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Cassius Belli posted:Counterexample: My company drops 401k contributions on the Tuesday after payday, for whatever perverse reason. Very often my last December withholdings won't show up in the account until the first couple days of January, but they always count as "previous year" for limit/tax/etc purposes. I'd ask someone in HR/payroll or something. That's why I said "or owed" I think if your company is filing the contribution by the end of the year, and the receiver is not processing it, but they were notified you were owed it, they will treat it as of the date of them being told you are due those funds. Since your company is very consistent with the contribution they know it is due "as of".
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Nov 23, 2022 22:56
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drk posted:There's an argument to be made to not use the same fund in a 401k as a taxable account, since purchases in the 401k can trigger a wash sale in the taxable account if you sell in the taxable account at a loss. This is especially problematic in a 401k where automatic purchases are made once a month or more often. There were a number of TLH-related posts in this thread a while back that specified that 401ks cannot trigger a wash sale, while IRAs can. This was based on the text of the IRS rules I believe.
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Nov 24, 2022 04:01
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runawayturtles posted:There were a number of TLH-related posts in this thread a while back that specified that 401ks cannot trigger a wash sale, while IRAs can. This was based on the text of the IRS rules I believe.
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Nov 24, 2022 06:36
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Why would wash sales matter in a 401k? You don't pay taxes on anything that happens until you cash out.
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Nov 24, 2022 06:37
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Because you could conceivably sell something in a taxable account taking a tax loss, and buy the same thing in your 401k shortly before or after (or the same day, even). This would give you a tax benefit without actually changing your holdings. Sounds like this is in a gray area with 401ks and not really enforced though.
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Nov 24, 2022 06:53
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incogneato posted:I have no idea if this sort of thing is agency specific, but mine sent out an email that had this info in it: Thanks for the info! I'm pretty sure it would be the same across agencies. (And mine definitely didn't send out anything about it, I have to pay very close attention to my email in my current position and would have remembered something like that.)
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Nov 25, 2022 19:12
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pseudanonymous posted:That's why I said "or owed" I think if your company is filing the contribution by the end of the year, and the receiver is not processing it, but they were notified you were owed it, they will treat it as of the date of them being told you are due those funds. Since your company is very consistent with the contribution they know it is due "as of". Ah, OK, that makes sense! I think I read it differently. I think we're in vigorous agreement; while there may be some settlement time issues, the transfer likely includes some information about "this transaction actually happened on this date and should be considered part of that tax year". Most likely the actual official payday date would be the basis for it, regardless of when it landed in various accounts. On the other hand, the various banks' websites "YTD" graphs are naively coded and just use calendar years.
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Nov 25, 2022 20:05
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I was listening to the Rational Reminder podcast the other day, and it was mentioned that a good rule of thumb to hedge against future tax rate increases is (your age + 20)% in traditional. 100% of my IRA is Roth right now, and I’m trying to figure out how to split things up between trad. and Roth. Target is 55% in trad Roth currently 30% AVLV Avantis US Large Cap Value ETF 30% AVUV Avantis US Small Cap Value ETF 14% AVDV Avantis International Small Cap Value ETF 14% AVIV Avantis International Large Cap Value ET 12% Avantis Emerging Markets Value ETF I’m guessing AVLV and AVUV go in trad IRA in order to minimize taxable events? Should I just put yearly contributions in trad until it reaches the desired ratio of trad/Roth? (I don’t really want to sell because the bid/ask spread will lower the amount I’d have otherwise. Am I off the mark on this?)
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Nov 25, 2022 20:18
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Valicious posted:I was listening to the Rational Reminder podcast the other day, and it was mentioned that a good rule of thumb to hedge against future tax rate increases is (your age + 20)% in traditional. 100% of my IRA is Roth right now, and I’m trying to figure out how to split things up between trad. and Roth. Do you have a traditional 401k? Any contributions to that should count towards your overall split. Depending on your savings rate and income, you may already be at that split or even more weighted towards traditional.
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Nov 25, 2022 20:27
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If you ever might want to do backdoor Roth, you should not put anything in trad IRA - you'd have to convert it all to Roth, and pay a tax hit doing so. Just keep that in mind. Otherwise, this thread has not talked much about exactly what balance between traditional and Roth a person should take. Obviously you are hedging against future higher/lower taxes; you may have some control over that, in terms of your own savings (the more you save for retirement, the more retirement income you can expect to have...) but some is totally out of your control (government could raise or lower taxes and it's very hard to predict which or by how much).
