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I screwed myself by putting my first ~5 years of savings into traditional; now I can't do a backdoor roth and my current employer does not support post-tax 401k so I can't do a megabackdoor either. Going trad was a seriously bad move on my part.
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Apr 5, 2017 20:16
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Bhodi posted:I screwed myself by putting my first ~5 years of savings into traditional; now I can't do a backdoor roth and my current employer does not support post-tax 401k so I can't do a megabackdoor either. Going trad was a seriously bad move on my part. Can you not roll your Trad IRA into your current 401k? I did that in 2015 and backdoored a Roth IRA every year since.
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Apr 5, 2017 20:25
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Corben Goble-Garbus posted:Can you not roll your Trad IRA into your current 401k? I did that in 2015 and backdoored a Roth IRA every year since. 
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Apr 5, 2017 20:34
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Murgos posted:It certainly does not. What that says is that if you save in a 15% bracket and retire into a 28% (or greater) bracket then in that case a roth was the better choice. https://www.bogleheads.org/wiki/Traditional_versus_Roth#Maxing_out_your_retirement_accounts posted:Thus it is better to use the Roth even if you are in the 28% bracket now and will retire in the slightly lower 25% bracket. Using their numbers, if you're currently in the 28% bracket the only time it makes sense to go Traditional + non-tax advantaged over Roth when you're maxing out is if you're going to be in the 15% bracket, in every other scenario listed you end up with more money having maxed out the roth. The number to beat is $90,000 in a Roth 401k at retirement and the Traditional numbers get $20,160 in taxable investments added to them. Thus the Traditional numbers (401k after taxes + taxable) for each retirement time tax bracket: 15% - $76,500 + $20,160 = $96,660 or $6,660 better than Roth. 25% - $67,500 + $20,160 = $87,660 or $2,340 worse than Roth. 28% - $65,400 + $20,160 = $85,560 or $4,440 worse than Roth. 33% - $60,300 + $20,160 = $80,460 or $9,540 worse than Roth.
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Apr 5, 2017 20:34
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Corben Goble-Garbus posted:Can you not roll your Trad IRA into your current 401k? I did that in 2015 and backdoored a Roth IRA every year since. Can you convert your Trad IRA to Roth? You'll have a one time big tax hit, but it will be worth it in the long run since you have no other tax advantaged space.
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Apr 5, 2017 20:35
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Xenoborg posted:Can you convert your Trad IRA to Roth? You'll have a one time big tax hit, but it will be worth it in the long run since you have no other tax advantaged space.
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Apr 5, 2017 20:44
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Bhodi posted:I screwed myself by putting my first ~5 years of savings into traditional; now I can't do a backdoor roth and my current employer does not support post-tax 401k so I can't do a megabackdoor either. Going trad was a seriously bad move on my part. Start a small business doing whatever: selling junk on Etsy, filling out online surveys, mowing lawns, etc. Start a solo 401k. Roll over your IRA into your solo 401k. Done.
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Apr 5, 2017 20:47
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potatoducks posted:Start a small business doing whatever: selling junk on Etsy, filling out online surveys, mowing lawns, etc. Has anyone in the thread done this? Right now I have a Trad IRA that's got a mix of rolled over 401k and recharacterized excess Roth, and I'm considering opening up a solo 401k to preserve future backdoor opportunities. I've been filing Schedule C for my referee income for a while now so I have the business aspect taken care of already (unless I actually have to incorporate or something).
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Apr 6, 2017 00:15
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potatoducks posted:Start a small business doing whatever: selling junk on Etsy, filling out online surveys, mowing lawns, etc. Solo 401ks can be expensive, but you can then just immediately roll over all that money into your regular 401k if they are a good plan. (Also I'm not sure how the company can verify that the IRA money came from a 401k rollover rather than IRA contributions, Rollover IRAs used to be a real thing but that hasn't been the case for years.)
