My situation is very similar to yours, and I'm really curious if they convinced you to do all ROTH for the 401k or not? I'm in the gray zone at 27.8% marginal tax rate and still can't decide.
Hi! I had to change my contributions last Friday before seeing their answer to my question. I decided to do 5% pretax (with my 8% match it totals 13% pretax) and then 20% Roth which when I add my Roth IRA to that I’m heavily favoring Roth. My tax rate currently is below the gray zone, so my future strategy will be to adjust my pretax and Roth as needed to prevent me from going into the next tax bracket for as long as possible 😂
@@jordanhatch8784to me there are other considerations. Are you 100% traditional? If so, I’d personally max out Roth while we have the Trump era tax cuts. Once they expire, reconsider then. Also think about how Roth can factor into estate planning and protecting against the widow tax.
Bo really saved me at 29:57 with that rant. Particularly where he mentioned that it takes $583 a month to max out a Roth. I've been doing more than that for some time and I was about to go $200 over the limit next week. Paused the auto contribution, and will adjust it for next year! Thanks, Bo!
You were doing auto from your employer to your brokerage? Or checking account to your brokerage? And what brokerage you have? And if you do it from your employer to brokerage did you just set it up as a direct deposit
@longterminvestmentsonly4817 seems like he's talking about a regular brokerage and a Roth ira based on the numbers. Not sure why you're assuming he's transferring it from one account to the next. I assume your real question is: why is the brokerage youre using not making you aware of max roth ira contribution limits? Pretty sure most of them will stop you, and one of the only ways to exceed the amount (violate IRS tax code) would be to utilize 2 or more brokerages. Bagley, if youre contributing to a roth 401k, not a roth IRA, then the limit is much higher than 7k per year. Your total contribution to pre-tax 401k + roth 401k = 23,000.
@@longterminvestmentsonly4817I don’t know about the original commenter but I have my check go to me and my wife’s savings account and my wife’s check goes to our checking account, from there I have my fidelity account automatically transfer $250 every paycheck and invest it automatically in my Roth, the rest of my check goes to future expenditures like vacations, or other big purchases
@@longterminvestmentsonly4817 Auto from a checking account to a brokerage. I use M1 primarily. They might have caught it for me, but they don't know I put $1200 in a SoFi account when they had a 2% match promotion at the beginning of the year.
Just because national taxes will go up doesn’t mean your personal taxes will be greater in retirement. You’ll want to compare your current taxes to what you’ll be paying in retirement, and for many people, they are living on a lower taxable income.
Social security and Medicare will need more taxes in 8 years. Billionaires and corporations won’t be paying more taxes to fund social security and medicare. Their corporate lobbyists will block it. Us peons will be paying more federal taxes to keep social security and Medicare afloat. Wait, they will raise fica taxes and keep our federal taxes the same 😂😂😂
Roth 100% for the IRA and 401k. I don't want to think about future taxes on anything other than my match which I'm okay paying taxes on since it was free money
We live in the gray zone... maybe passing it soon, but since hitting the gray zone for a few years, we've used "years left to our planned retirement" to adjust the ratio into pre/post (maxing 2x 403b's and a 457 soon) which adjusts towards pretax every year (assuming income increases y2y). It's just pretax% = (40 - years to target)/40. Helps us sleep at night.
It's really a mental health experience more than anything. So 20 years out puts you at 50/50, with each year shifting 3% more to pretax. Keeps both buckets building and us less worried about which bucket is better for us as we get closer to retirement.
@nitdawg interesting. I try to max out my 401k 1st, then roth ira. I'm in the gray zone as well and using your formula I'm doing the correct thing. I'm going to share with some of my younger coworkers though so they'll know when to potentially switch it over
IMO, one thing that is a little overlooked is that you can contribute more net real dollars with Roth compared to pre-tax when in the “gray zone”. Of course there are variations like whether your plan supports mega backdoor Roth contributions, etc.
