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.
Want to see the real deal?
More inside scoop? View in App
More inside scoop? View in App
blind
SUPPORT
FOLLOW US
DOWNLOAD THE APP:
FOLLOWING
Industries
Job Groups
- Software Engineering
- Product Management
- Information Technology
- Data Science & Analytics
- Management Consulting
- Hardware Engineering
- Design
- Sales
- Security
- Investment Banking & Sell Side
- Marketing
- Private Equity & Buy Side
- Corporate Finance
- Supply Chain
- Business Development
- Human Resources
- Operations
- Legal
- Admin
- Customer Service
- Communications
Return to Office
Work From Home
COVID-19
Layoffs
Investments & Money
Work Visa
Housing
Referrals
Job Openings
Startups
Office Life
Mental Health
HR Issues
Blockchain & Crypto
Fitness & Nutrition
Travel
Health Care & Insurance
Tax
Hobbies & Entertainment
Working Parents
Food & Dining
IPO
Side Jobs
Show more
SUPPORT
FOLLOW US
DOWNLOAD THE APP:
comments
And good chance your taxable income is at lower bracket when you retired, making you pay less tax.
If you plan to retire in a state with no income tax, definitely max out pre-tax.
If you are on a visa and plan to move out of US in the future, definitely max out pre-tax. Youโll be able to withdraw all of it at a flat 30% tax rate.
If you expect to make even more money in retirement vs now and you plan to stay in a high tax state, or you think US tax rate will go up a lot in the future, then maybe you want to skip pre-tax and do Roth only.
Look above, if employees contributes to Roth 401K and employer matches, the employer match always goes to traditional 401K.
Not sure what I will do next year.
Definitely have a higher weight towards Roth 401K. Also taxes are not 40%+, it's only 35%
We also need to add 9.3% state tax for folks living in CA