posted by Laley23Maybe I am thinking of someone else, but don't you make over $150k as a couple? How TF can you still contribute to your Roth?
It’s post tax money, not pretax like 401k.
I’m not going to pretend like I know enough, the same website that handles our company’s 401k has an option for me to contribute the $7000 or whatever post tax,
posted by j_crazyonly on the gains, not the principal. if you don't invest it when you deposit it, no taxes because no gains.
*this is not financial advice, i may be committing tax fraud and don't know it.
It looks like you’re doing a backdoor IRA.
I need to learn myself more of this. I’m over the limit for a Roth, but I think this could be an option.
posted by jmogIt’s post tax money, not pretax like 401k.
I’m not going to pretend like I know enough, the same website that handles our company’s 401k has an option for me to contribute the $7000 or whatever post tax,
It sounds like your company offers both traditional 401k and Roth 401k. I switched over to Roth when my employer added it as an option.
posted by jmogI get that. But you are not allowed to contribute to your Roth IRA if you make too much money. We hit this limit a few yrs ago and it sucks lolIt’s post tax money, not pretax like 401k.
I’m not going to pretend like I know enough, the same website that handles our company’s 401k has an option for me to contribute the $7000 or whatever post tax,
Not really, this is the work around.
https://www.whitecoatinvestor.com/how-to-do-a-backdoor-roth-ira-with-schwab/
My MAGI is over the limit to contribute and I have zero in a Roth currently. The plan is to gradually convert my Traditional over the next few years to lesson the tax hit. Then go the backdoor route. Contribute the max to the Traditional ASAP, once January comes, and convert it immediately to minimize taxable earnings.
I thought I would need a CPA, but after a few hours of Google, reading, and ChatGPT....I figured it out.
posted by AutomatikNot really, this is the work around.
https://www.whitecoatinvestor.com/how-to-do-a-backdoor-roth-ira-with-schwab/
My MAGI is over the limit to contribute and I have zero in a Roth currently. The plan is to gradually convert my Traditional over the next few years to lesson the tax hit. Then go the backdoor route. Contribute the max to the Traditional ASAP, once January comes, and convert it immediately to minimize taxable earnings.
I thought I would need a CPA, but after a few hours of Google, reading, and ChatGPT....I figured it out.
this is what i do. i started doing it before i hired my financial advisor in Pittsburgh back in 2018, but kept doing it and didn't really think it was a big deal.
my new company offers a Roth 401k and I'm 100% funding that option now and not putting anything into the pre-tax 401k route. the thought being i can use the principal i've contributed to bridge the gap from 50 (or whenever i retire) and 59.5 when i can start drawing the gains without penalty
posted by j_crazymy new company offers a Roth 401k and I'm 100% funding that option now and not putting anything into the pre-tax 401k route. the thought being i can use the principal i've contributed to bridge the gap from 50 (or whenever i retire) and 59.5 when i can start drawing the gains without penalty
It really needs to be based on a projection of your tax rate in retirement. If that's equal or higher than your current bracket, THEN you should fund a Roth. I've done a lot of analysis on this, and for a single person IMO that max is somewhere around $500k (in order to avoid RMDs making your SS taxable, taking into account property taxes, maybe mortgage interest and other deductions). Probably double that for married couples. Although lower if your house is paid off and you have low property taxes.
There are other games you can play, like massive backdoor conversions in the years between retirement and collecting SS (but, again, IMO you max your SS if you begin taking the lower amount at 62.5 because market gains meet or exceed the higher SS you get waiting longer to take the benefit). The taxable SS is a hard trap to avoid, because cap gains will also trigger that.
My employer also offers after-tax 401k contributions. Not every plan allows this, but I then immediately roll those over into a Roth IRA tax-free. Basically, I'm saving into a Roth IRA instead of a brokerage (which is otherwise subject to cap gains tax).
I still max out my pre-tax 401k contribution because I expect to be in a lower bracket in retirement. Not sure how long they will continue to allow backdoor conversions, but my plan in retirement would be to drain my brokerage first before collecting SS, and also backdoor conversions of 401k so my distributions are small enough to offset with deductions.
This is my general rule of thumb: If you're in the lowest two tax brackets, you should fund a Roth. If you're early in your career (and making less money), you're probably better off in a Roth so it can grow. Later in your career when you're in a higher bracket, over a decade you can grow a pretty sizeable 401k with the catch-up contribution and employer match.
The middle two brackets is more of a wash. IMO, that's a bracket you'll probably find yourself if you build a decent nest egg with 401k and SS.
If you're in the top 2-3 brackets, it probably saves you in the long run to max the pre-tax contribution. If the laws don't change, you will be able to do some tax arbitrage converting that to Roth before you begin collecting SS. You can do it while collecting SS, too, but the conversion will trigger taxes on that SS and then it doesn't make a ton of sense.
posted by j_crazyopen a traditional, fund it but don't invest, convert it to roth and roll it into existing roth IRA. that's what i do every year, do it for myself and my wife.
I also do this. Wish I knew about it 10 years ago, and backdoor converted some during the pandemic when my income took a big hit.
$7k per year or whatever the limit is won't move the needle much for me inside of [hopefully] 10 years from retirement. But the cap gains savings vs. a brokerage might pay for a new car down the road.