If LP has the ability to max out their 401(k) with Roth or Pre-tax contributions, they should absolutely do all Roth because those dollars are worth more, especially for someone in their early 30s. They will be paying taxes on tens (or hundreds) of thousands now vs on millions later. Their tax rate would have to be a quarter what it is now in the future just to roughly break even, and that's assuming they continue maxing out 401(k) every year until they retire. One exception would be if they were to invest the tax savings of funding the 401(k) with Pre-tax into an after-tax account (assuming they aren't married to someone who also has access to a 401(k) or additional Roth IRA).
In my 401(k) Roth, they separate only the contributions, but all the growth is mixed in with traditional meaning you would get taxed again on the Roth growth when you take your distributions.
Do you add social security and medicare tax percentage to the federal and state tax percentage when figuring out traditional versus roth 401k contributions?
Money Guy Show! I'm out of Denver, CO and love the show. This is the first year I maxed out my 401k (thank you for your help!). My income exceeds IRA Contribution Limits and I want to start leveraging the mega backdoor roth strategy. The concept is new, can you explain how it works, and what actionable steps I need to take (and on what frequency)?
First step, make sure your employer plan allows for after tax contributions and allows in-service distribution of after tax contributions. If you don’t have that then the rest doesn’t matter
I just turned 44 and awfully late to investing with barely any portfolio except my 401k, I have a decent amount of cash saved up and with inflation currently soaring AGAIN, I'm getting worried about retirement, my intention is to retire at 55. How best do I maximize my savings of over $220k
Retirement is now more difficult than it was in the past. it's all about balancing your risk tolerance with your long-term goals. Maybe consider speaking to an advisor to help in diversifying your portfolio to spread out the risk.
Agreed, l've always delegated my excesses to an advisor, since suffering major portfolio loss early 2020, amid covid outbreak. I'm now semi-retired and only work 7.5 hours a week, with barely 25% short of my $1m retirement goal after subsequent investments to date
My CFA Joseph Nick Cahill is a renowned figure in his field. I recommend researching his name online; you'll find all his credentials and everything you need to work with a reliable professional. With many years of experience, he is a valuable resource for anyone looking to navigate the financial market.
How sure are you that a Roth contribution is matched? I'm pretty sure my employer didn't have that in the past couple of years, specifically called out that Roth is not matched. Might be good to check with your company's benefits department
My wife and I are right at 29% (24% federal, 5 percent state). I’m doing all my future contributions to Roth. Our 401k’s are mainly traditional. Feel that we could be taxed around same bracket in retirement. So, just trying to hedge against that.
I think it’s good to have a mix of Roth and traditional to give you more flexibility in retirement, avoiding the widow trap, and potentially for estate planning. YMMV
@ 95% of mine is in traditional, so trying to get it to more like 75%. With a pension we’ll receive, we’ll more than likely be in the 22% bracket with withdrawals from traditional. I’m late to the Roth game… trying to retire in 8 years.
@ seems like good back of napkin math. It’s hard/impossible to determine the right balance of traditional to Roth. You can pay thousands to a company to run tax projections or you can just jump in and get a balance that you are comfortable with and meets your goals. At least that’s how I’ve treated it.
If I have a TSP and I’m putting 7% Roth 7% regular. With a 5% match what’s a better option how do I even know where my match is going? Do they always do the best? Roth? Until it’s maxed and then after to regular I don’t know these things?
Guys I need some help, if I have already determined that pretax is the best use of my dollars do I skip step 5? I’m at a 33.3% marginal rate so I’m maxing out my pretax 401k. Leaves very little margin for Roth IRA contributions (2500) this year. Not eligible for HSA contributions. I’m at over 25% savings rate when taking into account my 10k/yr cash savings. (This is for a down payment, replenish emergency funds, future car buying etc.)and so that I’m not “retirement rich.” Am I out of order? Do I forgo the cash savings to max out my Roth? Am I justified in skipping the Roth because my marginal rate is so high?
My company match is 6 percent. My “cash” sits in a money market and index funds above and beyond my emergency fund. I make 110k. I’m at the saving rate. So back to my question?
