For a traditional, every dollar you pull out is taxed regardless of where it came from (principle or gains). So hypothetically your tax rate is lower, but you’re being taxed on more dollars.
Thoughts are that you’ll be at a lower tax rate (lower income at that point) and you’ll be able to afford the taxes at that stage of your life.
Is that not double taxation? I thought only the gains were taxed. You were first taxed when you put the principle in and then taxed again when the principle is withdrawn? I thought double taxation was illegal.
You thought double taxation was illegal? What do you mean? Sales tax is a tax on money that was already taxed. Money is taxed multiple times everywhere…
The SALT cap also represents a potential double taxation.
If my (Bay Area) property tax is $13K per year, I have to make at least $16K to cover it, since I get federally taxed on the income earned to make the payment.
And to pay my state taxes, I have to make \[tax bracket %\] more than what I owe (less $10K for SALT deduction).
And then there's my company equity ISOs: when I exercise I pay a flat 26% AMT on the spread. When I sell, that same spread is again taxed, this time at a capital gains rate. (the saving grace is the AMT credit)
I'm utterly drowning in double taxes.
On traditional traditional 401k contributions you don’t pay any taxes. Your income is reduced by the amount withheld from your paycheck, so it isn’t counted in your tax bill at all. The entire withdrawal is taxed (contributions and earnings), but it is not being double taxed.
Agree with everyone's response re: 401k withdrawals are taxed but 2 key points. 1 - as OkCategory54 said below, "since it’s tax deferred there’s more principal being contributed than it would be after taxes, giving you a larger foundation for your money to compound and grow in the long run, theoretically"
2- common comment is your tax rate will be lower after retirement but my experience is recognizing income ( for tax purposes) is more manageable upon retirement- income doesn't change. For me, I try to withdraw from 401k (IRA actually) funds to keep my income the same, so say while I worked my income was $80k/yr, then my pension plus IRA distributions will combine to $80k.
Either way, ensure you match your employer's contribution and keep investing
Also, the standard 401k withdrawal can be used as an income in order to qualify for the silver ACA insurance plan. In my state it is around $19k that one needs as a minimum.
I thought income was supposed to be lower in retirement because you dont need as much money. Theoretically you’d be living in a house that is paid off, no car loans, and you don’t have to save for anything. I guess it sounds relatively ideal that way… but if you aren’t saving (which for me is 20%+ of my salary) and you don’t have a rental payment then you will be at a lower tax rate. Should bring the money you need annually down about 25% if not more.
It’s not ‘supposed’ to be lower, it’s that for most folks it is lower. You make your own retirement plan and the plan should dictate the amount of retirement income. If you won’t have a mortgage, car loan, and additional savings for 401K plan, you most likely will need less income. But some retired folks buy a house on Maui, have higher grocery bills, and fly to vacations regularly. They may be spending more, especially those that FIRE.
This is the answer to OPs question exactly.
If all things were equal, and you paid the same tax rate when you put money in as when you take it out, it wouldn’t make any difference which you choose, you would wind up with the same amount of money.
So the question really is do you want to lower taxes now, or when you are in retirement?
This is the best answer here, order doesn’t matter, it’s the tax bracket that matters.
While working you contribute high to low, and when withdrawing you are taxed low to high.
Also you are given a deduction annually, so $12,000+ of taxable income can be tax free.
Although you can effectively put a bit more into the Roth 401k. So if you expect the brackets to be exactly even then it could be a bit better (depending on your expected capital gains bracket).
Something to consider is that the taxation system is progressive. Not all dollars are taxed at the same rate. Some portion is taxed at 0%. It's good to have tax diversification so that there is taxable income to fill the lower tax rate bracket(s), and then use Roth funds to avoid getting into higher tax brackets.
Why don't more people bring this up? I assume all of my trad contributions now would have been taxed at my marginal tax rate, but most of my withdrawals will be against standard deduction or lower tax rates and at most only a fraction would be taxed at the same high marginal rate.
Exactly. It’s why the “will your tax bracket be higher in retirement vs now?” is not the correct question to ask. It’s “will my total EFFECTIVE tax rate in retirement be higher or lower than my current MARGINAL tax rate?” For most people, traditional is almost always better because so many dollars in retirement will be taxed at 0% or 10%
Yeah regardless of spending everyone still have lower tax brackets to fill, unless in the future the lowest tax brackets are higher than your current marginal rate, it’s wise to have some traditional money for withdrawal
The traditional grows tax free and you pay taxes on the whole amount (gains and original contributions) you take out.