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Apr 6, 2017 03:17
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Steampunk Hitler posted:Using their numbers, if you're currently in the 28% bracket the only time it makes sense to go Traditional + non-tax advantaged over Roth when you're maxing out is if you're going to be in the 15% bracket, in every other scenario listed you end up with more money having maxed out the roth. The number to beat is $90,000 in a Roth 401k at retirement and the Traditional numbers get $20,160 in taxable investments added to them. Phone posting so I am not going to redo all these calculations correctly right now. 1. It's already proven that the commutative property of multiplication holds. Therefore the numbers provided cannot be correct in a true apples to apples comparison of costs. We know that at the same tax rate a Roth and a trad are equal. 2. If you raise the tax rates but hold everything else stable as in the example then the amount of money available to invest in the Roth must decrease. The trad will decrease too but only after you have exhausted the margin of the difference due to taxation. Murgos fucked around with this message at 11:34 on Apr 6, 2017 |
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Apr 6, 2017 11:28
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Murgos posted:1. It's already proven that the commutative property of multiplication holds. Therefore the numbers provided cannot be correct in a true apples to apples comparison of costs. We know that at the same tax rate a Roth and a trad are equal. youre ignoring the fact that post-tax dollars are worth more than pre-tax. $5500 or $18000 you've already paid taxes on is worth more than $5500 or $18000 you need to pay taxes on at withdrawal. The limit for traditional is pre tax dollars. The limit for for Roth is after tax. Maxing out a Roth makes use of more tax advantaged space than maxing out traditional. Even if you go traditional and throw the years tax savings into a taxable account, Roth comes out ahead (tax rates pre/post retirement being equal).
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Apr 6, 2017 12:34
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Murgos posted:Phone posting so I am not going to redo all these calculations correctly right now. You're forgetting that a taxable account has an extra 15% LTCG tax that the Roth doesn't have so if you have the same amount of pre tax dollars to put somewhere, putting $18,000 in Roth means you eliminate a 15% additional loss on the growth of $5040 that the Traditional + tax advantaged account has to pay. So while the commutative property of multiplication does hold, the equations are not the same. This only stops being true if you're retirement tax rate is lower enough (not just lower) to overcome this, which is unlikely if you're maxing out your tax advantaged space.
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Apr 6, 2017 12:59
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Steampunk Hitler posted:This only stops being true if you're retirement tax rate is lower enough (not just lower) to overcome this, which is unlikely if you're maxing out your tax advantaged space. Not just your retirement tax rate, but the lowest tax rate you might expect to see at any point in the next 30+ years where you would be able to convert large chunks of your traditional accounts to Roth accounts. If you plan to retire early, or take a few years off of work, you will have a lot of space to roll over assets at 15% or less.
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Apr 6, 2017 14:55
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Lamont Cranston posted:Has anyone in the thread done this? Right now I have a Trad IRA that's got a mix of rolled over 401k and recharacterized excess Roth, and I'm considering opening up a solo 401k to preserve future backdoor opportunities. I've been filing Schedule C for my referee income for a while now so I have the business aspect taken care of already (unless I actually have to incorporate or something).
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Apr 6, 2017 15:28
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Steampunk Hitler posted:Using their numbers, if you're currently in the 28% bracket the only time it makes sense to go Traditional + non-tax advantaged over Roth when you're maxing out is if you're going to be in the 15% bracket, in every other scenario listed you end up with more money having maxed out the roth. The number to beat is $90,000 in a Roth 401k at retirement and the Traditional numbers get $20,160 in taxable investments added to them. It's not quite that simple though, because reading the text in that link, they're basically assuming that you have a bunch of other taxable income that will bump you back up into almost the same marginal rate. I'm not sure why that would be the case. Social security isn't that much. How many people have a pension? It gets tricky to calculate your effective tax rate in retirement. Using their calculator, if you're in the 25% bracket now, the breakeven for marginal rate in retirement is about 20%. Assuming social security eats up your exemptions and standard deductions, plus the 10% bracket, you'd still be able to withdraw something like $50k on top of that and stay under 20% marginal. Plus, if you retire at 55 you can defer social security and you're getting even better effective tax rates. With no social security eating up your deductions/exemptions/lowest bracket, you can pull out something like $140k a year and still beat 20% marginal tax rates.
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Apr 6, 2017 17:02
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Illusive gently caress Man posted:youre ignoring the fact that post-tax dollars are worth more than pre-tax. $5500 or $18000 you've already paid taxes on is worth more than $5500 or $18000 you need to pay taxes on at withdrawal. The limit for traditional is pre tax dollars. The limit for for Roth is after tax. Maxing out a Roth makes use of more tax advantaged space than maxing out traditional. yeah, if you're going to max out your contribution either way, i think Roth makes more sense because of this. the argument that you'll end up with the same amount of money in retirement either way because of commutativity seems to be predicated on the idea that you're choosing between contributing 18000 to traditional or contributing 18000 * (1 - [your tax rate]) to a Roth.
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Apr 6, 2017 17:47
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Mr. Glass posted:yeah, if you're going to max out your contribution either way, i think Roth makes more sense because of this. the argument that you'll end up with the same amount of money in retirement either way because of commutativity seems to be predicated on the idea that you're choosing between contributing 18000 to traditional or contributing 18000 * (1 - [your tax rate]) to a Roth. The idea is that you come out even in trad. vs. Roth when you decrease your gross income by the same amount. If you put in the same number pre- and post- tax, obviously the post-tax wins at the end, but you've actually reduced your paycheck by a larger amount each month. You should really be thinking about it in terms of money from gross pay, otherwise it doesn't make sense.
