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MonsieurVox t1_j2extbi wrote

It's an inherently hard question to answer because we don't know what future tax brackets are going to look like. Future tax rates are a key variable and is one of the most important factors, but without a crystal ball we have no way to make that determination.

I can give you my personal take: I'm in the 32% tax bracket and max out my Traditional 401k to lower my taxable income each year because I don't think I will be paying more than that in retirement. If I do, oh well, I'll pay some taxes in retirement. It's a personal calculated risk that I'm willing to take.

From there I put everything else that I can into Roth and after-tax investments to get me to a ~25% savings rate. My after-tax account will be my bridge account for early retirement (hopefully) and sinking fund for large purchases like house down payments and cars.

What I would personally do in your situation to help guide my decision is this: Take your salary and investment rate and run it out until the age you expect to retire. Assume an 8% rate of return, and a 3% average annual pay increase. It'll be less than that some years and more in others (promotions, etc.). Once you have that number, take 4% of it (the safe withdrawal rate) and compare that to what you'll be earning before you retire.

In that scenario, is 4% of your nest egg more or less than your annual earnings before retirement? If it's more, assuming tax brackets stay the same, you'd be better off going the Roth route because you'll get a pay raise by retiring and it will be completely tax free. If tax rates increase between now and then (likely), even better. If 4% is less than your annual earnings, then Traditional would be the best route (again, assuming tax rates stay the same). If tax rates increase between now and then, it gets kind of fuzzy.

Ultimately there's not a definitive, clear answer. What is clear, though, is that if you consistently contribute 15-25%+ of your income from now until retirement, you're going to better off than 90% of the population. Getting hung up on minimizing your tax liability in 30+ years is a bit of a fool's errand because there's no possible way to know the data you'd need to make the right decision: your income, your rate of return, and future tax rates. You can make educated predictions based on the past, but this is a true example of a situation where hindsight will be 20/20.

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h_VM1_ OP t1_j2eyd0k wrote

This is very helpful and eases my worries. Thanks!

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