I am trying to figure out a reasonable strategy for my situation.
I make over the limit to write off traditional IRA contributions on my taxes starting in 2020. I currently contribute 8% to my 401k. As a result, I am trying to justify where to place my retirement now because the primary benefit of the IRA has been removed for my income bracket.
I see a few different options:
Raise traditional 401k contributions to 10-15% (somewhere in there) and do not put any money into the IRA anymore (essentially moving my IRA contribution % into the 401k).
Raise traditional 401k contributions slightly (1-2%) and continue contributing to the IRA.
(1) is straight forward. However (2) presents some different complications.
I am currently returning around 9% a year in my IRA. My 401k is lagging, producing around 7% per year. There's not a whole lot I can do inside of my 401k. I am forced to invest in mutual funds they provide. Their expense ratios are approximately equal to the expense ratios on the mutual funds in my IRA (~.25-.35%). My thoughts with (2) are to contribute a little more into my 401k in order to reduce my taxable income some, and contribute the rest into my IRA to (up to the contribution limit of $6000) in order to take advantage of superior returns. Given my financial situation at the moment, I do not make enough to max out my 401k and the IRA without significant sacrifices in my lifestyle. Maxing out my IRA however, is not a problem.
Is there a better way to look at this? I've gotten advice that amounts to "just max out your 401k" but the lack of flexibility in the 401k bothers me, and I don't get a match to boot.
For (2) I would create a roth IRA for any further contributions, mirroring the position in my original IRA. Due to the amount of money in my IRA presently, a backdoor roth would incur significant costs.