Originally Posted by
Gunfighter
The advantages are highly dependent on your personal financial situation. DO NOT try this based on reading a few APC posts. At a minimum, spend a couple hours on Bing/Google looking at Backdoor Roth and Mega Backdoor Roth. It is also worth a trip over to the lawyer version of APC
https://www.biglawinvestor.com/. It is a forum where highly compensated professionals (lawyers) discuss investing and finances.
My primary purpose is for estate planning, not retirement planning. A Roth account does not have a required minimum distribution like a traditional account does, therefore it is one of the vehicles I'm using for estate transfer. A secondary purpose is for income splitting, so I can access retirement funds without increasing my taxable income via 401K withdrawals. I'm expecting a higher tax bracket in retirement, due to my "side hustle", therefore Roth is advantageous.
I set my deductions set to take 75% of pay into a 401a after tax account until my contribution plus the company 16% hits my 415C annual limit. Every pay cycle, I call Fidelity and move the money from the 401a, into my Roth IRA. It doesn't take long to hit the limit with a good PS check on 2/14. After the 415C limit, the company 16% is paid out as DPSP cash, since they can't contribute into my retirement account. At the point I've hit the 415C limits, I fund a Traditional IRA, convert it to a Roth(currently $5,500) and max out my HSA.
I've placed a high priority on Roth funds, so my approach is fairly aggressive. It also results in no take home pay for the first few months of the year. It can be done in a more balanced manner throughout the year with more of the company 16% flowing into the pretax portion of the 415C limit vs DPSP cash.
DYODD and get real advice from several other sources.
This is a good explanation of the process. I’ve been doing this for years on a much less aggressive basis, generally shooting to have a 50:50 ratio of Traditional:Roth money.
The DPSP is unique from many other 401k plans out there, in that Delta contributes a very high % (relative to other US employers), which if done over decades will result in a high balance of traditional (pre-tax) retirement money.
Having a mix of pre-tax and Roth money in retirement, not only lowers your mandatory retirement income due to Required Minimum Distributions at age 70.5, it allows you to manage your tax bracket better by having access to Roth $ for spending (which is after tax and won’t bump you into a higher tax bracket in retirement.)
All of the above theory is based on the un-knowable future wrt tax brackets, politics, national debt (although we do know which way it’s trending), the viability of SS, etc. Given that there is no right answer, I’ve chosen a balanced approach. That may not be the right play for everyone - DYODD.