By 0%, I assume you mean income less than the standard deduction? Given all your assumptions, this is fine: assuming he retires at 60 instead of later, doesn’t get divorced, doesn’t get a large inheritance, makes about the same income for the rest of his career, and doesn’t choose to withdraw social security early.I'd like to advise a young relative (30-ish) who's been saving mainly to his employer-sponsored Roth 401(k). He's well below the typical boglehead income and wealth and seemingly a solid candidate for KlangFool's recommendations. The following are rough estimates, but close enough to get a sense of direction.
Tax status: MFJ
Household income: ~$80k.
Roth 401(k): ~$60k
Regular 401(k): ~$20k
Emergency Fund: unknown, but seemingly "enough"
Years to Retirement: ~30
He hopes to retire around age 60 if he can save / grow enough. For the sake of my question, let's assume he does.
Prior to digging in on this topic, I figured it was a no-brainer for him to keep saving into the Roth 401(k). Now I'm having second thoughts and am inclined to advise something like:
1. Prioritize tax-deferred savings at least until "on track" to be able to withdraw and fill the 0 and 10% brackets from age 60 until Social Security. That beats paying 12% now (maybe soon to be 15% again?).
2. You might make no further Roth contributions at all until tax-deferred is built up to the "on track" target. If you *do* make any, have a reason that's worth paying today's tax for.
3. When contributing to Roth, prioritize saving to a private Roth IRA before saving to the Roth 401(k) because the contributions will be accessible at a much younger age if truly needed. [I could use a fact-check on this -- I've never had a Roth 401(k) option or needed to learn their details. I'm assuming age 59.5 rules like a regular 401(k)].
How does that sound?
Statistics: Posted by newparent7 — Tue Feb 11, 2025 11:48 pm — Replies 86 — Views 12156