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Bisty Q. posted:Shoving another $30K into a Roth when you make enough money to completely max out all your tax-advantaged accounts and your IRA is almost certainly a bad idea unless you plan on having an extremely extravagant lifestyle in retirement (and you plan on your tax rate being the same or increasing). You're paying taxes on the money now at your current marginal rate, so it's only worthwhile putting money in the Roth if you think there will be a point in the future where your tax rate will be the same or higher. Since most people need to spend less in retirement, this is quite possibly wrong. I think you misunderstand how it works. The only case where a Roth IRA is worse than a taxable investment account is when you think you'll need the earnings on that money before you're 59.5. You're paying your marginal tax rate on that money no matter what, so saying "You're paying taxes on the money now at your current marginal rate" is completely meaningless. By the time you're looking at this you've already exhausted all of your tax-deferred options. This is for someone who has already maxed out their "normal" 401k limit (whether that's traditional or Roth), has way too much income to qualify for a deductible traditional IRA, and wants more tax-advantaged space to save.
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Oct 11, 2015 18:26
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When you use a traditional IRA or a 401k, you get to deduct from the top. You're saving taxes on the highest tax bracket you pay into. When you take the money out, you pay starting from the bottom. Your effective tax rate should be much lower on the money you take out.
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Oct 11, 2015 19:41
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District Selectman posted:When you use a traditional IRA or a 401k, you get to deduct from the top. You're saving taxes on the highest tax bracket you pay into. When you take the money out, you pay starting from the bottom. Your effective tax rate should be much lower on the money you take out. I think you're confusing a Roth 401(k) with the mega backdoor Roth technique, which is rolling over traditional after-tax (non-deductible but non-Roth) 401k contributions into a Roth IRA. The mega backdoor Roth lets you get the rest of the 53k limit for combined 401(k) contributions, past the IRS limit of 19k (this year) for combined traditional pre-tax and Roth 401(k) contributions, and then move that money into a Roth IRA which gives it much better tax treatment than an after-tax 401(k). In an after-tax 401(k) you pay tax now and defer tax on the earnings, effectively the worst of both worlds. Since the gains will be treated as income later, not capital gains, the after-tax 401(k) is arguably worse than a taxable account, so without the backdoor Roth it serves little purpose. There are three types of IRAs and 401(k)s, not two, and I think this is where the confusion is coming from. By the time you're looking at a mega backdoor Roth you've already completely exhausted all your tax-deferred accounts, or at least opted for direct Roth contributions instead. No one is saying to do a mega backdoor Roth before doing your normal 19k 401(k) contributions or your normal 5500 Roth IRA contributions, and anyone looking at making use of the full 53k combined limit with the after-tax 401(k) makes far more than the limit for deductible traditional IRAs. Saying that mega backdoor Roth IRA contributions are a bad idea is just plain wrong; the only case where it's worse than a taxable account is when you need the earnings before you're 59.5, and those are the only two places that money can go (besides just spending it, I guess, or a college savings account). Desuwa fucked around with this message at 19:58 on Oct 11, 2015 |
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Oct 11, 2015 19:52
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Bisty Q. posted:Shoving another $30K into a Roth when you make enough money to completely max out all your tax-advantaged accounts and your IRA is almost certainly a bad idea unless you plan on having an extremely extravagant lifestyle in retirement (and you plan on your tax rate being the same or increasing). You're paying taxes on the money now at your current marginal rate, so it's only worthwhile putting money in the Roth if you think there will be a point in the future where your tax rate will be the same or higher. Since most people need to spend less in retirement, this is quite possibly wrong. Maybe you missed the part where it was step 4 and he had already maxed out all his tax-advantaged accounts? Where else would be a better place to put any money afterwards if not into a Roth IRA ?
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Oct 11, 2015 19:53
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District Selectman posted:When you use a traditional IRA or a 401k, you get to deduct from the top. You're saving taxes on the highest tax bracket you pay into. When you take the money out, you pay starting from the bottom. Your effective tax rate should be much lower on the money you take out. So if you have 100k of pension income in retirement that you pay federal income tax on, and you take out 30k extra from a 401k, exactly how is that 30k taxed "from the bottom"?
