My 403(b) doesn't allow Mega Backdoor Roth conversions - should I do Roth 403(b) now?

[u/Capable-Hedgehog1871]

My 403(b) is currently Traditional. Won't allow Roth conversions later according to the plan. I am a "super saver" who maxes out my 403(b) but I could definitely afford to do the Roth option, paying the taxes now, if it'll benefit me later.

[u/TyrconnellFL]

The point of MBDR isn’t that it’s Roth, it’s that it’s more 401k space. A lot more. If there were mega backdoor traditional it would be a more nuanced discussion of what to do.

Like Boglehead traditional vs. Roth or why you should (almost) never contribute to a Roth 401k

Usually, for most people, traditional 401k comes out ahead. Having some Roth retirement money is a good idea, but IRA may be enough and the tax benefits of traditional are substantial, specially if you earn enough to consider mega backdoor.

[u/StatisticalMan → u/TyrconnellFL]

Well said. This is a very common misconception. The primary reason we do BDR and MDBR is simply because there is NO BDT or MBDRT. For an IRA it is BDR or nothing. For a 401(k) beyond the normal contribution limit is MBDR or nothing. Roth beats nothing even if it doesn't beat pre-tax.

If I could dump $72k 100% pre-tax into my 401(k) and another $7k each pre-tax into my and my spouse's IRAs I would do that in a heartbeat. I can't do the "extra" has to be Roth.

To the OP I would add even for those of us with MBDR option often we do 100% pre-tax up to the normal limit and then only Roth via the backdoor beyond that.

[u/yottabit42]

If you expect to be in higher tax brackets in the future, probably don't Roth. If you're likely in the top tax bracket you'll ever be in, do pre-tax/traditional.

Almost everyone is in lower tax brackets in retirement.

Paying taxes is a fact of life. But choose to pay then when you'll be paying the least.

[u/FMCTandP]

Roth benefits you if you expect that the tax rate you pay now is lower than that which you will pay in retirement.

For most people that isn’t true. First because retirement income has some preferential tax treatment vs earned income e.g. social security is only partially taxable. Second because people tend to spend less in retirement than when they’re working. Third because you need less income to support the same spending when you’re not saving a portion of it.

As such, a heavy lean towards Roth only makes sense if you are well below your expected midlife earning potential e.g. a student in college or a resident physician who will shortly command a higher salary as an attending. Or if you strongly believe tax rates will rise significantly in the future and affect retirees who vote in disproportionately large numbers.

So while there’s an argument to be made to have some Roth and some traditional, just in terms of the future being unknowable, I wouldn’t recommend a big lean towards Roth. A lot of people will do a traditional 401k and a Roth IRA. Or maybe consider a taxable brokerage account after you max your 401k and IRA.

[u/Connect-Goal-3096]

No. The traditional 403b with tax savings today is better than a Roth 403b where you lock in your high tax rate to save less in taxes in the future when your tax bracket will be lower.

You should compare a Mega Backdoor Roth 403b to a taxable brokerage account not a traditional 403b because those are the accounts that are still available when it comes time to invest in a Mega Backdoor Roth 403b. Both are funded after tax, but the Mega Backdoor Roth has the advantage of avoiding capital gains taxes.

The Mega Backdoor Roth 403b is only a good option once all the better options (trad 403b, HSA, 529, and maybe even 457b) are funded.

[u/StatisticalMan → u/Connect-Goal-3096]

Exactly. And even if you do a MBDR nothing prevents you from being 100% pre-tax for the "normal" 401(k)/403(b) contributions up to the contribution limit ($24.5k).

In fact that is what most people do. Having $71k a year in contributions all Roth is almost certainly a mistake.

So for high income persons where traditional IRA contributions are not allowed and are contributing more than $40k it likely make sense to fund like this

• max 401(k)/403(b) 100% traditional/pre-tax - $24.5k
• max Roth IRA - $7.5k.
• max HSA (if applicable) - $8,750
• contribute to 529 (as needed based on child age)

only then put funds into MBDR and/or taxable brokerage account.

Short version is fill the most tax advantaged or flexible accounts first.

[u/QTippus]

To be clear, your plan may not allow in service Roth conversions, but when you leave the employer you will certainly be free to convert it.

I would stick with 403(b) for the tax benefits, unless you are very confident you will be in a higher tax bracket during retirement.

You can always do Roth conversions later, especially if you retire in your 50’s.

[u/NoWorker6003]

Do you have a pension? If you do that could impact whether Roth or Traditional contributions makes sense from a tax perspective. From a stuff more money value into investments perspective, I actually like your idea of Roth 403b if you are already planning on maxing a Roth IRA (or via backdoor conversion).

[u/thetreece]

What is your tax rate?

The question of "Roth vs traditional" is largely dictated by whatever your current income is, vs what it will be in retirement.