Hi all, it's been quite a while since joining this forum 10+ years ago. After spending many many days & nights here back then to educate myself and establish a plan I've only visited from time to time while our savings plan has been in action. Recently my megacorp has introduced a couple of new savings options that have me thinking.
As of this year I have access to both after-tax 401k savings (up to $29k) and a deferred compensation option. DW also works at the same company and together we will be in the 35% marginal tax bracket for 2018. We already max out our pre-tax 401k & employer match and for years have done backdoor Roth IRAs and a lot in a taxable Vanguard savings. The new after-tax 401k contributions can be converted multiple times a year into a roth 401k to minimize capital gains. Together this would be $58k for the both of us.
So my question is this.....assuming it's a no-brainer to switch into using deferred compensation and/or after-tax 401k contributions over a normal VG taxable account, which should take priority? I have access to similar investment options (index funds) in each.
DW and I are 42 now and will be fully FI in another 3-5 years. We may or may not RE but will at least downshift into less busy/stressful jobs. We have 8-9 years of living expenses already accumulated in taxable VG, another 8-9 years in traditional 401ks, and 1-2 years of living expenses in roth IRAs. Kids' (2) 529s are well funded and we keep adding to those separately as part of our expected spend.
We would obviously expect to end up in a lower tax bracket when the deferred comp gets paid out after RE but not sure that outweighs potential Roth advantages. Currently we're maxing out the after-tax 401k -> Roth 401k and putting a small amount in the deferred comp.
Thoughts?
As of this year I have access to both after-tax 401k savings (up to $29k) and a deferred compensation option. DW also works at the same company and together we will be in the 35% marginal tax bracket for 2018. We already max out our pre-tax 401k & employer match and for years have done backdoor Roth IRAs and a lot in a taxable Vanguard savings. The new after-tax 401k contributions can be converted multiple times a year into a roth 401k to minimize capital gains. Together this would be $58k for the both of us.
So my question is this.....assuming it's a no-brainer to switch into using deferred compensation and/or after-tax 401k contributions over a normal VG taxable account, which should take priority? I have access to similar investment options (index funds) in each.
DW and I are 42 now and will be fully FI in another 3-5 years. We may or may not RE but will at least downshift into less busy/stressful jobs. We have 8-9 years of living expenses already accumulated in taxable VG, another 8-9 years in traditional 401ks, and 1-2 years of living expenses in roth IRAs. Kids' (2) 529s are well funded and we keep adding to those separately as part of our expected spend.
We would obviously expect to end up in a lower tax bracket when the deferred comp gets paid out after RE but not sure that outweighs potential Roth advantages. Currently we're maxing out the after-tax 401k -> Roth 401k and putting a small amount in the deferred comp.
Thoughts?