Originally Posted by
herewego
Mathematically if one were to invest $10000 now without paying 37% taxes on it it vs taking the same $10,000 and giving $3700 to the Tax man and investing the remaining $6300 the real dollar value of the withdrawals depends on the taxrate at withdrawal. Say the investment grows 10 times between deposit and withdrawal: the $10,000 becomes 100,000, but then is taxed 37,000 and you end up with $63,000 to spend. the $6300 invested becomes $63,000 so you end up with the same equivalent money. If tax rates go up (a most likely scenario given the huge amounts of government overspending lately) that $100,000 gets taxed to 50% and you are screwed.
The trick is to Invest the 37% pretax savings, but withdraw taxable money from that or the company contribution funds taxable only to a 24% tax bracket, the take any remaining spending needs from tax free Roth money.
Unconstrained by contribution limits, your above comparison works. Suppose the tax man sets a maximum contribution of 6,300 and the remainder is in a taxable account. Your 10,000 option now becomes 6,300 in the tax deferred account, pay income taxes on the remaining 3,700, then invest 2,331 in a taxable non-retirement account. The answer is 58,070 traditional vs 63,000 Roth.
Scale the limit from 6,300 up to 19,500 and you have a real world comparison to 401k vs Roth 401k.
Scale the example up to 58,000 to be in sync with IRS 415C limits and you see where the MBDR becomes appealing.