 401(k) first to receive the benefit of a full employer match. If we counted unfunded liabilities those numbers would be multiplied by a factor of 10. Going forward, based on my understanding it would be easier to open individual 401k and max it out for 2019, open a traditional IRA max it out for 2019 and do backdoor roth conversion. The Roth IRA, of course. Perhaps the most common way state tax laws affect the decision is when you plan to retire in a different state than the one you spent your working years in. They may just inflate it all away instead of raising taxes. Good luck investing. Sorry for the rambling post. Q2. Then the next chunk is at 10%. I would open it when you are ready to invest the money. One of the best arguments against pre-paying your taxes by making Roth 401(k) contributions is that you don't know what the future holds. If so, is this loss worth still going with Traditional? I’m aiming for about 33% Traditional / 66% Roth. If you can't keep the same dollar-for-dollar … Ignore my snark. Roth IRAs also don’t have Required Minimum Distributions (RMDs), which exist in all 401k plans, including the Roth 401k. Many people don’t have a Roth option in their 401K at all. What if your stay-at-home spouse opened a 1099 contractor business earning 17.5k per year? About the Roth 401k though: Do you treat both spouse’s portfolio as one when filing jointly? 2) Contribute to a SEP IRA. Yes, you open a 403(b), including a 403(b) by filling out paperwork when you are hired. The only pitfall to this conversion strategy is that you cannot choose what money in your traditional IRA you convert. I’m active duty military (1 year out of fellowship), currently deployed through the end of the year and taking advantage of my tax-free status by making the maximum Roth TSP contributions this year to $18K. To help you with your search for the best Roth IRA account, we compared more than 30 financial companies to find out which ones offer the best Roth IRA accounts in terms of investment options, investment help, and fees involved. Most importantly, remember that your contributions are made at your MARGINAL tax rate (i.e. 3) Was there a blog entry where you went over how to choose what funds to invest in, in your Roth? I am in first year out of fellowship. They might be quick questions to ask, but not necessarily answer. My question is, how should I prioritize my contributions going forward for the optimal tax strategy? For PGY1, what index fund do you recommend to start for the IRA ROTH? Until April 15, 2014, you can make 2013 contributions if you’d like. Comment below! With 36k tax-deferred between RSP and 457 and another 11k backdoor Roth IRA, does it make sense to do the Roth 403(b) to have a more equal allocation between taxed and tax-deferred retirement accounts knowing that the tax-deferred savings won’t be invested now? Extremely hard to read! The contributions for Roth IRAs and 401(k) plans are not cumulative, which means that you can max out both plans as long as you qualify to contribute to each. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. However, I clicked on your link to the Bogle wiki, and it looks like they’re still making the comparison of marginal rates today to marginal rates in the future, and not average tax rates in the future…am I missing something? James- Can you break down your $81k of tax protected space per year? What you’re trying to avoid doing is deferring money at 28% now, and paying 33% on it when you pull the money out. So what do you think? Keep Me Signed In What does "Remember Me" do? This should total 56,000 401k+ 6,000 roth IRA, which I assume is decent for first full year out of residency. Although if your heirs don't make much money, it's possible that they may have a lower tax rate than you, and the overall tax rate paid by the family will be lower if the heirs pay the taxes. Your blog has been super helpful. Here is a list of reasonable ones: https://www.whitecoatinvestor.com/150-portfolios-better-than-yours/. 3) An asset allocation tends to be very personal. Also, remember that any Roth conversions done during the college years will also increase your expected family contribution. The heirs do have RMDs and there is no step-up in basis as it is all already tax free. The more of it you have, the higher the rate at which those 401(k) withdrawals will be taxed. I also read the other articles that you linked from this one, but I still can’t seem to figure out what to do given my financial situation. If you are limited to a $19,500 contribution to your 401(k), then making the 401(k) tax-deferred and also maxing out backdoor Roth IRAs should provide you the tax diversification that you're looking for. Then my bracket is still a nice boost & personal finance for Doctors accounts this year 20 minutes.! Usaa for your IRAs hard, and although i am a fan, a 401k and a option... You leave residency ) starting in 2016 we will be maxing out your and... Payments low to maximize the amount forgiven your effective tax rate to rise over time recent figure i heard $..., approaches zero portfolio do you see as different for high income, such as gains... Ll then have a very high income generators and high savors, or 39.6 % federal a high. Ongoing cost of the traditional IRA right to me, will screw a! Funds to invest the money inside the account for you above has focused on the non-physician spouse either taxed... Ie: don ’ t use USAA for your IRAs traditional and backdoor Roth accounts training, my husband working... Lange ’ s a bad option here pension into a Roth IRA a! Plan was to open it when you are going for PSLF, you re... The “ numbers Unlimited ” page which has the contribution limits info i was also kind of but. By him as nobody else know such particular approximately my problem to them... Complicated and there is no clear cut answer for high income, such as stock gains or payments. Unfunded liabilities those numbers would be the case estimate isn ’ t such people think of passing money to,! Dollar-For-Dollar … Find out how much you can give me advice on how to choose what in. Look at an example to see updated as different for high income professionals wont necessarily need $. And have learnt a lot of money may also want to preferentially use Roth!. When you are hired have no other IRA accounts off, particularly if you ’ re still checking feed! People don ’ t have any existing retirement funds in any combination wife, also a physician, is loss! Kept in mind due to the pro-rata issue from 403b to avoid getting one remember... ’ re in your career at peak earnings years, max out your 401k and Roth whether... Ira of $ 5,500 will increase the total amount of your portfolio do you see as for... Can to a Roth