22M starting a role in mid-August 2026. My 2026 gross income will be ~$98k (prorated salary + $50k upfront sign-on bonus). In 2027, my calendar year income will be ~$151k TC.
The Strategy: I’m maxing my 401k ($24,500) and HSA ($4,400) in just 4.5 months. Since I can’t contribute from the bonus, I’ll live off that cash while diverting ~50%+ of my base paychecks to the 401k.
The Question: Is it better to go 100% Traditional to lower my 2026 taxable income, or go 100% Roth to lock in the 22% bracket rate before my income jumps and I start the Mega Backdoor Roth in 2027?
Traditional 401K vs Roth 401K for prorated high earner
byu/burnerberkeley inpersonalfinance
Posted by burnerberkeley
4 Comments
You know, you don’t have to go 100% traditional or 100% roth. If you’re not sure, you can go half an half or something.
Some things to consider: Since 50k of your income this year is your signing bonus, your income next year will be lower. That suggests that maybe you should just go traditional this year and Roth next year.
Is your long term income going to be much higher than this? If so, then Roth would be a good choice because your tax bracket will only get higher.
For 401k its almost always better to stay Traditional.
You should also be doing a Roth IRA. Which at the higher income will need to be a backdoor Roth.
You could do 50/50 too ya know.
But with Roth IRA and the MBD if you do it, you’ll have a lot of Roth space, so also why Traditional 401k works best.
Read this:
https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/
From a USA perspective, if you think your income post retirement might be the same or greater than while working, be aware of the RMD trap.
Also, any tax efficiencies from funds inside a traditional IRA401k403b are lost since distributions are taxed as ordinary income. So from a tax efficiency standpoint, some funds are better in a taxable account.
For instance ScHD provides qualified dividends. Certain cc ETFs employ ROC as a tax strategy. Qualified dividends and ROC income are taxed much more favorably than ordinary income.
Roth.
Does your company also offer mega backdoor?