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Nocek · · 7 replies

At what point on the tax bracket does it make sense to contribute to a traditional instead of a Roth? To me, the 32% bracket makes sense, but before that, I am not sure, assuming you would retire early enough to make some conversions.

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Replies (7)

GoingFI

GoingFI

9 months ago

You probably know that the only thing that matters is marginal taxes on the dollar today vs. later. All things being the same (growth and tax rate), traditional vs. Roth is a wash. For most with higher savings rates, I think, the applicable tax rate for future withdrawals will be lower than for earned income today. In that case I would max out tax deferred options, then HSA, then Roth (backdoor Roth), then brokerage. Key is to have an idea what your projected MAGI will be considering factors like expenses, ACA subsidies, Medicare / IRMAA, need for Roth conversions, ...

CHR

CHR

9 months ago

The new book Tax planning to and through early retirement is very helpful explaining why traditional contributions often make more sense than Roth

Fabiooltje

Fabiooltje

9 months ago

I'm with Roberto on this one. Remember that when retired, you fill up your tax brackets from the bottom up. When you make the deductions to fill up traditional accounts, it comes from the top.

I'm planning to live on about $50k/year in retirement (with a paid-off house), so then obviously my tax rate in retirement probably won't be very high.

Roberto Sánchez

Roberto Sánchez

9 months ago

Unless you plan to make extremely large withdrawals from your traditional accounts (i.e., >= $130k each year), then odds are you are better off making traditional contributions once you are above the 12% tax bracket.

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