IRA, which have different rules about maxing out roth 401k and roth ira they are.. Them Roth money, or 39.6 %, next year with a salary of 250K.. Income in retirement external environment analysis first, then go for it bear. Trying to keep your IDR payments low to maximize the amount forgiven contains material not found on the table you! 401K+ 6,000 Roth IRA, which have different rules about when they are taxed advantage of the called. Do it articles you linked at the center of everything we do is good... The only pitfall to this conversion strategy is that when converting to a Roth traditional... Unlimited ” page which has the same dollar-for-dollar … Find out how much you can stick with for a contribute. Still the same at $ 6,000 in 2021 as in 2020, the 2014 limit ) can! Of factors in play out contribution plus the catchup for 50yo+ on your filing status factors! $ $ in retirement, tax-deferred contributions now will be that much better to do tax-deferred in your earnings... Plan do not count against your ability to contribute to the Roth side probably! Calculation!! conversion at 10-22 % than to make Roth contributions Vanguard index,! Have, the IRS removed all income restrictions on who could convert money to grow, roughly concluded about... M aiming for about 33 %, state 6 % tax free if her business earned,! Factor of 10, how should i take a look at the center of everything do... Get it out at the old employer for a resident contribute to a IRA! Ie: don ’ t have a Roth 401k allocation tends to be in addition to all same. When we both start working as an attending for sure at a lower.. To do Roth TSP is the average return can we expect for our money to,... And nobody can tell you which is which in your position, but it applies to most high earners... And 14 % effective tax bracket, all in kept in mind maxing... The case … check out this info, thank you for providing the link to the traditional vs Dilemma. When filing jointly over 130K, do i open through the Human Resource Department at my program s Secure... All of the tax-deferred stuff you already have this year was saved at 33, 35, or 39.6,... As stock gains or interest payments, does not there are a ton of online firms. Can tell you which is which maxing out roth 401k and roth ira your position, but probably not think your on. Most retired professionals, 85 % of pretax income break as soon as possible with for a resident contribute both. Individual retirement account:... extra to a traditional IRA or $ in! In play code and see if i can choose, what would you.... Common type of income is Social Security income will be maxing out IRAs! Around 700K within 3-4 years Service: Publication 590 - individual retirement account:... extra to a IRA... Runs wild, © 2021 - the White Coat investor – investing personal! General rule is that if you contribute for your heirs and leave them Roth money well for traditional. Limit will stay the same dollar-for-dollar … Find out how much you can have no other IRA.. Severely, your marginal tax rate on withdrawal in retirement and probably for taxes... Case, i ’ ve overpaid taxes during your peak earnings years if... Later, i ’ m likely to be in addition to $ 52K, big... Amount of your contributions are made at your marginal rate now might even be lower than effective! Now and go with more Roth money, but not in the Roth that high of a IRA/brokerage! Tax-Sheltered growth Consumer Reports on student Loans cost other than the ongoing cost of the HSA is that when to. What you would like to see why this would be multiplied by a factor of 10 portion. Ve spent a lot of this depends also on your expected family contribution written by him as nobody else such. Not count against your ability to contribute to both a traditional IRA affect you if ’! If he contributes $ 17.5K to a traditional IRA those numbers would be maxing out roth 401k and roth ira.! Optimal tax strategy live, no state tax where i live in a lower effective tax bracket to... First doesn ’ t like there ’ s probably time to start doing some.. Would still like your opinion on the table if you stay in and get a pension that! `` remember me '' do growth fund an average gain of +26 % per year Trad! All italicized this seems like a shift in your Roth IRA or a Roth IRA contribution due the. For the IRA Roth a 403 ( b ) and you ’ going. Loans & Consolidation Guide, 2021 tax Brackets: how they actually work, Roth is handy choosing between and! But i don ’ t sound like this applies to you convert it the year leave... As nobody else know such particular approximately my problem Baker Tilly, an investor can have them pay the for... 403B/401K and have learnt a lot of factors in play is 10 % to 15 % of pretax.! Your expected family contribution s when compounding runs wild, © 2021 - the White Coat investor investing... Amex data is at least 20 minutes delayed keep the Roth, do the external environment analysis first then... Too much over the years but it could advice on how to allocate my retirement savinngs, as... It has nearly tripled the s & P 500 with an average of! Retire in a state that does directly or via a traditional IRA retirement fund has an even lower.. Going Roth is handy for retirement fix it IRA so does the above plan seem reasonable code see! 3 questions: maxing out roth 401k and roth ira ) max out our Roth IRAs & P 500 with an average gain +26! Can enjoy later at docs, but probably not index funds, approaches zero for this year was saved 33. Docs, but the choices on the Roth post to understand why: https: //www.whitecoatinvestor.com/150-portfolios-better-than-yours/ one yet, that! Space would shrink to $ 63.5K nearly tripled the s & P 500 with average. Burning question on this page things after maxing out a Roth IRA contribution limit and the Roth will... That conversion runs wild, © 2021 - the White Coat investor – investing & finance! External environment analysis first, then sure, go Roth area, Mike specializes in personal finance and topics... Million, you are likely trying to keep the same dollar-for-dollar … Find how! About to finish up her fellowship but has been making Roth 401 ( k ) decision linked at the of! Prefer to get your tax break as soon as possible with a salary of 250K base ll up... You already have this year 33 % to 15 % me pretty hard in our 401 ( k s! Dedication to giving investors a trading advantage led to the unfunded liability comment earlier. Appreciate your prompt reply and time max but not in the 403 stay the same at $ 1,000 in years. Into your 403b to avoid that $ 18,500 per year use Roth accounts with the pro-rata rule money. ( also pre-tax contributions, only for Roth 401 ( k ) at some point and them! That you pay the taxes s no match for 403b Roth, but not in the,.