Being pushed into a different tax bracket is something people should always keep in mind. Different tax brackets affects the calculus of which 401k to use (post/pre tax), decisions about liquidating tax deferred assets, it goes on
No it doesn't. Not for people who earn tech salaries which is what this article is pointed at. You're always going to max out pre-tax 401k first, then backdoor 401k post-tax after if you have enough spare income.
Moving up a bracket doesn't change all the previous brackets, it just affects money past that level. It's not like a hard line that you cross and it changes the whole picture.
If you think otherwise, give us a scenario where is matters.
Scenario 1: If you believe that your marginal tax rate after retirement will be higher than your marginal tax rate now, you would prefer to max out your Roth than you pre-tax now. Many people in tech will be taxed at the top income rate now and at the top income rate in retirement as well; it seems likely that tax rates will have to rise in the future as we're obviously not running a sustainable balance of federal inflows and outflows now.
Scenario 2: If you want to funnel as much money as possible into your employer's plan, you might want to use a Roth vehicle to do that. (Your pre-payment of taxes on it means that $100 in a Roth is worth more than $100 in a pre-tax vehicle.) Your 401k plan might not support mega backdoor 401k contributions (many plans don't allow after-tax contributions [distinct from Roth]) and you might have other IRAs that would drag in the pro-rata rule for backdoor IRA contributions.
If you’re at the limit for the middle capital gains bracket because of one-time gains and you can afford to wait, you should definitely defer liquidating assets to the following tax year.
skellington|1 year ago
Moving up a bracket doesn't change all the previous brackets, it just affects money past that level. It's not like a hard line that you cross and it changes the whole picture.
If you think otherwise, give us a scenario where is matters.
sokoloff|1 year ago
Scenario 2: If you want to funnel as much money as possible into your employer's plan, you might want to use a Roth vehicle to do that. (Your pre-payment of taxes on it means that $100 in a Roth is worth more than $100 in a pre-tax vehicle.) Your 401k plan might not support mega backdoor 401k contributions (many plans don't allow after-tax contributions [distinct from Roth]) and you might have other IRAs that would drag in the pro-rata rule for backdoor IRA contributions.
c0pium|1 year ago
rrdharan|1 year ago