Choice between pre-tax, after-tax, ROTH

[enginerd]

A quick background:
I'm 36, wife, 2 kids and hoping to FIRE in 11 years. My company has an ESOP and I hope/plan on my account reaching about $3.5 million at that time. We're currently saving about $45k/year into our retirement accounts, 401K, ROTH 401K, and ROTH IRA. Also saving another $20k/year into my brokerage account. We are just about maxed at the 28% tax bracket.

When I leave the company, the ESOP money will get rolled into a traditional IRA. I am thinking SEPP 72t to get access to the funds. My goal is to have $2.5 million saved in our various other accounts.

My question is, which account should I be putting my current retirement money? Knowing that my future $3.5 million will be pretax from my ESOP, Should I try to sock away more into ROTH to offset....or more into traditional 401k to keep my current tax rate out of the 33% bracket?

(also, I understand the risk of having a large portion of my net worth tied up in my employer. But, it is a great place to work and even though I have had offers from other companies, my company currently pays me about 25% higher than what I could expect elsewhere)

Thanks

 

[NgineER]

It sounds as if you have a good plan in place.
I would do all I could to reduce taxes currently, that is traditional IRA's and traditional 401(k). Then figure out a way to minimize taxes later.
Check to see if you can do an after-tax 401(k) contribution, this can be rolled over into a Roth.

 

[Rothman]

As my name suggests I'm a fan of Roths, how can you beat tax-free growth forever? Roths are also superior tools to pass legacy to children and grandchildren since they can withdraw tax free based on their life expectancy. But to me the deciding factor as I look at your case is diversification. You already have a lot of tax differed assets so building up some tax free will provide you flexibility for someone retiring so young. Btw, congrats on your achievement


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[pb4uski]

One thing for you to look to is what you anticipate your marginal tax rate to be in retirement. Presuming it is 28% or less, then I would emphasize tax deferred savings (401k, HSA if available) to lower your current tax burden, then Roth and other tax-free savings then taxable. Since you plan to retire so early, you'll need a good slug of taxable funds to carry you from 47 to 59 1/2.

After maxing out tax-deferred, you'll need to decide ho to split the remaining savings between taxable and tax-free. To the extent that your tax-free target exceeds what you can contribute to a Roth, you can do some after-tax 401k savings and then roll it into a Roth after you retire.