Should I Make 401k Contributions While I’m Doing Roth Conversions?!

(don’t forget to checkout the video too)

If you are repositioning some of your taxable money into a tax-free bucket (i.e. a Roth Conversion) does it still make sense to contribute to your 401k️?!

This is a great question I received recently and the answer really depends…

If your employer is matching the contributions that you are making in a 401k then you should ABSOLUTELY be taking advantage of that.

But if you’re doing a Roth conversion to move money from your taxable retirement accounts does it make sense to still contribute to your taxable accounts (like 401k’s)?!

If I was in the process of doing Roth conversions I would also be looking to make contributions to my Roth 401k rather than the traditional side of my 401k….

Because at the end of the day it’s essentially the same thing as doing a Roth conversion…

You’re simply paying the taxes today so that you can collect that money tax-free down the road and (hopefully) fully achieve a tax-free retirement.

Now if you don’t have the option for a Roth 401k contribution you really need to consider “what is your taxable income this year”⁉️

If your income is exceeding the 24% tax bracket then you are probably smarter to take the tax deduction now and NOT be doing any Roth conversions until your income drops (likely when you actually retire).

This is a great question, it can be a bit tricky, but basically you want to ALWAYS take full advantage of any free money (even if that money is taxed heavily down the road)…. Which is exactly what a 401k match is.

Then, you want to be sure that you’re not repositioning money into a tax-free bucket like a Roth IRA if it’s going to push you BEYOND the 24% tax bracket… which is the current “sweet spot”.

Moving money over to tax-free accounts can make a lot of sense, but it’s something that needs to be done strategically and in the right tax brackets…🤝

Let’s chat 💬😎