It’s about more than just tax benefits now or later.

Alison Southwick

The more you learn about personal finance, the more complicated your questions are likely to get. But never fear: Hosts Robert Brokamp and Alison Southwick named their podcast Motley Fool Answers for a reason, and the Oct. 29 episode -- the monthly mailbag show -- the co-hosts will tackle a whole bunch of money conundrums with a bit of help from Motley Fool Wealth Management Director of Financial Planning Megan Brinsfield, CPA, CFP, and all-around fine human being.

In this segment, they reply to an email from Joshua, twentysomething who is wisely looking decades down the road and starting to plan. But he's unsure whether his strategy of routing half of his retirement contributions into his IRA and half into his 401(k) is the best ratio. The Fools have some suggestions.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 29, 2019.

Alison Southick: The next question comes from Joshua. "I'm in my mid-20s and trying to figure out the ideal allocation between a 401(k) and a Roth. I've heard that 50-50 is the best way to hedge your bets, but since the Roth grows tax-free and the 401(k) doesn't, wouldn't the Roth be a lot better for a younger person who is expecting significant wage growth? I'm thinking of going 30-70 or even leaning more toward Roth."

Megan Brinsfield: I'll jump in here because Joshua is kind of calling to my twenties self. Balancing taxable and Roth accounts...

Robert Brokamp: You were thinking of all that back then, weren't you?

Brinsfield: I was also expecting significant wage growth, so we're in the same boat, here. I think one thing that he's kind of left out of these buckets is the taxable brokerage bucket and not just thinking in binary pre-tax or Roth. There are other tax-advantageous buckets, as well. 

So in terms of the 50-50 or other ratios, I actually look at roughly one-third in pre-tax, one-third in Roth, one-third in taxable as kind of the ideal ratio as you're building assets because that will lead to ultimately the most flexibility when you retire. 

That being said, one thing that a lot of people don't consider is their 401(k) match. Let's say Joshua is only saving in his 401(k) and so he's splitting his contribution between pre-tax and Roth. I'm just being totally hypothetical here. 

But your employer match is always in pre-tax dollars, so if he's getting a one to one match, there, he's actually loading up more in the pre-tax side of the equation than the Roth side of the equation, so if you're getting a one to one match putting everything in Roth will actually get you to a 50-50 breakdown on those buckets. 

And then one of the things to think about as you are building up these Roth assets [is] because I think people in their twenties can also get so attracted to the Roth "lifestyle," they just want to put everything in there and pay the tax now. I know my tax is low and you miss out, potentially, in the future on these lower tax brackets that you can take advantage of in the future because right now you're peeling off from the top. 

Each dollar that you save pre-tax reduces the very top tax bracket that you're exposed to; whereas, in retirement when I'm taking out money, I'm filling up those lower tax brackets first and so I wouldn't want to get to a place where I had everything in Roth because then I've missed the opportunity to get those 10%-15% dollars out in the future. I think a balanced approach is appropriate and one-third, one-third, one-third is what I'd go for.

Brokamp: And generally your salary will go up. According to David Blanchett at Morningstar, a college-educated individual's income will likely be 50% higher when they retire than when they're 25, and that's adjusted for inflation. So someone who's very young will see significant wage growth as they get older, assuming that they're in some sort of a professional job. 

The other thing I'll add to this is we had that whole discussion about RMDs. When you have Roth assets, you don't have RMDs. If it's a Roth 401(k), you have to first transfer it to the Roth IRA, but then you don't have to worry about any of that mess if you have those Roth assets.