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Oct 11, 2015 20:00
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Desuwa posted:In an after-tax 401(k) you pay tax now and defer tax on the earnings, effectively the worst of both worlds. I thought Roth 401k was a good option for young people, especially looking to hit the 18.5k cap (larger amount of sheltered money as 18.5k after already being taxed). Now I'm confused. or is "after-tax 401k" different? edit: vvv durr, he even said "non-traditional but non roth" in his post. didn't understand until now. thanks. Blinky2099 fucked around with this message at 20:28 on Oct 11, 2015 |
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Oct 11, 2015 20:19
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Blinky2099 posted:I thought Roth 401k was a good option for young people, especially looking to hit the 18.5k cap (larger amount of sheltered money as 18.5k after already being taxed). Now I'm confused. or is "after-tax 401k" different? After-tax 401k is something different. It can allow you to contribute much higher amounts that can then be potentially backdoored into a Roth IRA. Google mega-backdoor roth for more info.
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Oct 11, 2015 20:23
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Blinky2099 posted:I thought Roth 401k was a good option for young people, especially looking to hit the 18.5k cap (larger amount of sheltered money as 18.5k after already being taxed). Now I'm confused. or is "after-tax 401k" different? There is an option in a traditional 401k for after-tax contributions up to a higher total limit, $53,000 in 2015, that your company has the option to allow. These after-tax dollars can then be converted to ROTH IRA either through an in-service distribution, if the 401k plan allows them, or when you leave the company. It's slightly complicated, but basically it's a deferred Roth contribution strategy.
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Oct 11, 2015 20:34
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My employer keeps telling us they won't allow the megabackdoor Roth because "it's illegal and fails non-discrimination testing" and won't hear any more of it 
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Oct 11, 2015 20:41
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GoGoGadgetChris posted:My employer keeps telling us they won't allow the megabackdoor Roth because "it's illegal and fails non-discrimination testing" and won't hear any more of it It probably would fail non discrimination testing I imagine. Most (some?) companies exempt themselves from that testing by giving the 3% safe harbor match to everyone.
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Oct 11, 2015 20:49
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Also I remember reading that the IRS hasn't provided guidance on the mega background Roth. Some accountants seem to think that it is not appropriate to claim that you have segregated the traditional 401k contributions from the after-tax 401k contributions so when you convert the after tax 401k to a Roth IRA, youd have to pay taxes proportional to the entire 401k amount, just like if you did a backdoor Roth IRA but already had a traditional IRA. People definitely do it, so it doesn't seem technically illegal. But should sort of be at your own risk? Or maybe it's exactly the same ad a backdoor Roth which we all take as a given. Anyone else read anything definite about it?
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Oct 11, 2015 21:47
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I made an extra $150,000 this year (pre tax, self employed). I have no retirement savings and I'm 31. How can I best use this to kick-start my savings?
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Oct 12, 2015 02:53
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Omits-Bagels posted:I made an extra $150,000 this year (pre tax, self employed). I have no retirement savings and I'm 31. How can I best use this to kick-start my savings? You could contribute almost 50k to a self-employed 401k. If you already have a job (you said "extra") with a 401k, you could contribute almost 30k to a SEP IRA. I'm not sure if you can do two 401k's or how the limits are affected by eachother. Then, pick your personal life goals and learn how to invest the money in order to achieve them in a tax efficient, low cost way.
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Oct 12, 2015 03:05
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flowinprose posted:Maybe you missed the part where it was step 4 and he had already maxed out all his tax-advantaged accounts? Where else would be a better place to put any money afterwards if not into a Roth IRA ? A regular taxable account, since if you're putting that kind of money into savings you're probably planning early-ish retirement and the flexibility of being able to withdraw earnings without a penalty (on top of taxes, which do come into effect if you take an early distribution of earnings from a Roth) makes more sense to me than waiting until 59.5 to be able to remove earnings from it (even without the tax). I didn't articulate that, but that's why I think it's not a great idea - if you're planning on being able to wait (i.e. you have enough that you're also maxing out your mega-backdoor and are still putting more money into taxable accounts to live on after 'retirement' but before you can withdraw from your Roth) then it's clearly smart.