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Nov 25, 2022 20:29
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For most people their 401(k) is strictly limited to traditional. Therefore if you contribute all of your IRA contributions to a Roth IRA ($6500) and you max out your traditional 401(k) with contributions of $22,500, 77.6% of your contributions each year will be traditional - and this ignores any employer matching. Therefore it is my opinion that you should always be contributing to a Roth IRA and never a traditional IRA unless you have somewhat unique circumstances (Roth 401(k), self employment, etc). Most people only get Roth opportunities in IRAs and they’re time limited - use it or lose it within the year. So you should always be taking advantage of this. This applies even if you aren’t able to max 401(k) contributions.
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Nov 25, 2022 20:56
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Here’s the episode. It’s a really good listen https://podcasts.apple.com/us/podcast/the-rational-reminder-podcast/id1426530582?i=1000584063409 I’m self-employed (plus a regular job) and have a Roth individual 401k with my business that I contribute to. The business is mostly shutting down after this year, so little to no 401k contributions. My regular job is a healthcare worker. The salary is pretty static (except for a couple raises through the union), so I won’t be making more money when I retire. The age+20% rule put forth by Prof. Cederburg was a way to hedge against the uncertainty of future tax rate increases.
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Nov 25, 2022 21:20
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Leperflesh posted:If you ever might want to do backdoor Roth, you should not put anything in trad IRA - you'd have to convert it all to Roth, and pay a tax hit doing so. Just keep that in mind. If you are making enough money that you need to backdoor a Roth, a traditional IRA doesn't give any tax benefits at all. I guess it could matter if you are thinking you're going to be making massively more money in the future than you are now, but presumably your retirement plan shouldn't include "Important: Get rich first!!" in the margins.
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Nov 25, 2022 22:31
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My new job has an interesting 401k setup. They allow pre-tax, post-tax, and ROTH contributions. After the pre-tax max (22,500 for 2023) + match, it looks like I can continue to contribute to the post-tax up to the IRS total max contribution ($66k for 2023) and convert it to ROTH as it goes in. At previous positions, I only had access to the pre-tax with its cap in the ~$20k range. I live(d) frugally enough to consistently hit that without too much fuss or muss and didn't put all too much more thought into it. Now I'm in a position where I can contribute much more, and honestly I'm at a bit of a loss as to how to figure out how much I can/should throw in there vs paying down my (~3.6%) mortgage. Does anyone in the thread have experience with this kind of situation, and what did you end up doing?
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Nov 26, 2022 01:05
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I wouldn’t spend much time throwing extra money at a 3.6% mortgage considering inflation is somewhere north of 4% still.
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Nov 26, 2022 02:41
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Yeah a mortgage below inflation is basically free money every year, don't pay one red cent more on your mortgage than you have to. It is way better to pay the (fixed on your amortization schedule) payments you'd owe 10 years from now in money that's been inflated for 10 years, than to pay it now with money that is more valuable.
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Nov 26, 2022 02:52
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As others have said, I wouldn't touch that mortgage given that rate, put anything you can into that mega-backdoor Roth 401k. Just remember that total contribution limit includes not just your contributions, but your employer's match as well.
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Nov 26, 2022 03:16
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Not a Children posted:My new job has an interesting 401k setup. They allow pre-tax, post-tax, and ROTH contributions. After the pre-tax max (22,500 for 2023) + match, it looks like I can continue to contribute to the post-tax up to the IRS total max contribution ($66k for 2023) and convert it to ROTH as it goes in. This is called a mega backdoor Roth if you want to read up on strategies.
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Nov 26, 2022 04:30
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ROJO posted:As others have said, I wouldn't touch that mortgage given that rate, put anything you can into that mega-backdoor Roth 401k. Yup, got the "how much" question all figured, just wanted to know if the ~29 years compounded interest was worth saving on now. Sounds like the answer to that is "if you think inflation will be less than that for most of the life of the mortgage." I'll collect a couple paychecks to figure out what I can afford to throw at the roth 401k, then go from there. Thanks to all who answered! SlapActionJackson posted:This is called a mega backdoor Roth if you want to read up on strategies. I thought the mega backdoor Roth was an IRA vehicle, but I guess I was wrong!
