Retirement Plan adjustment???

[terces]

To the good, I received a promotion and substantial raise this year... To the bad, I will no longer be able to claim my sons for deductions starting 2015. So while trying to do taxes for 2014 I'm also trying to prepare for next year by making the necessary adjustments

I feel the next 10 years (our retirement goal) will be mine and hubby's highest income. We are definitely in the 25% teetering toward the 28% tax bracket. We contribute to Roth IRAs but feeling I should revert our 401ks (which have been a mix) to mainly traditional to reduce our taxable income. After retirement we should be closer to the 15% tax bracket. Does this seem logical? Are their other considerations I should be thinking about? Any insight appreciated.

[feh]

To the good, I received a promotion and substantial raise this year... To the bad, I will no longer be able to claim my sons for deductions starting 2015. So while trying to do taxes for 2014 I'm also trying to prepare for next year by making the necessary adjustments

I feel the next 10 years (our retirement goal) will be mine and hubby's highest income. We are definitely in the 25% teetering toward the 28% tax bracket. We contribute to Roth IRAs but feeling I should revert our 401ks (which have been a mix) to mainly traditional to reduce our taxable income. After retirement we should be closer to the 15% tax bracket. Does this seem logical? Are their other considerations I should be thinking about? Any insight appreciated.

Rule of thumb is to max out pre-tax contributions (ie. traditional 401K) before investing elsewhere, if you think your tax bracket in retirement will be lower.

Just remember that that money can't be touched (without jumping through some hoops) until you're 59.5.

[jIM_Ohio]

To the good, I received a promotion and substantial raise this year... To the bad, I will no longer be able to claim my sons for deductions starting 2015. So while trying to do taxes for 2014 I'm also trying to prepare for next year by making the necessary adjustments

I feel the next 10 years (our retirement goal) will be mine and hubby's highest income. We are definitely in the 25% teetering toward the 28% tax bracket. We contribute to Roth IRAs but feeling I should revert our 401ks (which have been a mix) to mainly traditional to reduce our taxable income. After retirement we should be closer to the 15% tax bracket. Does this seem logical? Are their other considerations I should be thinking about? Any insight appreciated.

This takes a detailed calculation, and I would let the math decide the answer.

State your gross income
state your adjusted gross income
state your taxable income

those 3 numbers paint a certain picture.

I would then list your 401k choices
and list your 401k contributions
and list what you contribute to Roth 401k and traditional pre tax 401k.

I would also list what you save as a percent of income- what is your savings rate.

Retirement should be based on assets and expenses, not tax bracket.

[terces]

Thanks for your input. I'll do some more calculations.

[autoxer]

I feel the next 10 years (our retirement goal) will be mine and hubby's highest income. We are definitely in the 25% teetering toward the 28% tax bracket. We contribute to Roth IRAs but feeling I should revert our 401ks (which have been a mix) to mainly traditional to reduce our taxable income. After retirement we should be closer to the 15% tax bracket. Does this seem logical? Are their other considerations I should be thinking about? Any insight appreciated.

I did the same thing, used a ROTH 401k in the beginning and as my income rose up into the 25% bracket, I switched new contributions to a traditional 401k. I currently have about 55% of my retirement savings in ROTH accounts and 45% in traditional accounts. I am currently putting more into the traditional accounts than the ROTH's, so this ratio should swing back over time.

If you are in the upper 25% bracket, then you probably can't deduct traditional ira contributions, so your best bet might be to max the traditional 401k and also contribute to a ROTH IRA. You may be close to the income limit for contributing to a ROTH IRA. If you exceed that limit, you can consider making a non-deductible traditional contribution and re-characterize it to a ROTH (backdoor roth), but the taxes get messy if you have other traditional IRA accounts.

[jIM_Ohio]

I did the same thing, used a ROTH 401k in the beginning and as my income rose up into the 25% bracket, I switched new contributions to a traditional 401k. I currently have about 55% of my retirement savings in ROTH accounts and 45% in traditional accounts. I am currently putting more into the traditional accounts than the ROTH's, so this ratio should swing back over time.

If you are in the upper 25% bracket, then you probably can't deduct traditional ira contributions, so your best bet might be to max the traditional 401k and also contribute to a ROTH IRA. You may be close to the income limit for contributing to a ROTH IRA. If you exceed that limit, you can consider making a non-deductible traditional contribution and re-characterize it to a ROTH (backdoor roth), but the taxes get messy if you have other traditional IRA accounts.

Did your marginal tax bracket change at all during this technique?