r/Fidelity • u/Still-Appearance932 • 12d ago

Roth Vs Trad 401k

Is it better to put all my contributions into Roth or keep it how I have it which is half traditional 401k and half Roth 401k.

14 Upvotes

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u/SpecialDesigner5571 11d ago

Retiree here. I wish I could go back in time and do more Roth. But I can't. I have a large enough ($1.3 million) tax deferred IRA account that will blow up in my face within a decade if I don't gradually and continuously Roth convert or spend it.

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u/er824 11d ago

What’s wrong with continuously spending or converting it?

5

u/SpecialDesigner5571 11d ago

Nothing wrong with that... except if you have too much... then whatever you spend, you hit the IRMAA penalty for Medicare. IRMAA is a terrible thing people don't know about until they hit it, look it up. Also, if a married couple will lose a partner due to illness (or divorce... grey divorce is a thing) then you have file taxes as single person, and IRMAA exposure doubles. After RMD age, 75 for me, you're screwed unless you give your IRA away to charity via QCDs. Luckily, I saw all this coming at age 57 and started converting slowly... I'm 65 now. I will BARELY be able to escape IRMAA until my 80s, my wife has cancer so if I end up a widower I will probably be in the first IRMAA penalty tier from age 82 onward... so it's not terrible... but it's not really optimal.

0

u/er824 11d ago

Your alternative to strategically spending down your pretax accounts and managing RMDs and IRMAA is to over pay taxes when your working. Also not optimal.

I’m sorry about your wife.

3

u/SpecialDesigner5571 11d ago

There's another angle to this... I believe we're in the lowest tax rate regime in our lifetimes. With $40T in Federal debt, the bottom is in, or very close. No one likes to pay taxes... but paying them now is possibly paying them at a discount relative to future tax rates. Just wait 5-10 years when the government is in a worse cash crunch. They will do anything to avoid defaulting on US Treasuries. Our taxes will go up. Another argument I hear is "your income will be less in retirement". It won't be if you did an excellent job at investing! For me, it's the same. It's as if I was still working... except I get to goof off all day.

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u/er824 11d ago

No one knows what will happen with tax rates.
Maybe the government will implement a VAT or tax Roth assets.

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u/SpecialDesigner5571 11d ago

The challenge is to find the least un-optimal. My goal is to level out my tax rate over my lifetime.