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Oct 12, 2015 15:05
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You can get the principal out of a Roth 401k before 59 a couple of ways - you can take SEPPs, and you can roll it over into a Roth IRA and take out the principal five years later. (Honestly, earnings are less important in FI anyway.) In my situation I'm maxing the mega backdoor and still find some money to stick in taxable, but I'd be doing backdoor first if I didn't have the money for both, because my 401k has a bunch of Vanguard institutional-level index funds with ultra low ERs that I can't get access to from an individual account. That, plus the tax shelter, means I'm willing to jump through the hoops when I go FI.
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Oct 12, 2015 15:48
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Bisty Q. posted:A regular taxable account, since if you're putting that kind of money into savings you're probably planning early-ish retirement and the flexibility of being able to withdraw earnings without a penalty (on top of taxes, which do come into effect if you take an early distribution of earnings from a Roth) makes more sense to me than waiting until 59.5 to be able to remove earnings from it (even without the tax). The way to get around that is to use a traditional 401k with the mega backdoor Roth and perform taxable rollovers every year in a low tax bracket into the Roth IRA. After five years that money will be penalty free. That or have so much money that you even have taxable accounts so nothing really matters. Of course this relies on tax law remaining at least a little bit constant. Though the thing most likely to change is the backdoor itself, I think "normal" taxable rollovers are overwhelmingly likely to remain.
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Oct 12, 2015 16:50
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I've been developing a new savings plan for myself. This is what I've come up with and would like to get some feedback on it. Should note that I'm from Europe. Developed markets 55% Emerging markets 10% Europe 10% Europe small cap 5% Raw materials 10% US dividends 10% TER 0.28% These are all ETFs from either Blackrock or Deutsche Bank just thought it would be clearer to list them this way. The reason I don't have any bonds is that I am saving for a house on a seperate high interest rate account and count that as my "bonds". I've also used the morningstar portfolio x-ray tool and that seems to be match the global markets comparion index I used pretty well. UK and Japan are very slightly undervalued, and Asia very slightly overvalued, but otherwise it matches it almost to the percent.
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Oct 13, 2015 08:28
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Bisty Q. posted:Shoving another $30K into a Roth when you make enough money to completely max out all your tax-advantaged accounts and your IRA is almost certainly a bad idea unless you plan on having an extremely extravagant lifestyle in retirement (and you plan on your tax rate being the same or increasing). You're paying taxes on the money now at your current marginal rate, so it's only worthwhile putting money in the Roth if you think there will be a point in the future where your tax rate will be the same or higher. Since most people need to spend less in retirement, this is quite possibly wrong. However that after-tax -> roth IRA backdoored money isn't quite as locked up as one may think, because I might want to buy a house. That means well over a million dollars purchase price, as I want to live near work, which will almost surely still be in Silicon Valley. I've run the numbers and sadly getting a mortgage makes sense for me in a few years. So that after-tax -> roth IRA will be mostly accessible within 5 years; I'll be able to take all the contributions, and another 10k of the earnings for the "first time home purchase". Plus I can then take a 50k loan against my 401k itself (Vanguard offers this; loans can be up to half the assets -- the loan is low-interest too as it's directly secured). So that's 50k+10k+26k/year * 5 years = 190k of accessible money from the retirement accounts towards that ridiculous down payment for a bay area home purchase. The rest can stay in there actually growing towards retirement.