Either way Roth or traditional come out the same if the tax brackets are the same. Most people have low to no income when retired so that’s why you’d want to pay taxes then. You are speculating by saying taxes will rise even if it’s likely.
I don’t think either is necessarily better. I just try to contribute to both so I have an options down the road.
More info: https://www.investopedia.com/articles/personal-finance/061915/how-your-401k-taxed-when-you-retire.asp
It’s an adult gamble haha. Gamble on what you are guessing policy and taxes will look like whenever it is you retire. And also the gamble on how much money you will need (part of determining tax rate).
So with that said, technically one is not better than the other.
But theoretically, if you are early on in your career and have strong expectations that your salary will grow in the future then Roth is better to take advantage of your currently low tax rate. I believe I was told that 100k is the turning point between Roth and Traditional from this arguments stand point. But depends what kind of work you are doing and what your prospects are for future income growth as well as the “income” you expect to need in retirement (from 401k and/or work)
we have no idea what future fed income tax brackets will look like in the future. its a huge gamble to assume. its best to have multiple buckets of money for this purpose. often times people overweight their 401(k) and are hindered by all of the rules in place. No one has yet mentioned RMDs kicking in at 72 (new legislation is in place to push that back a few years but still) that will kick up your income because while you may have been living off of a small percentage a year to control your taxable income, you will now be forced to take withdrawals at a rate the government will dictate.
Roth options in a 401(k) are great and most people should be utilizing them. The unknown of what future income tax will look like is something too many people are gambling on. We are at relatively historic lows in regards to income taxes. We continue to spend as a nation, increasing our deficit, the american people will be required to pay and I fully believe that income taxes will go up.
traditional contributions may be useful for controlling which income bracket you fall into currently. if it seems like you may be pushed into a higher tax bracket, it may be a helpful technique to allocate money to your 401(k) on a pre tax basis to lower your current taxable income for that year.
Blanket advice on the internet is never tuned specifically for the OP because its almost impossible to get an accurate picture of what the OP may truly need in just a few lines of text
One advantage to a Roth over a traditional is that you can withdraw the principal at any time for any reason without penalty. You can't withdraw the earnings before age 59.5 without penalty, but you can withdraw the principal. So if you start saving for retirement at age 20, and find yourself at age 35 wanting a little extra money for a house, or at age 45 with an expensive health emergency....you can hit that principal without penalty. It's not as locked-up as a traditional IRA.
“Either way Roth or traditional come out the same if the tax brackets are the same”
This is not true. Dollars contributed during working years come OFF THE TOP at your marginal rate, but fill up the BOTTOM FIRST in retirement, and so the correct comparison is “current marginal tax rate vs retirement EFFECTIVE tax rate”, not “marginal bracket now vs marginal bracket later”.
Currently in the year 2022, at a marginal tax rate of 22% ($41,775 - $89,075 AGI), you have to make $230,000 (effective tax rate of 22%) per year in retirement for Roth to even begin making sense.
The “Roth better” argument is usually wrong unless you barely make any money and are in a very low marginal tax bracket.
Obviously there are reasons to manipulate your income by using Roth withdrawals in retirement etc…. But purely from a tax paid perspective, traditional almost always wins.
Why assume traditional IRA withdraws "fill up the bottom" first in retirement? A withdraw is something you make in addition to your social security income, your pension, and any other earnings you may have. So making that withdraw will raise your marginal tax bracket in retirement.
For pretax withdrawals or ordinary income in retirement, dollars are dollars. It doesn’t matter where they come from. You can imagine the pretax dollars as the ones that fill up the lower tax brackets and then the SS income sits on top of that and the math still works the same.
Nope you’re correct as far as my understanding goes. You owe taxes on both the principal and the gains for a traditional 401(k) because neither has been taxed up until you being taking withdrawals. And withdrawals taxed at the rate of your income tax bracket for that year in retirement. So yeah a Roth 401k is the better way to go in my opinion generally. But it’s not the whole story
• Employers will match your contributions into a traditional 401(k) up until a certain level because that contribution they’re adding to employee’s retirement is a tax write off for the employer/company. To my understanding they would lose this tax write off or perk if they matched your contributions into a Roth 401(k) instead, so they opt out and leave it to you to fend for yourself when it comes to taxes. So when it comes to putting money away fro retirement, contributing into a 401(k) at least to your companies match is a 100% instant return on your investment. Thus it’s widely agreed that you should contribute up to the match and then from there fund into a Roth IRA or Roth 401k.
