How would you balance this scenario?

Question

I have two jobs, one is in the private sector (access to 401k) and one is in the public sector academia (access to 401b/453b) and my wife has a private sector job (access to 401k) and both of us of course have access to IRAs, investments and cash/bonds.

Currently, I am dividing my max contribution limit per year in two, putting it in each of the 401k/403b and within the 401k they are split nearly down the middle between traditional/roth. My wife is putting her max (she is a year older, so higher limit) into the 401k, again within split almost evenly between traditional/roth. She has an IRA with max contribution each year split between traditional/roth. I have the same thing but at a different brokerage along with regular investments.

So am I doing this right or do you see anything glaring that I should be adjusting with it? A few additional pieces of information, my 401k (Vanguard/Ascensus), my 403b (American Fidelity), my IRAs (Robinhood), wife's 401k (Alight/Fidelity), her IRAs (Fidelity). My 403b is an annuity, no real choice there. Everything is "maxed" each year. I just found out I can have a 457b and was thinking about adding that, but feel the field is already pretty crowded, wanted to get a second (or .. n) assessments on whether this is on a sound footing or not? Should I add the 457? Should I be distributing my and the wife's max contributions in a different way? Any issues you can or suggestions on how I can do it better. Is there something I should be doing that I am not?

I tried to be detailed but if there is anything unclear, let me know and I will add it. Thanks in advance.

FYI: I have read these (and THEN SOME) but doesn't make me feel I am on the right path and also not, so hoping to get perspective on it since almost any evaluation comes with a lot of double talk.

https://www.investopedia.com/terms/1/401kplan.asp
https://www.investopedia.com/terms/1/403bplan.asp
https://www.investopedia.com/terms/1/457plan.asp

Answer 1

Balancing 401k and 403b

This comes down to choices and costs. Check which funds your 401k has access to, which the 403b, and figure out which ones you like. You may end up liking some in one and some others in the other, or you may end up concluding that one of them have much better options across the board than the other. Compare fees charged by the plan, expense ratios of the funds, and their performance. The brokerage customer service is also important.

Balancing Traditional vs Roth

You're trying to average the tax benefit, but I'm not sure if it makes sense to me. If you're in a high tax bracket now - Roth makes little sense, because you're unlikely to remain in the same bracket at retirement. If you're in a low bracket now - traditional makes little sense because you'll be in the same/similar bracket, so why pay tax on gains?

Given that you mentioned you're both contributing to the IRA, and you didn't mention backdoor (you said you're splitting IRA between traditional and Roth too), it makes me think that you're in a low tax bracket now. I would probably go Roth all the way.

What about 457(b)?

This is similar to the 401(k) and 403(b) discussion above. But these plans have slightly different terms when it comes to early withdrawal. Not sure how important that may be to you.

Disclaimer

I'm in no way a tax adviser or a financial adviser, or anything other than a random anonymous Internet s#!+poster. Take everything with a grain of salt and double-check. I made some assumptions based on my understanding of your question that may not be correct. You'd probably want to talk to an actual financial adviser (CFA or CFP) or at least a proper tax adviser (CPA or EA).

Answer 2

Here are my additions to littleadv's excellent answer.

1. Split your contributions between your two plans to maximize matching. After that put the remainder in the one you like better.

2. Can you estimate your retirement tax bracket? Doing some projections lets say you estimate you will be in the 22% tax bracket. Then it makes no sense to pay 24% now on money you are putting into Roth (for married filling jointly 190,750 in 2023). So adjust your Roth down in favor of your tax deferred accounts to keep it under that threshold.

3. Why Robinhood? I would move that to Fidelity that offer excellent benefits plus they don't have the whole fraud thing going on. Also you benefit from having more of your accounts in one place. My recommendations is to stick with the big three: Vanguard, Fidelity or Schwab.

Answer 3

Note: This focuses on just my comment and request for clarification, it's not a complete answer.

For the joint filer, $190,750 - $364,200 is the 24% bracket. But, you can see that if you go over $194,000, your premiums go up $65/mo. $1,560. It's a step function, not phased, so if in December, you were exactly at 193,999, but took out $1 more, you are paying $1560. $10,000 more and the $1560 'feels' like a 15% hit. Still within the 24% bracket, hitting $246,000 is another $100/mo jump or $2400 per couple. The effective rate depends on how much over you go.

You may think that even retiring with $4M in retirement savings would mean just withdrawing $160,000/year. And then in year 3, a new roof, and 2 new cars later, you can blow through the next brackets with little effort.

Choosing the line between traditional IRA and Roth is worth studying, and I'm just adding this one overlooked issue to address.

By the time Roth was available, we were already at 28% or higher bracket. And I ignored the very advice I'm sharing here. Link to Medicare chart full article.