Key Takeaways
- A 50-year-old in the 35% bracket with $2.1 million saved, 97% of it pre-tax, is thinking about making all 2027 401(k) deferrals Roth because they’re worried about big required withdrawals later.
- At this year’s $24,500 limit, keeping those deferrals pre-tax saves $8,575 of federal tax a year at 35%.
- If the balance held at $2.1 million, the required withdrawal at 75 would be $85,366. A single filer would owe $9,950 of federal tax on it, and no dollar would be taxed above 22%.
- Higher earners have to make catch-up contributions as Roth, and Roth conversions after retirement can be taxed at 22% or less, so there’s a way to build a Roth side while keeping the deduction.
If most of your retirement money sits in pre-tax accounts, you’ve probably heard the warning. Someday, required withdrawals will push you into a high bracket, so you’d better pay the tax now. That’s a fair worry. But at today’s brackets, the withdrawals have to get very big before paying the tax up front comes out ahead.
A 50-year-old posting in Reddit’s r/Bogleheads forum this week is weighing exactly that trade, with a lot of money riding on it.
35% is a lot to give up
The poster has about $2.1 million in retirement accounts, 97% of it pre-tax, and is in the 35% federal bracket. Their employer’s match keeps adding to the pre-tax side, and they plan to work until about 68. For 2027, they’re choosing between two options: send all their deferrals to Roth, or split them 50/50 between Roth and pre-tax. “I’m worried that big RMDs will keep me in a high bracket in retirement, but 35% feels like a lot to give up now,” they wrote.
They’re right about the 35%. At this year’s $24,500 limit, every pre-tax dollar they defer comes off income taxed at 35%, so the deduction is worth $8,575 of federal tax a year. Going all Roth gives up all of that, and the 50/50 split gives up half, or $4,287.50.
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At $2.1 million, nothing gets taxed above 22%
The IRS figures each required withdrawal by dividing the account’s balance at the end of the previous year by the number its Uniform Lifetime Table gives for your age. At 75, that number is 24.6. So even if the balance just held at $2.1 million, the required withdrawal at 75 would be $85,366.
Say the poster files single and that withdrawal is their only income. After this year’s $16,100 standard deduction, $69,266 is taxable. At this year’s brackets, they’d pay 10% on the first $12,400 ($1,240), 12% up to $50,400 ($4,560) and 22% on the last $18,866 ($4,150), for a federal bill of $9,950. That’s less than 12% of the withdrawal, and not one dollar of it gets taxed anywhere near 35%.
It takes $6.7 million to reach 35%
For the withdrawal alone to hit the 35% bracket, a single filer’s taxable income would have to top $256,225. Add back the $16,100 deduction and multiply by 24.6, and the balance would need to reach $6.7 million. That’s more than three times what this saver has now. A couple filing jointly wouldn’t get there until $13.4 million. (Even then, the top dollars would come out at the same 35% the poster would skip today, so going Roth would only break even.)
But the poster has 24 years before that withdrawal. The bracket lines and the standard deduction rise with inflation every year, so the balance would need to grow a bit under 5% a year faster than inflation to get there, and that’s before counting any new money from the poster or the employer. Eighteen more years of deferrals and matches could close much of that gap. Social Security would also stack on top of the withdrawal. And if the poster is married, a surviving spouse would go back to the single filer’s bracket lines.
The Roth side can grow while the deduction stays
Fortunately, this saver doesn’t have to choose between the deduction and a Roth account. Since this year, a worker 50 or older whose prior-year wages from the plan’s sponsor topped $150,000 has to make catch-up contributions as Roth, and the final regulations generally apply to contributions from 2027. If the poster’s wages clear that bar, as a 35% bracket suggests they would, the catch-up ($8,000 this year) goes in as Roth while the $24,500 of regular deferrals stays pre-tax. That adds Roth money every year without giving up a cent of the $8,575.
The poster gets a second chance in the years between retiring at about 68 and the first required withdrawal. A Roth conversion is taxed as ordinary income in the year it’s made. With no other income, a single filer could convert $121,800 a year at this year’s figures ($105,700 of taxable income plus the $16,100 deduction) and pay no more than 22% on any of it. That’s money deducted at 35% and taxed at 22% or less, and every converted dollar shrinks the balance the required withdrawals are figured on.
I’d keep the deduction
In the poster’s shoes, I’d keep the regular deferrals pre-tax and take the 35% deduction while it’s on offer. Going all Roth means paying a sure 35% today to avoid a rate the balance has to more than triple to reach, and even then it only breaks even. The Roth catch-ups and a few years of conversions after 68 build the Roth side anyway. What would change my mind is other income: a big Social Security check or a pension on top of the withdrawals, or a balance that grows well ahead of inflation, would make the 50/50 split look a lot better.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