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Nov 26, 2022 04:33
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That's the (non-mega) backdoor Roth
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Nov 26, 2022 05:04
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Not a Children posted:My new job has an interesting 401k setup. They allow pre-tax, post-tax, and ROTH contributions. After the pre-tax max (22,500 for 2023) + match, it looks like I can continue to contribute to the post-tax up to the IRS total max contribution ($66k for 2023) and convert it to ROTH as it goes in. I was told a few posts back that Roth 401k contributions are part of the same $20-something k limit that the normal 401k is. You can divide it between regular and Roth but the total can’t be over that limit.
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Nov 26, 2022 05:22
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My understanding is that if you characterize it as a Roth 401k contribution when you make it, it does in fact count toward that lower limit. However, if you make an "after tax" contribution, which to my knowledge does not have the same tax advantages as a Roth contribution, it counts against the much higher employee+employer limit. The quirk is, you can convert an "after-tax" contribution to a Roth contribution without any penalty. It is apparently trivial these days to do so through major brokerages.
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Nov 26, 2022 05:31
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withak posted:I was told a few posts back that Roth 401k contributions are part of the same $20-something k limit that the normal 401k is. You can divide it between regular and Roth but the total can’t be over that limit. Right, but [if your plan has provisions for such] you can contribute "traditional after-tax" (above and beyond the 20mumble limit, up to the 50mumble limit). Normally this is close to useless – you put it in with taxes-paid dollars, and you can take that exact number of dollars out at retirement without paying taxes, but you pay taxes on all the gains as income, just like a regular 401k. But with the megabackdoor, you then immediately convert those post-tax dollars to Roth-treatment dollars, and the gains are free, too. e: added caveat Cassius Belli fucked around with this message at 07:46 on Nov 26, 2022 |
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Nov 26, 2022 05:33
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It's worth pointing out this isn't allowed under every plan, you need to have a plan that specifically allows this, and hopefully, like Fidelity does, enables automatic daily conversions so you don't accrue any interest you have to pay tax on when the after-tax contribution becomes Roth.
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Nov 26, 2022 07:34
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Having a more coherent plan on how to use our mega backdoor Roth space is on my list of New Year’s resolutions. Is there any reason not to max out mega backdoor Roth space if it’s available, versus putting it in a taxable account, beyond the obvious?
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Nov 26, 2022 15:39
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Again, I’m new to this, but my understanding is that your opportunity cost here is short-term access to those funds. If you want to access the money before withdrawal time, you have to pay the typical 401k 10% penalty. Don’t think the IRA early withdrawal exceptions apply to the Roth 401k So just don’t sock away that money if you may need it for other things.
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Nov 26, 2022 16:13
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Not a Children posted:Again, I’m new to this, but my understanding is that your opportunity cost here is short-term access to those funds. If you want to access the money before withdrawal time, you have to pay the typical 401k 10% penalty. Don’t think the IRA early withdrawal exceptions apply to the Roth 401k Yup, predicting the future is the difficult part for me too. I have no idea what our priorities will really be in 20-30 years. 
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Nov 26, 2022 16:25
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Not a Children posted:Again, I’m new to this, but my understanding is that your opportunity cost here is short-term access to those funds. If you want to access the money before withdrawal time, you have to pay the typical 401k 10% penalty. Don’t think the IRA early withdrawal exceptions apply to the Roth 401k Here’s the usual reminder that Roth contributions and conversions can be taken out penalty free. This allows you to access 401k’s and IRAs before 59.5 with some planning. See https://www.investopedia.com/how-roth-conversion-ladder-works-5214808 pmchem, this may be a useful thing to put in the OP given how often it comes up.
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Nov 26, 2022 17:10
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Residency Evil posted:Yup, predicting the future is the difficult part for me too. I have no idea what our priorities will really be in 20-30 years. You’ll want water filtration, a source of fire, a place to keep bottlecaps safe, a bandana for the dust, something to scare the raiders off, and the flexibility to draw on both pre and post tax funds depending on social security and your marginal income tax.