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Apr 6, 2017 20:52
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Can I start a business and let it be owned by my IRA? For example, let's say I want to write and publish ebooks. I could do that and then pay income taxes at an effective rate of 40% (my current rate last year in NY) and then I'd have to put that income into a taxable account, or, if I was an employee of a business owned by my roth IRA, then that business would pay a corporate income tax of %35, and then that money would belong to my IRA, so it would not be taxed again. Is there a flaw in this plan? Sounds like IRAs can own companies: https://www.sba.gov/blogs/can-your-retirement-plan-own-your-business
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Apr 7, 2017 17:09
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I am not a lawyer/accountant, but it seems to me a primary problem with it is then you're tying your retirement savings directly to your own fortunes. If something happens where your business gets sued for example, you could lose a hefty chunk of your IRA.
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Apr 7, 2017 17:25
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If the business gets sued, why would the owner (the IRA?) be liable? I thought the whole point of incorporation was to shield owners from liability for their businesses? Still, it then seems like as long as you stick to a business you're very unlikely to get sued in (who is going to sue me for writing scifi and fantasy novels and selling them for $1 on Amazon?), you'll be safe.
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Apr 7, 2017 17:41
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oliveoil posted:If the business gets sued, why would the owner (the IRA?) be liable? I thought the whole point of incorporation was to shield owners from liability for their businesses? You're right about that, but if the business itself has its assets taken away or needs to make payments, whatever valuation it has in your IRA goes away. And fair enough on the second part.
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Apr 7, 2017 18:20
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totalnewbie posted:The idea is that you come out even in trad. vs. Roth when you decrease your gross income by the same amount. If you put in the same number pre- and post- tax, obviously the post-tax wins at the end, but you've actually reduced your paycheck by a larger amount each month. You can't decrease your gross income by the same amount because of the limits.
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Apr 7, 2017 19:38
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Nail Rat posted:You're right about that, but if the business itself has its assets taken away or needs to make payments, whatever valuation it has in your IRA goes away. Oh, I understand what you're saying now. I wonder if even that could be avoided by just having the business pay all income as dividends to the IRA. Since the dividends wouldn't have capital gains taxes, it seems like the only risk is the assets the business needs to run, which might be virtually nothing for some businesses.
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Apr 7, 2017 19:53
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oliveoil posted:Can I start a business and let it be owned by my IRA? For example, let's say I want to write and publish ebooks. I could do that and then pay income taxes at an effective rate of 40% (my current rate last year in NY) and then I'd have to put that income into a taxable account, or, if I was an employee of a business owned by my roth IRA, then that business would pay a corporate income tax of %35, and then that money would belong to my IRA, so it would not be taxed again. Hoo boy, you'd better make sure that all of your money in that business remains completely separate from any spending/investing you do while that business exists. The IRS may be shorthanded, but audits on ROBS and self-directed IRAs are a goldmine for them if you don't have your paperwork in order, so they get targeted more than any other filings from what I've read.
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Apr 7, 2017 23:50
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asur posted:You can't decrease your gross income by the same amount because of the limits. I understood the conversation to be about putting the same number of dollars, whether it's pre-tax or post-tax, into a retirement fund. In that case, putting the same number, post-tax, means you spend more of your gross income doing it.
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Apr 8, 2017 01:39
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Isn't that basically how romney's retirement was something ridiculously stupid because he bought portions of the companies bain was running into the ground for pennies and then years later hey they're worth orders of magnitude more?
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Apr 8, 2017 01:41
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Droo posted:Not just your retirement tax rate, but the lowest tax rate you might expect to see at any point in the next 30+ years where you would be able to convert large chunks of your traditional accounts to Roth accounts.
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Apr 8, 2017 03:26
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silvergoose posted:bain was running into the ground for pennies and then years later hey they're worth orders of magnitude more? Those are some conflicting thoughts you've got there.
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Apr 8, 2017 13:44
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pr0zac posted:Those are some conflicting thoughts you've got there. What can I say, I'm from Massachusetts and hate the guy. But yeah that might have been them intentionally pricing good companies for nothing instead.
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Apr 8, 2017 14:03
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silvergoose posted:What can I say, I'm from Massachusetts and hate the guy. But yeah that might have been them intentionally pricing good companies for nothing instead. That's what it was. He had an IRA worth about $35 million and it is assumed that he got it by selling himself stock in companies they took over for pennies.