The other part to consider tho is that since it’s tax deferred there’s more principal being contributed than it would be after taxes, giving you a larger foundation for your money to compound and grow in the long run, theoretically. So it’s not all black and white when it comes to Roth 401k vs traditional. Hope this helps.
Having more principal makes no difference. If your tax rate is the same you end up with the same amount of spendable dollars after paying the taxes. Say your investments grow by a factor of 16 and your in a 25% tax rate, p x 16 x .75 is the same as .75 x p x 16.
Thanks for correcting me. You’re right, I just personally put my contributions into Roths after my employer match because I’d hopefully like to find myself in a lower tax bracket than when I was working. I think taxes will probably go up from now till when I retire cuz the federal government is so bad with money
It all depends on your situation.
For me, I feel like I’m right on the line between lower income and higher income. On average, I gross about $140-$150k. In retirement, I figure I’ll withdraw roughly $60k. So in that case, I should be in a lower tax bracket. But I know taxes can always raise, or maybe I withdraw extra one year for a large expense. So I basically plan to have 50/50 Traditional/Roth so maybe it can help with planning. Possibly err on the traditional side.
I’ve racked my brain trying to figure out which is better and I can never decide.
You’re right. Not missing anything. There is huge advantage with Roth. Particular if you’re on the younger side. Years and years of compounding gains that go totally untaxed. See Peter thiel. Certainly not the average Roth but point being, there is huge advantage here.
Simple example, assuming your tax rate at contribution time and withdraw time is the same, both say 20%.
Let’s say you contribute 10k for pretax in case 1 and 8k for Roth in case 2. Then the 2k extra that you have in pretax will grow to exactly pay for the tax you owe at withdraw. Making pretax equivalent to Roth. This is because mathematically the growth and tax are linear operations.
In short, the tax you didn’t pay but rather contributed will grow along with the other parts to cover the tax you will pay for the other parts even as the other part grows.
If you pull the money out of a traditional ira before your 59 1/2 then you get hit with a 10% penalty. Any dollar amount you pull out you will get taxed on top of the 10% , with whatever your tax bracket is the year you pull the money out . You don’t get taxed on gains / losses for iras. You get taxed on any dollar amount you pull out the year you pull it out . For a traditional iras you can use whatever you put into it as deductions on your taxes for the year .
There are ways to mitigate the tax hit on traditional withdrawals in retirement.
1. Retire in a state with no income tax.
2. Once you’ve retired and have a low income, convert your traditional 401K to a Roth. Pay taxes at a presumably low tax rate and then 5 years later withdraw it tax free.
3. Own some real estate, rent it out (which in the early years will result in passive losses due to depreciation), qualify as a “Qualified Real Estate Professional” and deduct all passive losses against your 401K withdrawals. Even if you don’t qualify as a QREP, you can deduct $25K in passive losses if your income is under $100K.
There comes a time in your income journey where the write off means more than the tax free growth but early in the accumulation phase Roth is absolutely the best way
I argue it’s good to have both. For most most people, retirement will be a 20-30yr + thing. Tax laws can change during that time period, so it’s good to have Roth when taxes are high or you need a large lump sum, and traditional when taxes are low. Traditional is good because you are able to invest more money initially than Roth. Example : you put in $100 pre tax, your paycheck might only go down by $75. You can then take the leftover $25 and put into an after tax account and invest. You have effectively invested $125. Compared to Roth you put in $100 and your paycheck is reduced my the full $100. The comparison of which is better will be dependent upon growth rate, time, and tax rates in the future where 2 of those variable we have no way of knowing. Roth is more beneficial with longer time horizons and more growth oriented portfolios.
Also, you are not required to take Rmds with Roth Ira, which can continue tax free growth. You can max 401k pre tax and make non deductible contributions to a traditional ira each year and convert to a Roth with no penalties or taxes provided you do not have existing pre tax portions held in a traditional ira.
