Traditional v ROTH 401(k)

It's a matter of marginal tax rate not your effective tax rate. Since your lower tax brackets will be filled up with income either way.

More importantly you should consider current marginal rate versus projected retirement tax rate which may be marginal rate if you have other income like a pension or part-time work or your effective rate if all income is from traditional 401k wwithdrawals.

If you expect to pay a higher tax rate in retirement Roth is better. If you expect lower tax rate in retirement traditional is generally better.

Further compplicating things, a mix of tax buckets in retirement can help optimize taxes.

ETA: I wouldnt bother with traditional below 22% bracket and I'd strongly consider traditional once hitting 32%.

Very general rule I use is if youre in 24% bracket or lower ROTH probably makes more sense

32% bracket or higher I'd contemplate traditional

Depends how much you'll go through in retirement still but thats just a general rule I'd use in current tax brackets.

24% and under is pretty low historically

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marginal tax rate not your effective tax rate

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Always just considered the effective rate because I just look at it as it's the average of what you are paying for every dollar earned. But, never really got down to what may be reducing my taxable income, and will those still be there when I retire. Or, will new credits/deductions be available.

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Further comp l imaging things, a mix of tax buckets in retirement can help optimize taxes.

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This is why I really haven't put much thought into it until I started finishing my returns this year and was looking at my tax rates. I plan to keep doing this, at least for now, because I already built up my traditional accounts, have my company match going into traditional, and the wife doesn't have a ROTH option. So, it's really our only Roth account except for a small Roth IRA

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ETA: I wouldnt bother with traditional below 22% bracket and I'd strongly consider traditional once hitting 32%.

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Would you look at this on a per income basis, or since I am happily married now I should focus on the MFJ tables and see where we land?

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With that said, I always wondered if there is an effective tax rate where other begin to think a traditional may be better than ROTH.

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You'd have to know the effective tax rate you will have in retirement when pulling the money out. So there really is no way to know for sure. However most people will prob need less income in retirement vs working years. So effective tax rate should be less too; very unlikely it would be higher. Unless you hit the lottery, big inheritance, retire very late etc.

In general, I think a trad 401k makes more sense especially if you are maxing it out. If you're maxing it out, probably in higher earning years so your effective tax rate is at it's highest. A roth 401k locks in that high rate. By deferring the taxes, you have a chance of getting that money out at a lower tax rate. This also assumes that you are investing the tax savings.

One scenario where a Roth 401k makes sense is if you are in lower earning year(s) and expect a significant jump in income down the road. Like a physician in residency whose salary would double or more in a few years. After jump in salary, then a trad 401k makes more sense imo.

Fyi with the new Secure Act 2.0, companies now have the ability to do a match in Roth 401ks.

Compare your marginal rate now vs your expected effective tax rate in retirement.

For me that is 25% in taxes now vs around 8% in retirement. I know this for my situation because I will keep my retirement income to the 12% marginal tax bracket or lower in retirement.

Yet another disadvantage of traditional, when inherited non-spouse beneficiaries only have 10 years to withdraw entire balance. If for example your kids are in their prime earning years when they inherit a traditional 401k or IRA they'll have to pay higher tax rate when stacked on their already high income.

Inherited Roth balances can be left to grow tax free until year 10 then withdrawn with zero tax bill to heirs.

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company match is obviously traditional

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Does it state that somewhere? When I set up two different employers 401k's, it allowed me to set up both into a Roth 401k. Are you saying that the company matching will only put into the traditional? That has not been my case in either instance.

As far as traditional vs Roth argument, Roth is a no brainer in ANY situation. Regardless of your tax bracket today, that mere fact that you are having financial conversations means that you intend to be better off later in life than you are today. With that, you are better off paying taxes today at your KNOWN tax liability rate. With the national debt as high as it is and the way we are and keep spending money, YOUR TAXES WILL NEVER GO DOWN, they will only go up.