Before you read further more, I believe, every person wants to retire safely without worry about their savings. Perhaps, you have some purpose when you get your retirement, such as, more active in social community, get more involved in your family, traveling around the world, and you can add the list.

As of November 2019, my employer started offering the Roth 401(k) in addition to the Traditional 401(k). I love Mr. Roth. What I’ve been struggling with during open enrollment late last year and these first few months of this year is my mix of the two.

To make it even more complicated, the company also greatly increased the percentage of your salary you can put into the plan. You can now contribute up to 25% of your salary up to the IRS maximum. Halfway through 2018, they also instituted this discretionary match in addition to the dollar-for-dollar on the first 6% match. It allows the board to determine an additional match after assessing year-end results. The discretionary match is capped at 3%. In exchange, we essentially gave up our pension (in case you were wondering, we weren’t asked).

Here’s where I started.

As of December 2018, I had 16% of my pretax salary going to my 401(k). It was the maximum percentage allowed by the plan and got my within spitting distance of the IRS dollar maximum for the year. I’d been at this level ever since joining the company six years ago.

For 2019, I started with a mix of 9% Roth 401(k) and 8% Traditional. I didn’t want to drastically change anything because I didn’t want my net paycheck amount to go too far down. It’s always a surprise what it’s going to be that first paycheck. Some things make it go up (small gross pay increase) and some down (rising cost of insurance). Anyway, after the first couple of pay periods when I was sure what my net pay was going to be, I made additional incremental changes.

I’m now at 11% Roth and 8% Traditional

I’m pretty cool with what the net pay is and those percentages get me to the yearly IRS maximum. Here’s the part I’m struggling with. What should my balance between the two be? There are several factors to consider but the overarching one is taxes. I’m not very concerned with minimizing current taxes. I’m personally much more interested in taxes at retirement. The questions are:

    What kinds of taxes will we be subject to? (income? flat tax? VAT?)
    What will income tax rates look like when I retire in 30 years?
    What bracket will I be in? What will the brackets even be?

I know my answers would be pure speculation, but I have the strong feeling taxes in the future will only go up. America just can’t keep spending more than it makes. I will personally love withdrawing a huge chunk of Roth cash and not having to give any of it to the man. But I have the sneaking suspicion somehow the tax code will change and I’ll be hearing some variation of, “You know how we said that Roths weren’t going to be taxed. Well about that…”

So what’s your mix?

As of November 2019, my employer started offering the Roth 401(k) in addition to the Traditional 401(k). I love Mr. Roth. What I’ve been struggling with during open enrollment late last year and these first few months of this year is my mix of the two.

To make it even more complicated, the company also greatly increased the percentage of your salary you can put into the plan. You can now contribute up to 25% of your salary up to the IRS maximum. Halfway through 2018, they also instituted this discretionary match in addition to the dollar-for-dollar on the first 6% match. It allows the board to determine an additional match after assessing year-end results. The discretionary match is capped at 3%. In exchange, we essentially gave up our pension (in case you were wondering, we weren’t asked).

Here’s where I started. As of December 2018, I had 16% of my pretax salary going to my 401(k). It was the maximum percentage allowed by the plan and got my within spitting distance of the IRS dollar maximum for the year. I’d been at this level ever since joining the company six years ago.

For 2019, I started with a mix of 9% Roth 401(k) and 8% Traditional. I didn’t want to drastically change anything because I didn’t want my net paycheck amount to go too far down. It’s always a surprise what it’s going to be that first paycheck. Some things make it go up (small gross pay increase) and some down (rising cost of insurance). Anyway, after the first couple of pay periods when I was sure what my net pay was going to be, I made additional incremental changes.

I’m now at 11% Roth and 8% Traditional. I’m pretty cool with what the net pay is and those percentages get me to the yearly IRS maximum.

Here’s the part I’m struggling with. What should my balance between the two be? There are several factors to consider but the overarching one is taxes. I’m not very concerned with minimizing current taxes. I’m personally much more interested in taxes at retirement. The questions are:

• What kinds of taxes will we be subject to? (income? flat tax? VAT?)
• What will income tax rates look like when I retire in 30 years?
• What bracket will I be in? What will the brackets even be?

I know my answers would be pure speculation, but I have the strong feeling taxes in the future will only go up. America just can’t keep spending more than it makes. I will personally love withdrawing a huge chunk of Roth cash and not having to give any of it to the man. But I have the sneaking suspicion somehow the tax code will change and I’ll be hearing some variation of, “You know how we said that Roths weren’t going to be taxed. Well about that…”

So what’s your mix?