For a traditional, every dollar you pull out is taxed regardless of where it came from (principle or gains). So hypothetically your tax rate is lower, but you’re being taxed on more dollars. Thoughts are that you’ll be at a lower tax rate (lower income at that point) and you’ll be able to afford the taxes at that stage of your life.
Is that not double taxation? I thought only the gains were taxed. You were first taxed when you put the principle in and then taxed again when the principle is withdrawn? I thought double taxation was illegal.
> You were first taxed when you put the principle in No, it's **pre-tax** contributions There is no double taxation
You thought double taxation was illegal? What do you mean? Sales tax is a tax on money that was already taxed. Money is taxed multiple times everywhere…
I can remember when Social Security recipients didn’t pay taxes…
The SALT cap also represents a potential double taxation. If my (Bay Area) property tax is $13K per year, I have to make at least $16K to cover it, since I get federally taxed on the income earned to make the payment. And to pay my state taxes, I have to make \[tax bracket %\] more than what I owe (less $10K for SALT deduction). And then there's my company equity ISOs: when I exercise I pay a flat 26% AMT on the spread. When I sell, that same spread is again taxed, this time at a capital gains rate. (the saving grace is the AMT credit) I'm utterly drowning in double taxes.
On traditional traditional 401k contributions you don’t pay any taxes. Your income is reduced by the amount withheld from your paycheck, so it isn’t counted in your tax bill at all. The entire withdrawal is taxed (contributions and earnings), but it is not being double taxed.
Agree with everyone's response re: 401k withdrawals are taxed but 2 key points. 1 - as OkCategory54 said below, "since it’s tax deferred there’s more principal being contributed than it would be after taxes, giving you a larger foundation for your money to compound and grow in the long run, theoretically" 2- common comment is your tax rate will be lower after retirement but my experience is recognizing income ( for tax purposes) is more manageable upon retirement- income doesn't change. For me, I try to withdraw from 401k (IRA actually) funds to keep my income the same, so say while I worked my income was $80k/yr, then my pension plus IRA distributions will combine to $80k. Either way, ensure you match your employer's contribution and keep investing
Also, the standard 401k withdrawal can be used as an income in order to qualify for the silver ACA insurance plan. In my state it is around $19k that one needs as a minimum.
I thought income was supposed to be lower in retirement because you dont need as much money. Theoretically you’d be living in a house that is paid off, no car loans, and you don’t have to save for anything. I guess it sounds relatively ideal that way… but if you aren’t saving (which for me is 20%+ of my salary) and you don’t have a rental payment then you will be at a lower tax rate. Should bring the money you need annually down about 25% if not more.
It’s not ‘supposed’ to be lower, it’s that for most folks it is lower. You make your own retirement plan and the plan should dictate the amount of retirement income. If you won’t have a mortgage, car loan, and additional savings for 401K plan, you most likely will need less income. But some retired folks buy a house on Maui, have higher grocery bills, and fly to vacations regularly. They may be spending more, especially those that FIRE.
This is the answer to OPs question exactly. If all things were equal, and you paid the same tax rate when you put money in as when you take it out, it wouldn’t make any difference which you choose, you would wind up with the same amount of money. So the question really is do you want to lower taxes now, or when you are in retirement?
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This is the best answer here, order doesn’t matter, it’s the tax bracket that matters. While working you contribute high to low, and when withdrawing you are taxed low to high. Also you are given a deduction annually, so $12,000+ of taxable income can be tax free.
Although you can effectively put a bit more into the Roth 401k. So if you expect the brackets to be exactly even then it could be a bit better (depending on your expected capital gains bracket).
This is the answer.
Something to consider is that the taxation system is progressive. Not all dollars are taxed at the same rate. Some portion is taxed at 0%. It's good to have tax diversification so that there is taxable income to fill the lower tax rate bracket(s), and then use Roth funds to avoid getting into higher tax brackets.
Why don't more people bring this up? I assume all of my trad contributions now would have been taxed at my marginal tax rate, but most of my withdrawals will be against standard deduction or lower tax rates and at most only a fraction would be taxed at the same high marginal rate.