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Oct 13, 2015 09:36
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ShadowHawk posted:To clarify, I do in fact make enough money to be disqualified from direct traditional/roth IRA contributions. But I've only just now started earning enough money to save (hence my desire to save a lot; I'm already 31). It'll actually be almost completely accessible immediately, without penalty. If you do an after-tax 401(k) to Roth IRA rollover the only part of the rollover subject to the 10% penalty tax is the growth before the conversion. The ordering rules are complicated and I've seen a lot of confusion over them, but the short of it when you have no direct contributions is: 1) You contribute $10 to an after-tax 401(k) 2) It grows to $11 before you can roll it over 3) You roll over $11 to your Roth IRA - at this point you pay income tax on that $1 (call it 40%, so 40 cents) 4) You withdraw $6 from your Roth IRA immediately (before five years have passed) - Due to the ordering rules, you withdraw that $1 first - you pay a 10% penalty tax on it (10 cents) - Then you withdraw $5 from the non-taxable portion of the rollover penalty free In total you've paid 10 cents in penalty tax on a $6 withdrawal (or $10 cents on $11 if you withdrew it all). The penalty tax on taxable rollovers isn't anything to be worried about when you're doing clean backdoor Roths. It becomes relevant if you're doing a normal backdoor with substantial traditional IRA balances, though. The purpose of the penalty tax is to stop people from rolling over their traditional 401(k)s or IRAs and getting access to the money faster than they're "supposed" be able to. For after-tax 401(k)s and IRAs you could already withdraw the contributions at any time which is why the penalty is surprisingly toothless.
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Oct 13, 2015 09:50
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Didn't know whether to post this here or in the Bad With Money thread, but the WSJ has an article today about a company called Stockpile which is partnering with retailers to sell stock-redeemable gift cards at checkout counters. Basically you could go to the grocery store and pick up $25 in Apple shares, $50 in Coca-Cola, etc. Fees start at $4.95 on $25...yikes! Worst part of the article is the quote from the 37 year old teacher who has "always wanted to get into the stock market business," but"never had time". She might end up buying Tesla at a 20% markup because it's a "pretty cool" company. 
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Oct 13, 2015 16:44
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pig slut lisa posted:Didn't know whether to post this here or in the Bad With Money thread, but the WSJ has an article today about a company called Stockpile which is partnering with retailers to sell stock-redeemable gift cards at checkout counters. Basically you could go to the grocery store and pick up $25 in Apple shares, $50 in Coca-Cola, etc. Fees start at $4.95 on $25...yikes! No, don't you see? They're disrupting the stockmarket!!! It's the next Facebook, and totally not an idiotic idea!
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Oct 13, 2015 17:01
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If the fees weren't nearly as egregious it might be easy to abuse for credit card points (buy, redeem, immediately liquidate or something), so I guess there's that. Might make your tax bill a mess though.
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Oct 13, 2015 17:30
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pig slut lisa posted:Didn't know whether to post this here or in the Bad With Money thread, but the WSJ has an article today about a company called Stockpile which is partnering with retailers to sell stock-redeemable gift cards at checkout counters. Basically you could go to the grocery store and pick up $25 in Apple shares, $50 in Coca-Cola, etc. Fees start at $4.95 on $25...yikes! So, uh do you still have to open an account with a broker to redeem your 'gift card'? Or is Stockpile your broker and redeeming your gift card opens a brokerage account with them for your 1/10th share of AAPL or whatever?
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Oct 16, 2015 16:23
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Quick question to those who back-door Roth. Do you never roll-over your 401k plan when you switch jobs to prevent the pro-rata rule?
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Oct 20, 2015 20:36
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Rurutia posted:Quick question to those who back-door Roth. Do you never roll-over your 401k plan when you switch jobs to prevent the pro-rata rule? Or you roll it over to a new 401k.
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Oct 21, 2015 12:56
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baquerd posted:Or you roll it over to a new 401k. Do most 401k plans allow roll-ins?
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Oct 21, 2015 13:11
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Why wouldn't they? More money for them to manage, thus more money to make.
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Oct 21, 2015 14:03
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Rurutia posted:Do most 401k plans allow roll-ins? yes, although often the funds you have access to are disadvantageous compared to an IRA
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Oct 21, 2015 15:08
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i just started at a company with a pretty generous 401k match. Am I correct that the only way to get the full match in 2015 is to set my 401k paycheck deduction real fuckin high for the last two months of the year? I'd like to do this, but I also want to eat / pay rent so idk.
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Oct 21, 2015 21:58
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Illusive gently caress Man posted:i just started at a company with a pretty generous 401k match. Am I correct that the only way to get the full match in 2015 is to set my 401k paycheck deduction real fuckin high for the last two months of the year? I'd like to do this, but I also want to eat / pay rent so idk. Is the match a % of your salary, or an actual numerical cap? If they'll match up to 6% of your salary or something, that would be salary as paid (2 months worth), not total theoretical annual salary so there's no pressing need to put in more than needed to max the match. If they have uncapped match like some places, I'm very envious of you and you're welcome to try and shove in $17,500 in 2 months.