@@NiafunnI believe by money guy guidance if you’re at a 33% marginal tax rate then you shouldn’t be doing Roth since it’s highly likely you’ll be in a lower tax bracket at retirement. If you have the option for HSA then personally I’d max that out before maxing out 401k. I believe that also aligns with the FOO
The 25% is for savings dedicated to retirement. It doesn't have to be in retirement accounts, but if you're saving money towards buying a new car that wouldn't count even if you have the money invested. Personally I'd try to get at least something in Roth but there's nothing saying you have to, plenty of people have retired fine with just a 401k.
I am considered an HCE (highly compensated employee) and I can only contribute 4% max on our 401k. I max out roth, max out hsa. Where else can i contribute to lower my taxable income
Lower taxable income now or in retirement? I don’t think there’s anything else you can do now. In retirement don’t discount the benefit of long term capital gains in a brokerage account.
@@tonysoprano12345 it’s the IRS requirement for non discrimination for the lower income employee on your organization. There are certain criteria for you to pass. Things like youre on the top 20% highest paid or you own a stake of the company or youre making above $155k in 2024,$160k in 2025 etc
Typically most people don't count the match, especially being that high of a match, the reason being the less you personally contribute, the more you're spending which means the more you will want to spend during retirement, thus the more you need.
I enjoy the Members Only jacket banter. It is funny that Brian has an affinity for it, as it was boomers who wore it when I was a kid. My dad had 3 or 4 of them, so I never thought they were cool, but I knew they were in style - literally for boomers. I never knew GenX'ers liked them too, since older generations wore them at the same time. I am sure he still has them in his closet or at least his storage, so I might have to just sell them on Depop or something lol.
If you are at 30$ or greater tax rate, your income is most likely so high you will not get the benefit on the 1040 of a pre-tax deposit into the 401K. SO no tax benefit today, and you get to pay again when you withdraw.
You guys are doing a real service to the people of our country. I hope your audience continues to grow. Thank you.
Thanks for answering my question (LP) as part of the show! Threw it in a previous live and didn’t realize it would get picked up for content 😊
My situation is very similar to yours, and I'm really curious if they convinced you to do all ROTH for the 401k or not? I'm in the gray zone at 27.8% marginal tax rate and still can't decide.
Hi! I had to change my contributions last Friday before seeing their answer to my question. I decided to do 5% pretax (with my 8% match it totals 13% pretax) and then 20% Roth which when I add my Roth IRA to that I’m heavily favoring Roth. My tax rate currently is below the gray zone, so my future strategy will be to adjust my pretax and Roth as needed to prevent me from going into the next tax bracket for as long as possible 😂
@@jordanhatch8784to me there are other considerations. Are you 100% traditional? If so, I’d personally max out Roth while we have the Trump era tax cuts. Once they expire, reconsider then. Also think about how Roth can factor into estate planning and protecting against the widow tax.
Bo really saved me at 29:57 with that rant. Particularly where he mentioned that it takes $583 a month to max out a Roth. I've been doing more than that for some time and I was about to go $200 over the limit next week. Paused the auto contribution, and will adjust it for next year! Thanks, Bo!
You were doing auto from your employer to your brokerage? Or checking account to your brokerage? And what brokerage you have? And if you do it from your employer to brokerage did you just set it up as a direct deposit
@longterminvestmentsonly4817 seems like he's talking about a regular brokerage and a Roth ira based on the numbers. Not sure why you're assuming he's transferring it from one account to the next.
I assume your real question is: why is the brokerage youre using not making you aware of max roth ira contribution limits? Pretty sure most of them will stop you, and one of the only ways to exceed the amount (violate IRS tax code) would be to utilize 2 or more brokerages.
Bagley, if youre contributing to a roth 401k, not a roth IRA, then the limit is much higher than 7k per year. Your total contribution to pre-tax 401k + roth 401k = 23,000.