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Nov 26, 2022 17:42
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Roth question: I always contribute the max to my Roth IRA during the first week of the year (including this year). However I got married earlier this year and now based on our combined income it seems we will likely be over the income limit for Roth this year. Since we’ve both already made Roth contributions this year - what do we have to do? Do we have to back them out into a trad IRA or something? (Neither of us have trad IRAs currently)
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Nov 28, 2022 14:50
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Bro, didn’t you check with your accountant before getting married? Wat a noob. For taxation purposes, you have been married since Jan 1 12:00am of the year of your marriage. All means testing is retroactive to that date in time. If your combined income is greater than the Roth IRA phaseout, then you will need to… — I am not an accountant: …redact / uncontribute your original contributions (work with your broker). Poster below suggests recharacterizing and converting. Explore that option! It’s probably worth talking to an accountant, soon. I’d be very careful around documenting exactly how much money is being uncontributed / recharacterized; you probably put in the full $6000 but will be moving ~$5200. If you are withdrawing, I think your available 2022 contribution space would be $5200, but IANAAccountant. It’s messy. DNK fucked around with this message at 15:44 on Nov 28, 2022 |
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Nov 28, 2022 15:12
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Joose Caboose posted:Roth question: I always contribute the max to my Roth IRA during the first week of the year (including this year). However I got married earlier this year and now based on our combined income it seems we will likely be over the income limit for Roth this year. Not a lawyer or accountant but in general people can recharacterize a contribution as a traditional IRA contribution and treat it as if that's what you meant it to be the whole time. It can then be converted to a Roth IRA. The exact process, amount, and tax implications get a little complicated since it sounds comingled with other Roth dollars and you will have had an earning or loss on the amount that you had already contributed. But your broker probably has a recharacterization process, if you call to discuss with them.
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Nov 28, 2022 15:14
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yeah this is firmly in "call your broker" territory but they will definitely be able to handle it with you no problemo you should immediately backdoor those trad contributions in to your roth IRA
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Nov 28, 2022 15:56
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Joose Caboose posted:Roth question: I always contribute the max to my Roth IRA during the first week of the year (including this year). However I got married earlier this year and now based on our combined income it seems we will likely be over the income limit for Roth this year. First, the income limits are higher for married (though sadly not 2x single). Second, you could file separately. Ask your accountant what makes sense for you and your spouse.
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Nov 28, 2022 16:24
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nelson posted:First, the income limits are higher for married (though sadly not 2x single). Second, you could file separately. Ask your accountant what makes sense for you and your spouse. Income limit for Roth IRA contribution when filing separately is ludicrously low, like $10k
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Nov 28, 2022 17:04
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Fidelity's ladder tool is so convenient it almost circles back around to stalling me with analysis paralysis. So many ways to buy more money! Time to sort the ladders from the SGOV holders...
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Nov 28, 2022 22:33
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Getting ready to pull the trigger on a Roth IRA, first time. Any reason I can’t contribute the max for 22 in December, then the max for 23 right after January 1?
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Nov 29, 2022 04:11
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ncumbered_by_idgits posted:Getting ready to pull the trigger on a Roth IRA, first time. Any reason I can’t contribute the max for 22 in December, then the max for 23 right after January 1? Nope! And you can actually contribute the limit for 2022 up until tax day April 2023!
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Nov 29, 2022 04:12
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Residency Evil posted:Nope! And you can actually contribute the limit for 2022 up until tax day April 2023! God I hate doing this because I backdoor and it fucks with my basis calculations. I'll probably have to this year though.
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Nov 29, 2022 07:46
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I'm planning to quit and switch jobs early next year. My current employer has a safe harbor match with immediate vesting. I'm thinking of dropping my ESPP contributions and also go very high on my 401k contributions in 2023 to get the most out of their matching. It's an ok match, not great, but also not sure what the future holds for me with retirement benefits as I could (but try not to) join a company with a non-matching 401k again. I forget the full details, I think something like 4% overall. There is a ladder of x% up to x% of salary then .5 of another x%. I'm currently maxing over the full 12 month period. I might quit outright and take a few months off or try to squeeze in extended time off between jumps. I have 6 months of expenses saved in cash as I've been planning to do this since last summer. I guess the risk is I get a better match at theoretical new company. Anything else I'm missing? I know I need to do my own tracking to make sure I don't go over the 401k max at the new job. I'm looking at it like guaranteed money now vs ??? and the difference would probably be not too much in the long term. Also I'm 34 and have 200k for retirement so I feel very on track to have a break. cheese eats mouse fucked around with this message at 09:46 on Nov 29, 2022 |
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Nov 29, 2022 09:27
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