I’m 38 and have banked $700k in my 401(k) – at my tax rate, does it make sense to contribute to a Roth 401(k)

Key points:

• A Roth 401(k) is useful in certain situation, especially if you will have higher taxes later.
• Very few people can afford to have multiple retirement accounts, so picking one is the usual option.
• Also: Is your 401(k) optimized for your retirement plans? (Sponsored)

Deciding how and when to save money for retirement, and whether to transfer those savings down the line can be stressful. It seems like everyone has different advice or is just out to take your money.

One particularly wealthy individual had doubts about their own savings strategy and sought advice from the r/chubbyFIRE community on Reddit. This is a community focused on financial independence and early retirement.

The Question

A retirement savings jar.

Our post author was wondering whether to begin depositing their money into a Roth 401(k) instead of a traditional 401(k).

They said they had around $700k in a handful of other retirement accounts, along with $300k in an existing Roth IRA and other taxable savings accounts. They are doing a couple of financial tricks to maximize their contribution limits. The author is 38 years old with significant amounts of cash on hand and falls into the higher tax brackets in California. Their question was whether it would be worth it to begin allocating more money to the Roth account. They were worried that taxes might increase drastically in the near future.

The Community Response

A calendar for retirement.

In order to understand the community responses, it is important to understand the primary difference between a Roth 401(k) account and other retirement accounts. All contributions into a Roth account are with after-tax funds and all withdrawals (if withdrawn properly) are therefore tax-free. If you anticipate your taxes might increase in later years, then a Roth account can help you take advantage of lower taxes today and enjoy tax-free returns in the future.

That being said, the near-unanimous response from the community was that a Roth account, or increasing the amount of money being deposited into the Roth account, is definitely not worth it. As they are a rich individual and pay higher taxes, it would make more sense to get a tax deduction today by contributing to a traditional 401(k) and then do an account conversion during retirement.

Commenters agreed that it is unlikely that the author will be in a higher tax bracket during retirement, or that taxes will increase for someone of his age during that time, so it would not make sense to invest more into a Roth account.

That is, of course, only if the retirement account is to be used as a personal retirement account and not as a wealth transfer tool for family and children. If that were the case, then maintaining a Roth account or increasing the amount of the contributions would be worth it, giving your family more money without having to pay more taxes.

As with most of these questions, of course, the people in question are significantly wealthier than the average American, and can afford to do whatever they want, and it comes tdown to personal preference in the end. For the rest of us, it would be best to consult a financial expert before following any of the advice you find online.