Roth 401K vs traditional 401K

Pure Storage / R&D
SWE1234

Go to company page Pure Storage R&D

SWE1234
Nov 21, 2021 26 Comments

For this discussion, let's keep the mega backdoor Roth 401K aside (this may or may not exist from next year based on our politicians). For 2022, the 401K contribution limit is $20.5K. We can either put it in traditional 401K (and get immediate tax benefit), or put it in Roth 401K with no immediate tax benefit, but tax benefit during withdrawal. Most folks around here are making well over $400K and hence are taxed heavily. Putting money in traditional 401K has huge tax benefit (federal tax 35% + state tax 9.3% = 44.3%). This equates to immediate tax benefit of $9081.

In my mind I am debating whether to continue putting money in traditional 401K or switch to Roth 401K moving forward so as to get tax benefits at retirement. In the past, I have worked in companies with shitty TC (there are lots of such companies even in Bay Area). The issue with shitty TC is either you put money in traditional 401K (and get immediate tax benefit) or do not put money in 401K at all. Putting money in Roth 401K and not getting immediate tax benefit means you cannot pay your bills. Due to the booming tech industry, I am now no longer in this position and have a choice (I am extremely grateful to be in this position).

What have high earners been doing with their 401K all these years?

Edit: Added a poll. As someone mentioned below, we need to consider RMDs (only in traditional 401K) which could be huge in our 70s if we have million of $$$ when we retire (high probability since we contribute max to 401K and stock market keeps going up). We ave RMDs in Roth 401K, but we can roll over Roth 401K -> Roth IRA when we retire, there is no RMD in Roth IRA.

I have mix of traditional 401K + Roth 401K as an option. Maybe we can plan to have around $1M in traditional 401K when we retire, rest in Roth 401K. Keeping traditional 401K around $1M limits RMD.

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