@@longterminvestmentsonly4817I don’t know about the original commenter but I have my check go to me and my wife’s savings account and my wife’s check goes to our checking account, from there I have my fidelity account automatically transfer $250 every paycheck and invest it automatically in my Roth, the rest of my check goes to future expenditures like vacations, or other big purchases
@@longterminvestmentsonly4817 Auto from a checking account to a brokerage. I use M1 primarily. They might have caught it for me, but they don't know I put $1200 in a SoFi account when they had a 2% match promotion at the beginning of the year.
Love Brian trying so hard not to laugh at “Foo Pa” @ 11:15
I love these two men so much❤❤❤❤
I'm going 100% Roth for one reason, I think with the increasing national debt tax rates will increase over time.
Just because national taxes will go up doesn’t mean your personal taxes will be greater in retirement. You’ll want to compare your current taxes to what you’ll be paying in retirement, and for many people, they are living on a lower taxable income.
Social security and Medicare will need more taxes in 8 years. Billionaires and corporations won’t be paying more taxes to fund social security and medicare. Their corporate lobbyists will block it. Us peons will be paying more federal taxes to keep social security and Medicare afloat. Wait, they will raise fica taxes and keep our federal taxes the same 😂😂😂
I’m putting 100% now to Roth… Started late with Roth, so now playing catchup. Trying to reducing what my taxable income will be in retirement.
@@wichertj3 I would go Roth no matter what future taxes will do because Roth immediately makes that irrelevant
Roth 100% for the IRA and 401k. I don't want to think about future taxes on anything other than my match which I'm okay paying taxes on since it was free money
Every money guy podcast I wonder: will Bo be excited about this?
Or will he be sooooooo excited.
You don't have to wonder long!
We live in the gray zone... maybe passing it soon, but since hitting the gray zone for a few years, we've used "years left to our planned retirement" to adjust the ratio into pre/post (maxing 2x 403b's and a 457 soon) which adjusts towards pretax every year (assuming income increases y2y).
It's just pretax% = (40 - years to target)/40. Helps us sleep at night.
That's interesting, what is this ratio based off of?
Probably doesn’t matter too much point by point, but having a structure can be super comforting.
It's really a mental health experience more than anything. So 20 years out puts you at 50/50, with each year shifting 3% more to pretax. Keeps both buckets building and us less worried about which bucket is better for us as we get closer to retirement.
@nitdawg interesting. I try to max out my 401k 1st, then roth ira. I'm in the gray zone as well and using your formula I'm doing the correct thing. I'm going to share with some of my younger coworkers though so they'll know when to potentially switch it over
Love the rant around 16:00 it’s good to hear about the order of making money vs de leveraging and maintaining and not just debt bad debt bad debt bad
Brian's jacket is almost as bright as his financial advice! 😂 But seriously, great content
Omg, the mustache on Brian’s can koozie is fantastic! It’s the birthday gift that keeps on giving. 😂
IMO, one thing that is a little overlooked is that you can contribute more net real dollars with Roth compared to pre-tax when in the “gray zone”. Of course there are variations like whether your plan supports mega backdoor Roth contributions, etc.
My ROTH401k match is dumped into the safe harbor match - also post tax. 100% ROTH. No pre-tax and 100% vested on day one.
If LP has the ability to max out their 401(k) with Roth or Pre-tax contributions, they should absolutely do all Roth because those dollars are worth more, especially for someone in their early 30s. They will be paying taxes on tens (or hundreds) of thousands now vs on millions later. Their tax rate would have to be a quarter what it is now in the future just to roughly break even, and that's assuming they continue maxing out 401(k) every year until they retire. One exception would be if they were to invest the tax savings of funding the 401(k) with Pre-tax into an after-tax account (assuming they aren't married to someone who also has access to a 401(k) or additional Roth IRA).
In my 401(k) Roth, they separate only the contributions, but all the growth is mixed in with traditional meaning you would get taxed again on the Roth growth when you take your distributions.
The book was awesome! Thanks Brian for the info
Today I learned a lot about members only jackets!
Do you add social security and medicare tax percentage to the federal and state tax percentage when figuring out traditional versus roth 401k contributions?
