Catch-up, taxable, or "glide"?

[The Cosmic Avenger]

So, both my spouse and I turn 50 this year, and from what I understand the catch-up contribution limits would apply for this year even if you turn 50 on Dec. 31 2021. I just went back to work recently, and I need to set up my 401(k) contributions. We had been maxing them out at $19.5K. We could certainly use the tax deduction for the extra $13K between us, but I was considering putting that in taxable investments instead, as our taxable investments are currently around 9% of our total retirement savings, and I feel like we might need more of a Medicare/SS bridge. We plan on adding an addtional $1K each to our Roth contributions, that's kind of a no-brainer.

But part of me feels like if we just keep saving what we have been, we don't need to contribute any more, at least not the 401(k) catch-up. We're pretty much at our goal, but we do have "stretch goals" of being able to travel more, or at least in more luxury than we have when we were saving! We do want to work a few more years to pay for our childrens' higher education, and also with a bigger margin for error we can protect a little better against SORR on such a long retirement.

So I'm considering leaving our 401(k) contributions where they are, bumping the Roth contributions, and instead of adding $13K/yr to taxable investments, adding maybe $6K and just enjoying spending/donating the rest.

Any thoughts/comments about these choices?

 

[RetireBy90]

I would consider a Roth has every advantage that after tax accounts plus no taxes. I can't comment on spending or donating the additional but if it were me, I'd place in a Roth account. Just my opinion.

 

[SecondCor521]

My thoughts:

1. All good choices, regardless of which you pick.

2. Look into making Roth 401(k) contributions if your company offers that option, or doing mega backdoor Roth contributions if that option applies to you.

3. If I just had to choose between 401(k) or taxable, I'd look at my total marginal rate for 2021 vs. my total marginal rate when I was 75 and make the decision based on that. If my age 75 rate was higher, I'd choose 401(k); if it was lower I'd choose taxable.

For the Medicare/SS bridge, I assume you mean money to live off of between FIRE and Medicare/SS age. There are multiple options; I like the Roth conversion ladder the best and that's what I'm doing. It's working like a charm for me (51, FIREd 5 years). Depending on how long you work and if your employer offers good withdrawal options, the 401(k) Rule of 55 might work for you. Or SEPPs if you retire around mid-50s is also a good option - I might do a combination SEPP/Roth conversion ladder for tax reasons even if my Roth ladder is working fine by itself.

 

[The Cosmic Avenger]

I would consider a Roth has every advantage that after tax accounts plus no taxes. I can't comment on spending or donating the additional but if it were me, I'd place in a Roth account. Just my opinion.

Thanks, but we were maxing our Roth IRA contributions (and in fact had to start doing backdoor Roth conversions for the last couple of years), so we're only going to be adding $2K/yr. more with the catch-up.

SecondCor521, I don't think our companies have Roth 401(k)s or after-tax contributions to our 401(k)s, but I'll double check. But I might spend some time figuring out your #3, because that sounds the simplest; the mega backdoor Roth contributions sound like a headache, and I've learned to K.I.S.S.! (The only reason I'm doing the backdoor Roth is that I've got automatic transfers and investments set up, the conversion itself takes about 15 seconds on the Fidelity website, so I just have to do that once a month.)

Honestly, it's very helpful to know that I'm probably not missing anything, these choices are likely going to be close to a wash, and there probably isn't any blindingly obvious loophole or landmine that I've missed.

 

[Montecfo]

It depends on current and future expected tax rates in my view.