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Apr 8, 2017 14:18
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I scheduled a financial meeting with someone from my university, but it takes place after the 17th, which I guess is the 2016 deadline for contributing to a RothIRA. Is there a reason I should go with one company over another? Someone upthread mentioned Vanguard, my university pushes TIAA-Cref, I'm sure there are plenty of others.
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Apr 8, 2017 16:11
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Emasculator posted:I scheduled a financial meeting with someone from my university, but it takes place after the 17th, which I guess is the 2016 deadline for contributing to a RothIRA. Is there a reason I should go with one company over another? Someone upthread mentioned Vanguard, my university pushes TIAA-Cref, I'm sure there are plenty of others. My fiancée had TIAA with her old job and their selection sucked. Go with Vanguard/Schwab/Fidelity. Personally, I'd go with Vanguard (even though Schwab and Fidelity have just as low of expense ratios as Vanguard) because of their business structure.
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Apr 8, 2017 16:40
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silvergoose posted:Isn't that basically how romney's retirement was something ridiculously stupid because he bought portions of the companies bain was running into the ground for pennies and then years later hey they're worth orders of magnitude more? Romney's IRA is enormous due to carried interest. When a private equity firm buys out a company, most of the money is put up by outside investors, the limited partners. A token amount is put up by the partners of the private equity firm, the general partners. Things are structured such that on sale of the company, everyone gets their money back first, then the general partners get 20% of the profits (that's the carried interest) and the rest goes to the limited partners. Romney put in his investment for some deals from his IRA, so that's where the proceeds from the carried interest went. The bigger question is why he did this, because carried interest is structured as a big tax dodge, and even though it is clearly intended as compensation for the work of turning a company around its structured as an investment and is only subject to capital gains tax while IRA distributions would be ordinary income. Probably another loophole, maybe having to do with inheritance.
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Apr 8, 2017 16:49
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supercrooky posted:Probably another loophole, maybe having to do with inheritance. Inherited IRAs are fantastic. His kids will inherit gigantic ones from which they'll take required minimum-distributions for the rest of their lives.
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Apr 8, 2017 20:50
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I think I just realized that contributions to a Roth IRA can be withdrawn tax-free and penalty-free, but growth is taxed as income when withdrawn. Is that correct? So if I contribute $10k to a Roth IRA, and it grows at 7% per year, so that five years from now it's worth $14,025, I'll be able to withdraw $10k without paying taxes or any penalty on it, but I will have to pay both income taxes and a 10% penalty on the remaining $4,025? I guess this means running a business that is owned by my IRA isn't some genius plan, since the business will pay 35% corporate income taxes before it pays it as dividends to my IRA, and then that money will be considered "growth" from my investment in that business, so if I want to withdraw that money, I will have to pay personal income taxes - so that it's essentially taxed twice - plus a 10% penalty. So what's the point of doing a backdoor Roth IRA? I mean, let's say I make a post-tax 401k contribution of $10k today and then immediately roll it over to a Roth IRA via an in-service distribution. Sure, five years later, I can withdraw $10k and there's no capital gains tax on the growth of $4,025, but I will still pay income taxes + a 10% penalty on it. Why would I want to do that? I aim to always be in a relatively high tax bracket when I retire. My goal is to have at least (ideally more than) $60k/yr of income from my taxable and untaxable accounts in retirement - so I can't just say I'll be in such a low tax bracket that it won't matter. I mean, if I can retire* early, then my goal will be to start businesses and see what kind of cool things I can do. If I fail, then $60k/yr is the bottom of what I'll be making and if I succeed then I'll be making more than that. *- By retirement, I mean I just want to be able to live comfortably in a desirable neighborhood in an expensive city without being required to work.
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Apr 8, 2017 21:10
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oliveoil posted:I think I just realized that contributions to a Roth IRA can be withdrawn tax-free and penalty-free, but growth is taxed as income when withdrawn. Is that correct? No. If you withdraw from a Roth in retirement, then you pay no federal income taxes at all on the money.
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Apr 8, 2017 21:25
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Space Gopher posted:No. If you withdraw from a Roth in retirement, then you pay no federal income taxes at all on the money. That's if you're over 69 years, right? If I'm doing an early retirement at age 40, aren't things different?
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Apr 8, 2017 21:32
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oliveoil posted:That's if you're over 69 years, right? If I'm doing an early retirement at age 40, aren't things different? The retirement age for Roth IRA is 59.5. You could like, spend ten minutes reading the Wikipedia page and understand all this.
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Apr 8, 2017 21:51
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Oops. But yes, too old to be relevant.
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Apr 8, 2017 22:17
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If you retire at 40, you live off the contributions for 19.5 years then start withdrawing the gains tax and penalty free.
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Apr 9, 2017 03:15
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