Full Traditional IRA Deduction vs. Low Effective-Tax Roth IRA

One personal example: my spouse and I are semi-retired and doing trad contributions only now despite being in the 12% federal tax bracket and a no state tax state. Why? Because 1) majority of our retirement assets are already in Roth and 2) we qualify for the refundable part of the child tax credit for 3 kids now but in ~4 years when we fully retire, we won't get the refundable part anymore as you have to have sufficient earned income to get it. So we are paying negative income taxes now with the trad contributions and will have a 0% rate later and want to "Fill up" both the standard deductions and child tax credits with Roth conversions at that time.

I've been doing the max out 401k and hsa with the Roth IRA but with new job it has thrown a wrench into this plan this year

The paradox of the Trad IRA is that if your income is low enough to be allowed to deduct contributions, doing so is probably a bad idea. The correct answer for nearly everyone is Roth IRA, either because it’s the only option or because the math is superior.

The answer for 401/403/457/TSP plans is completely different; this is only for IRAs.

As far as I understand it, if you're investing the exact same amounts in the exact same investments with the exact same tax rate, you'll have the exact same net amount of money whether you pay the taxes at the beginning or the end. So they key question is whether you expect your tax rate to be higher at the beginning or the end, and it really ends up being the only amount that matters from a "Which way do I end up with more money?" perspective. Episode 583 and one of the recent newsletters went over this again recently.

I agree with another comment that says it's really the marginal tax rate that matters for this decision, not your total effective tax rate, because these last dollars, the ones you're making a decision about, are taxed at your marginal tax rate, regardless of the tax rate that applies to all your other income.

What does effective tax rate mean? Normally unless your deduction spans a tax bracket the number that matters is the marginal Federal tax rate (0/10/12/22/24/32/35/37). The rate that should matter is the total dollars saved in all taxes divided by the traditional IRA deduction taken.

Don't forget to count state and local income taxes if they apply. Sean's analysis frequently ignores them which is inaccurate. This is surprising since he lives in CA. I wish I could ignore state income tax!

For 2026, any regular income (up to 85% of Social Security and all tax-deferred distributions plus interest and non-qualified dividends) above the standard deduction is taxed at 10% and higher. The std deduction is $16,100 for Single and $32,200 for MFJ.

There is a special tax rate on LTCG income of 0% on up to $49.45K LTCG when regular taxable income is under the standard deduction for Single and up to $98.9K for MFJ. Federal taxes would be great if all your income met these limits and was all LTCG but of course that is not the case and state tax rules (in states where taxes appply) are different.

Of course I don’t know all your details, or the range of assets you own and in what type of account, years to FI, etc….

But if it were me? Given the very modest difference you’re talking about, I’d make the future math and future planning very simple for myself by not sweating the 6%, pay it now, use the Roth, and de-risk and simplify all the future equations by eliminating the future tax liabilities. That would be my $.02.