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Jeffrey of YOSPOS posted:I can do this but I'm not sure if it's worth it. 35k/year is a lot of post-tax money to tie up until I'm 60. Maybe it's worth it even if you take the penalty, but there's no matching for me on the 35k portion at least. At some point I gotta decide how much of my retirement savings should be in taxable accounts simply because I intend to retire early, and I feel like 35k post tax and 18k pre-tax (plus ~7k in HSA and trad IRA) is too heavy on the not-until-60 side. As long as you're not withdrawing post-conversion earnings from a Roth IRA there are very minimal penalties. Withdrawals from a Roth IRA aren't problematic and there's a reason people use Roth ladders to get money out of their pre-tax 401k's before retirement. There are basically four categories of money inside a Roth IRA, and they're all treated differently: 1) Contributions 2) Taxable Conversions (when you convert a pre-tax 401(k) into a Roth IRA, or when you convert earnings in an after-tax traditonal 401(k) into a Roth IRA) 3) Non-taxable conversions (if you roll basis into it from a non-deductible IRA or after-tax 401(k)) 4) Earnings https://www.irs.gov/publications/p590b/ch02.html#en_US_2015_publink1000231071 The short of it is that, unless you are also performing taxable conversions, the money converted through the mega backdoor Roth can be taken out with negligible penalties instantly. Unless you actually need access to the earnings, not just your contributions, before you're 60 then (under the current rules) there's no downside to it. As a quick walkthrough, say you contributed $100 to your after-tax 401(k) and it grew to $110. Then you converted that entire $110 into a Roth IRA. As part of the conversion you pay income tax on that $10 of earnings before the conversion, and that counts as the taxable portion of the conversion. Now if you withdraw that $110 from the Roth IRA (assuming it was empty before you did this), you'd withdraw the $10 first and pay a 10% ($1) penalty on it, then withdraw the $100 tax and penalty free. If you wait five years after that particular conversion from 401(k) to Roth IRA to withdraw it then the $10 would come out penalty free. It's only earnings that you need to be at least 60 (and the Roth IRA at least 5 years old) to withdraw.
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Apr 3, 2016 22:08
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| # ¿ May 16, 2024 12:25 |
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