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Oct 21, 2015 22:06
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Twerk from Home posted:Is the match a % of your salary, or an actual numerical cap? If they'll match up to 6% of your salary or something, that would be salary as paid (2 months worth), not total theoretical annual salary so there's no pressing need to put in more than needed to max the match. They match 100% up to 3k, then 50% up to 18k (9k total match). I'd literally have to set my 401k contribution to 100% for two months to reach that so maybe I'll just aim for the free 3k.
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Oct 21, 2015 22:23
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Get a second job to survive off of you lazy democrat, then quit at the first of the year.
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Oct 21, 2015 22:26
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Illusive gently caress Man posted:i just started at a company with a pretty generous 401k match. Am I correct that the only way to get the full match in 2015 is to set my 401k paycheck deduction real fuckin high for the last two months of the year? I'd like to do this, but I also want to eat / pay rent so idk.
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Oct 21, 2015 22:33
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Last year I suddenly noticed that I could effectively reduce my tax bill by 3k by maxing out my 401k contribution... Around this time of year in fact. So yeah, I was eating rice and beans for a couple months to get that maxed out. This year I might actually have a giant paycheck in December because all of my contributions will cap out before then.
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Oct 21, 2015 22:36
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theoretically, I have enough in the bank to pay the next two months rent, work provides breakfast/lunch/dinner during the week. I could probably keep spending down to like 2-4k on the credit card for beer/weekend food/christmas poo poo over two months and pay it off by mid february. That would be what? like under $100 of interest? Probably worth it for another 6k match. I was kinda looking forward to buying a bunch of poo poo now though.Cicero posted:Does your company's name start with a G? Because if they're the company I'm thinking of then yes to get the full match you better start eating rice and beans. This year not only am I maxing out the regular 401k match, but I also started maxing out the after-tax 401k contributions in September so now my paychecks are tiny, and I'm selling stock in taxable accounts to pay bills. Yeah it's google. gonna examine my budge and see how feasible it is. Illusive Fuck Man fucked around with this message at 22:42 on Oct 21, 2015 |
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Oct 21, 2015 22:38
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Illusive gently caress Man posted:theoretically, I have enough in the bank to pay the next two months rent, work provides breakfast/lunch/dinner during the week. I could probably keep spending down to like 2-4k on the credit card for beer/weekend food/christmas poo poo over two months and pay it off by mid february. That would be what? like under $100 of interest? Probably worth it for another 6k match. I was kinda looking forward to buying a bunch of poo poo now though. Raid the family Thanksgiving leftovers shamelessly. This is a great time of year to be eating rice and beans most days anyway. Match is free money, it may seem like a hassle but if you can do it you will look back later and it will have been well worth it.
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Oct 21, 2015 22:53
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Also keep in mind that you're gaining space in your tax shelter that you can't ever catch up on. The more money you can cram into your 401k, the more money you have available to make tax-inefficient investments. Further, if Google has good 401k investment options (think vanguard institutional funds, microscopic ERs) you'll actually want to use their funds vs having your money in an IRA.
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Oct 21, 2015 22:58
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Illusive gently caress Man: Autosale enrollment opens next week. It's only open once a year so get in while you can. Otherwise it's annoying to deal with trading windows. You likely got a signing bonus right? Just pay the bills with that!  Dessert Rose posted:Further, if Google has good 401k investment options (think vanguard institutional funds, microscopic ERs) you'll actually want to use their funds vs having your money in an IRA.
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Oct 21, 2015 23:03
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I was going to say that that's a silly idea but holy gently caress that 401k match :O
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Oct 21, 2015 23:26
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totalnewbie posted:I was going to say that that's a silly idea but holy gently caress that 401k match :O My employer is moving to a full 50% match next year too, which is a nice free 6k/yr raise as far as I'm concerned.
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Oct 21, 2015 23:40
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