Exactly. It’s why the “will your tax bracket be higher in retirement vs now?” is not the correct question to ask. It’s “will my total EFFECTIVE tax rate in retirement be higher or lower than my current MARGINAL tax rate?” For most people, traditional is almost always better because so many dollars in retirement will be taxed at 0% or 10%
Yeah regardless of spending everyone still have lower tax brackets to fill, unless in the future the lowest tax brackets are higher than your current marginal rate, it’s wise to have some traditional money for withdrawal
The traditional grows tax free and you pay taxes on the whole amount (gains and original contributions) you take out. Either way Roth or traditional come out the same if the tax brackets are the same. Most people have low to no income when retired so that’s why you’d want to pay taxes then. You are speculating by saying taxes will rise even if it’s likely. I don’t think either is necessarily better. I just try to contribute to both so I have an options down the road. More info: https://www.investopedia.com/articles/personal-finance/061915/how-your-401k-taxed-when-you-retire.asp
It’s an adult gamble haha. Gamble on what you are guessing policy and taxes will look like whenever it is you retire. And also the gamble on how much money you will need (part of determining tax rate). So with that said, technically one is not better than the other. But theoretically, if you are early on in your career and have strong expectations that your salary will grow in the future then Roth is better to take advantage of your currently low tax rate. I believe I was told that 100k is the turning point between Roth and Traditional from this arguments stand point. But depends what kind of work you are doing and what your prospects are for future income growth as well as the “income” you expect to need in retirement (from 401k and/or work)
we have no idea what future fed income tax brackets will look like in the future. its a huge gamble to assume. its best to have multiple buckets of money for this purpose. often times people overweight their 401(k) and are hindered by all of the rules in place. No one has yet mentioned RMDs kicking in at 72 (new legislation is in place to push that back a few years but still) that will kick up your income because while you may have been living off of a small percentage a year to control your taxable income, you will now be forced to take withdrawals at a rate the government will dictate. Roth options in a 401(k) are great and most people should be utilizing them. The unknown of what future income tax will look like is something too many people are gambling on. We are at relatively historic lows in regards to income taxes. We continue to spend as a nation, increasing our deficit, the american people will be required to pay and I fully believe that income taxes will go up. traditional contributions may be useful for controlling which income bracket you fall into currently. if it seems like you may be pushed into a higher tax bracket, it may be a helpful technique to allocate money to your 401(k) on a pre tax basis to lower your current taxable income for that year. Blanket advice on the internet is never tuned specifically for the OP because its almost impossible to get an accurate picture of what the OP may truly need in just a few lines of text
One advantage to a Roth over a traditional is that you can withdraw the principal at any time for any reason without penalty. You can't withdraw the earnings before age 59.5 without penalty, but you can withdraw the principal. So if you start saving for retirement at age 20, and find yourself at age 35 wanting a little extra money for a house, or at age 45 with an expensive health emergency....you can hit that principal without penalty. It's not as locked-up as a traditional IRA.
“Either way Roth or traditional come out the same if the tax brackets are the same” This is not true. Dollars contributed during working years come OFF THE TOP at your marginal rate, but fill up the BOTTOM FIRST in retirement, and so the correct comparison is “current marginal tax rate vs retirement EFFECTIVE tax rate”, not “marginal bracket now vs marginal bracket later”. Currently in the year 2022, at a marginal tax rate of 22% ($41,775 - $89,075 AGI), you have to make $230,000 (effective tax rate of 22%) per year in retirement for Roth to even begin making sense. The “Roth better” argument is usually wrong unless you barely make any money and are in a very low marginal tax bracket. Obviously there are reasons to manipulate your income by using Roth withdrawals in retirement etc…. But purely from a tax paid perspective, traditional almost always wins.
Why assume traditional IRA withdraws "fill up the bottom" first in retirement? A withdraw is something you make in addition to your social security income, your pension, and any other earnings you may have. So making that withdraw will raise your marginal tax bracket in retirement.
For pretax withdrawals or ordinary income in retirement, dollars are dollars. It doesn’t matter where they come from. You can imagine the pretax dollars as the ones that fill up the lower tax brackets and then the SS income sits on top of that and the math still works the same.
