Wife has a not so great 403(B) but is meeting the match. I want to open up 50/50 Roth and Traditional, is this alright?

If tax rates are the same, then whether you pay the tax up front (Traditional) or at the end (Roth), the result is exactly the same.

For investment X, tax rate Y, growth rate Z, growth period W:

$X * (1-Y) * (1+Z)W === $X * (1+Z)W * (1-Y)

Multiplication is commutative, the ordering doesn't matter. If tax rate is 30%, growth rate is 8%, growth period 30 years, then it doesn't matter whether you multiple by 0.7 first (pay taxes) then multiple by 1.0830 (grow), or the reverse.

Whether you think the tax rate will be higher or lower later as compared to now is the only factor for whether you should do Traditional or Roth. If the tax rate will be unchanged, then there is no difference.

One small exception: Because IRAs have a limited contribution ($5500 per year right now), if you can invest the max then technically Roth is better because $5500 Roth = approx $8000 traditional (or whatever depending on your tax rate), but you can't invest $8000 in Traditional because of contribution limits. So if you're going to invest the max, Roth is better because it's equivalent to investing a larger amount in traditional which isn't possible. If you're investing less than the max, though, then there is no difference mathematically if the tax rates are the same on the front or the back end, only if the tax rates are different (higher or lower) does one make more sense than the other.

/r/personalfinance Thread Parent