Money Guy Show! I'm out of Denver, CO and love the show. This is the first year I maxed out my 401k (thank you for your help!). My income exceeds IRA Contribution Limits and I want to start leveraging the mega backdoor roth strategy. The concept is new, can you explain how it works, and what actionable steps I need to take (and on what frequency)?
They have videos on this, search their channel
First step, make sure your employer plan allows for after tax contributions and allows in-service distribution of after tax contributions. If you don’t have that then the rest doesn’t matter
Foo Pa took me out 😂 everyone kept saying it with a straight face
I just turned 44 and awfully late to investing with barely any portfolio except my 401k, I have a decent amount of cash saved up and with inflation currently soaring AGAIN, I'm getting worried about retirement, my intention is to retire at
55. How best do I maximize my savings of over $220k
Retirement is now more difficult than it was in the past. it's all about balancing your risk tolerance with your long-term goals. Maybe consider speaking to an advisor to help in diversifying your portfolio to spread out the risk.
Agreed, l've always delegated my excesses to an advisor, since suffering major portfolio loss early 2020, amid covid outbreak. I'm now semi-retired and only work 7.5 hours a week, with barely 25% short of my $1m retirement goal after subsequent investments to date
Thanks for sharing your experience! I've been managing my portfolio myself, but it's not working out.
Do you have any recommendations for a good investment advisor? I could really use some help.
My CFA Joseph Nick Cahill is a renowned figure in his field. I recommend researching his name online; you'll find all his credentials and everything you need to work with a reliable professional. With many years of experience, he is a valuable resource for anyone looking to navigate the financial market.
Foo Pa.. brian sure said that a lot 😂 idk we got it or what
Where can I find a 8% pretax match? Presumably that is a 100% match up to 8%?
Walmart/Sam's club used to do 6% back when I worked there a few years back. Not sure if they still do. That's the best I've ever had.
It might just be an 8% Match on your contributions ($1,840 for 2024 if you max it)
You needed to finish off with Go Georgia Bulldogs!!!
How sure are you that a Roth contribution is matched? I'm pretty sure my employer didn't have that in the past couple of years, specifically called out that Roth is not matched. Might be good to check with your company's benefits department
My wife and I are right at 29% (24% federal, 5 percent state). I’m doing all my future contributions to Roth. Our 401k’s are mainly traditional. Feel that we could be taxed around same bracket in retirement. So, just trying to hedge against that.
I think it’s good to have a mix of Roth and traditional to give you more flexibility in retirement, avoiding the widow trap, and potentially for estate planning. YMMV
@ 95% of mine is in traditional, so trying to get it to more like 75%. With a pension we’ll receive, we’ll more than likely be in the 22% bracket with withdrawals from traditional. I’m late to the Roth game… trying to retire in 8 years.
@ seems like good back of napkin math. It’s hard/impossible to determine the right balance of traditional to Roth. You can pay thousands to a company to run tax projections or you can just jump in and get a balance that you are comfortable with and meets your goals. At least that’s how I’ve treated it.
@ Yeah, I can’t see hiring an advisor and paying 10 to 20k a year.
@ you could pay for one time analysis but it would still be thousands, at least when I called around a few years ago.
If I have a TSP and I’m putting 7% Roth 7% regular. With a 5% match what’s a better option how do I even know where my match is going? Do they always do the best? Roth? Until it’s maxed and then after to regular I don’t know these things?
Match always goes to non-Roth unless explicitly stated otherwise, because the company gets a tax deduction for doing it that way.
Guys I need some help, if I have already determined that pretax is the best use of my dollars do I skip step 5? I’m at a 33.3% marginal rate so I’m maxing out my pretax 401k. Leaves very little margin for Roth IRA contributions (2500) this year. Not eligible for HSA contributions. I’m at over 25% savings rate when taking into account my 10k/yr cash savings. (This is for a down payment, replenish emergency funds, future car buying etc.)and so that I’m not “retirement rich.” Am I out of order? Do I forgo the cash savings to max out my Roth? Am I justified in skipping the Roth because my marginal rate is so high?