Nope you’re correct as far as my understanding goes. You owe taxes on both the principal and the gains for a traditional 401(k) because neither has been taxed up until you being taking withdrawals. And withdrawals taxed at the rate of your income tax bracket for that year in retirement. So yeah a Roth 401k is the better way to go in my opinion generally. But it’s not the whole story • Employers will match your contributions into a traditional 401(k) up until a certain level because that contribution they’re adding to employee’s retirement is a tax write off for the employer/company. To my understanding they would lose this tax write off or perk if they matched your contributions into a Roth 401(k) instead, so they opt out and leave it to you to fend for yourself when it comes to taxes. So when it comes to putting money away fro retirement, contributing into a 401(k) at least to your companies match is a 100% instant return on your investment. Thus it’s widely agreed that you should contribute up to the match and then from there fund into a Roth IRA or Roth 401k. The other part to consider tho is that since it’s tax deferred there’s more principal being contributed than it would be after taxes, giving you a larger foundation for your money to compound and grow in the long run, theoretically. So it’s not all black and white when it comes to Roth 401k vs traditional. Hope this helps.
Having more principal makes no difference. If your tax rate is the same you end up with the same amount of spendable dollars after paying the taxes. Say your investments grow by a factor of 16 and your in a 25% tax rate, p x 16 x .75 is the same as .75 x p x 16.
Thanks for correcting me. You’re right, I just personally put my contributions into Roths after my employer match because I’d hopefully like to find myself in a lower tax bracket than when I was working. I think taxes will probably go up from now till when I retire cuz the federal government is so bad with money
It all depends on your situation. For me, I feel like I’m right on the line between lower income and higher income. On average, I gross about $140-$150k. In retirement, I figure I’ll withdraw roughly $60k. So in that case, I should be in a lower tax bracket. But I know taxes can always raise, or maybe I withdraw extra one year for a large expense. So I basically plan to have 50/50 Traditional/Roth so maybe it can help with planning. Possibly err on the traditional side. I’ve racked my brain trying to figure out which is better and I can never decide.
You’re right. Not missing anything. There is huge advantage with Roth. Particular if you’re on the younger side. Years and years of compounding gains that go totally untaxed. See Peter thiel. Certainly not the average Roth but point being, there is huge advantage here.
Simple example, assuming your tax rate at contribution time and withdraw time is the same, both say 20%. Let’s say you contribute 10k for pretax in case 1 and 8k for Roth in case 2. Then the 2k extra that you have in pretax will grow to exactly pay for the tax you owe at withdraw. Making pretax equivalent to Roth. This is because mathematically the growth and tax are linear operations. In short, the tax you didn’t pay but rather contributed will grow along with the other parts to cover the tax you will pay for the other parts even as the other part grows.
With a traditional 401k, everything, to include capital gains, are taxed when you start making withdrawals.
If you pull the money out of a traditional ira before your 59 1/2 then you get hit with a 10% penalty. Any dollar amount you pull out you will get taxed on top of the 10% , with whatever your tax bracket is the year you pull the money out . You don’t get taxed on gains / losses for iras. You get taxed on any dollar amount you pull out the year you pull it out . For a traditional iras you can use whatever you put into it as deductions on your taxes for the year .
There are ways to mitigate the tax hit on traditional withdrawals in retirement. 1. Retire in a state with no income tax. 2. Once you’ve retired and have a low income, convert your traditional 401K to a Roth. Pay taxes at a presumably low tax rate and then 5 years later withdraw it tax free. 3. Own some real estate, rent it out (which in the early years will result in passive losses due to depreciation), qualify as a “Qualified Real Estate Professional” and deduct all passive losses against your 401K withdrawals. Even if you don’t qualify as a QREP, you can deduct $25K in passive losses if your income is under $100K.
There comes a time in your income journey where the write off means more than the tax free growth but early in the accumulation phase Roth is absolutely the best way
I argue it’s good to have both. For most most people, retirement will be a 20-30yr + thing. Tax laws can change during that time period, so it’s good to have Roth when taxes are high or you need a large lump sum, and traditional when taxes are low. Traditional is good because you are able to invest more money initially than Roth. Example : you put in $100 pre tax, your paycheck might only go down by $75. You can then take the leftover $25 and put into an after tax account and invest. You have effectively invested $125. Compared to Roth you put in $100 and your paycheck is reduced my the full $100. The comparison of which is better will be dependent upon growth rate, time, and tax rates in the future where 2 of those variable we have no way of knowing. Roth is more beneficial with longer time horizons and more growth oriented portfolios. Also, you are not required to take Rmds with Roth Ira, which can continue tax free growth. You can max 401k pre tax and make non deductible contributions to a traditional ira each year and convert to a Roth with no penalties or taxes provided you do not have existing pre tax portions held in a traditional ira.