Stats
Married – husband income 250k, but often variable last year was 400k, wife self employed works about 30hrs week, pays herself about 40k year.
401k – 550k
Roth – 25k
Brokerage – 100k
HSA – 35k
Efund – 60k
Checking – 60k
Other various investments – 20k
Think I’m doing well (obviously fortunate) am worried about tax implications in retirement.
Mortgage – 270k, equity 230k.
With income limiting Roth contributions, best path forward for taxes?
Not sure if it matters but 2 school age kids in LCOL city.
Heavily Invested, but think taxes may be an issue in retirement.
byu/IndependentTour8167 inpersonalfinance
Posted by IndependentTour8167
8 Comments
does hubby employer offer mega back door conversions?
Is your worry just a generic anxiety without specific data/math behind it?
Or is there something more specific about taxes during retirement that you’ve actually modeled out that is concerning you?
> With income limiting Roth contributions
Are you not aware of the Backdoor Roth strategy?
> With income limiting Roth contributions, best path forward for taxes?
You can still contribute to a Roth IRA, via the Backdoor Roth IRA method. It’s legal and pretty easy to set up.
Hard to say anything with no mention of expenses or age.
The MFJ 22% bracket starts at $100,800 in 2026. That’s a lot of space to realize income from the brokerage/various/401k at less than 22%.
If you’re making 250k-400k, your tax rates in retirement will be significantly lower. If you have $10mil invested throwing off a 1.4% yield (like VTI) that’s $140k/yr. $5mil would throw off $70k
Dividends are taxed much more favorably than salary.
At that income, most tax efficient strategy seems to be maxing out 401k. Look into setting up a self-employment 401k for your wife’s business.
Contribution Limits (2025): You can contribute up to $23,500 ($23,000 for 2024) as an employee, plus 25% of net earnings as an employer, with a $70,000 total cap.
Those are last years numbers, obviously. I believe you can do this as a roth as well.
Probably your marginal tax savings will be higher with pre-tax contributions now vs post tax.
Rough estimate: You convert your $550k now, pay 25% tax. That number goes 5x before you retire: That works out to be $2.0625M. Keep in tradition: $550k goes 5x, you pay 15% marginal tax rate in retirement. That’s $2.337M after taxes (of course, you cannot take it all out at once).
I’m sure there’s some formula to figure out the optimal strategy, but I think I would starting maxing out your wife’s self employment roth 401k with all her income if possible.
How old are you? Stick to 401k. Max it out. Pay off your home. What’s the HSA for? Do
You need 529 for kids college?
At your income, Roth is worse for you. You come out way ahead by going traditional and reducing your tax burden today while your income and tax rate are high. When you retire, you won’t be pulling $300k to $400k a year, you’ll be pulling more like $100k to $150k (not accounting for inflation, but relative numbers still make my point).
What most high earners will do is start a campaign of Roth conversions once they retire and their income goes to $0, lowering their tax burden for the conversions. Usually takes a few years to get everything converted, but it’s worth it in the end.