Step 7 is hyper accumulation (investing 25%.) Cash savings are not technically investments…
The $10k shouldn’t be included in your 25%
My company match is 6 percent. My “cash” sits in a money market and index funds above and beyond my emergency fund. I make 110k. I’m at the saving rate. So back to my question?
@@NiafunnI believe by money guy guidance if you’re at a 33% marginal tax rate then you shouldn’t be doing Roth since it’s highly likely you’ll be in a lower tax bracket at retirement. If you have the option for HSA then personally I’d max that out before maxing out 401k. I believe that also aligns with the FOO
The 25% is for savings dedicated to retirement. It doesn't have to be in retirement accounts, but if you're saving money towards buying a new car that wouldn't count even if you have the money invested. Personally I'd try to get at least something in Roth but there's nothing saying you have to, plenty of people have retired fine with just a 401k.
Hey! What happened to Reba?
Where has creative director Rebee been?
“You are the 3rd degree burn of financial education” lol
I am considered an HCE (highly compensated employee) and I can only contribute 4% max on our 401k. I max out roth, max out hsa. Where else can i contribute to lower my taxable income
What the heck? Your employer sucks - I've never heard of such a thing
@@tonysoprano12345it is a thing, he just had a bad employer plan as there are ways around this but it’s on the employer
Lower taxable income now or in retirement? I don’t think there’s anything else you can do now. In retirement don’t discount the benefit of long term capital gains in a brokerage account.
@@tonysoprano12345 it’s the IRS requirement for non discrimination for the lower income employee on your organization. There are certain criteria for you to pass. Things like youre on the top 20% highest paid or you own a stake of the company or youre making above $155k in 2024,$160k in 2025 etc
So my company matches 10.5% and i put 15% in my 401k dose that count as 25%
Typically most people don't count the match, especially being that high of a match, the reason being the less you personally contribute, the more you're spending which means the more you will want to spend during retirement, thus the more you need.
I enjoy the Members Only jacket banter. It is funny that Brian has an affinity for it, as it was boomers who wore it when I was a kid. My dad had 3 or 4 of them, so I never thought they were cool, but I knew they were in style - literally for boomers. I never knew GenX'ers liked them too, since older generations wore them at the same time. I am sure he still has them in his closet or at least his storage, so I might have to just sell them on Depop or something lol.
Gen X had them as well. I know I had a couple ;)
Hit 200k today. I'm really grateful for all the knowledge and nuggets you had thrown my way over the last months. Started with 14k in June 2022
I would really love to know how much work you did put in to get to this stage.
Nicole Flynn strategy has been instrumental in helping me navigate the past few months. Without it, I don't think I would have made it through
Wow! wow! please is there any way to reach her services?
Scam!
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大家都這樣“複製”，“TH-cam”令人沮喪
Why does marginal rates play such a big part, when thats not what we actually pay? Or am I misunderstanding something?
My company has unlimited 401K match up to 50% of what I put in. I.e. I put int 23k they put in 11.5k. How does that fit into the foo?
why are you lying?
If that is true, it is very obvious on the FOO. Free money is in step 2.
@@jeremybarton7903he’s not lying. My company does it as well. Big tech
Follow the FOO! Save 20 to 25%
Why would I be lying? I can show a screen shot...
If you are at 30$ or greater tax rate, your income is most likely so high you will not get the benefit on the 1040 of a pre-tax deposit into the 401K. SO no tax benefit today, and you get to pay again when you withdraw.
How high do you think an income must be to do 30%?
Graham VS Brian TH-cam boxing match, financial edition
Hey at least yall weren’t forced to wear toughskins…..
Where's Remy!?
Does this mean paying down debt on a rental property can be counted as part of the 25% savings?
No
Dude…
I like your guys videos….. but they are soooooooooo long
They just started a new shorter format and people have said they are great videos!
@ awesome I hope so. They have great information
They post the shorter segments later on in the week. I usually just play the long ones when i'm working out lol
Change the playback speed, I find 1.5 - 1.75 work well