Splitting 401k and Roth 401k

[SteveTheDog]

Hello all,

First post here so please let me know if I'm in the wrong forum or making any other rookie mistakes.

I'm 44 and have unfortunately been pretty lazy about my retirement planning. I am ready to get serious now though.

I have about 70k in my 401k (rough year) and just added/maxed out a Roth IRA for 2022. I will definitely do that again every year I can going forward.

I'm going to also max out my 401k this year as well and thought it might be wise to peal off maybe 1/4 of that into a Roth 401k. My company doesn't match so they aren't any complications there.

I have some money in a brokerage and some cash that I'm slowly trying to figure out what to do with but that's a much longer question for another day. I have no debt.

Let me know if this isn't enough info. Thoughts on this?

 

[Dash man]

Welcome! I think it’s wise to have assets spread among tax deferred, Roth and taxable brokerage accounts. It’s helped us to pay for Roth conversions after retirement by pulling funds from taxable accounts to pay taxes from, and for living expenses.
You have some saving to do, but it seems like you’re planning to.

 

[SteveTheDog]

Thanks. I'm kicking myself for not doing a Roth Conversion a few years ago when I took a couple years off to volunteer. Would have been a great opportunity to move it all at 10-12% interest.

Sadly I wasn't thinking about retirement then but at least I am now. Trying to avoid kicking myself about this later on. I feel like at least getting the 5 year clock ticking couldn't hurt on the Roth 401k.

 

[pjm-7]

For simplicity when I was working, I funded my 401(k) with pre-tax contributions and used the Roth IRA for my after-tax contributions. My employer did not add the Roth option until the last couple of years that I was working. After I retired in 2014, I have utilized Roth conversions to up my Roth account.

 

[Sunset]

OP maybe you said this, but it's unclear to me.

You can contribute to your 401K with pretax money getting a tax deduction. If your employer allows it, you can also have a 401K Roth and contribute after tax money, and of course fund your independent roth.

 

[nobody]

I maxed my Roth 401k as soon as it was offered. Many people disagree with my choice since I was in a higher tax bracket (not Roth IRA eligible) at the time but it offers a lot of flexibility. The small amount I would of saved with a tax deduction doesn't even compare to how much I won't be paying in taxes when I withdraw and keeps me in the free health care bracket.

If you had an employer match they would just add the match to a regular 401k.

 

[SteveTheDog]

OP maybe you said this, but it's unclear to me.

You can contribute to your 401K with pretax money getting a tax deduction. If your employer allows it, you can also have a 401K Roth and contribute after tax money, and of course fund your independent roth.

Correct. I have been putting it all in the pretax 401k but can split percentages between the Pretax 401k and Roth 401k however I like.

I can put about 20 percent at my current salary and max out the 401k this year. My thought was to put 15 percent in the 401k to get the tax savings and 5 percent into the Roth 401k to get it established and slowly build it up without feeling it too much on taxes.

 

[SteveTheDog]

I maxed my Roth 401k as soon as it was offered. Many people disagree with my choice since I was in a higher tax bracket (not Roth IRA eligible) at the time but it offers a lot of flexibility. The small amount I would of saved with a tax deduction doesn't even compare to how much I won't be paying in taxes when I withdraw and keeps me in the free health care bracket.

If you had an employer match they would just add the match to a regular 401k.

Thanks. I know it's not a popular choice. Perhaps I'm misunderstanding how the Roth works but I feel like getting that going now would be beneficial since I have so long until retirement.

It seems the potential growth that I can withdraw tax free in retirement (especially given the market right now) would outweigh the tax savings. Still I don't want to fully go Roth 401k since I have the IRA already.