Questions for you Mega-Backdoor Roth'ers...
01-05-2021, 06:06 PM
#171
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Joined APC: Apr 2020
Posts: 287
Originally Posted by Gunfighter
Also, if you can save more for retirement than what is currently allowed in tax advantaged accounts, the Roth essentially allows you to prepay taxes and have more spendable income in retirement.
1 million in a Roth = 1 million spendable dollars
1 million in a traditional = 1 million - income taxes or about 630,000.
If you can pay the taxes on the contribution now, you wont be paying them from your retirement fund.
For pilots (and those with equivalent career earnings) I would understand the back door Roth strategy if you think that tax rates will increase in the future...for whatever reason. But barring this, you will be taxed at your maximum life tax bracket.
Of course I maxed out my Roth when I was in the military at a VERY low tax rate (some years under 3% effective), knowing that in retirement I would likely be in a higher bracket. But now as a high-earner, I can’t make the math work to convert at this point in my career. Just doesn’t add up to me.
01-05-2021, 06:11 PM
#172
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Joined APC: Sep 2008
Position: B767
Posts: 1,901
Originally Posted by Forgotmyhat
I get this, but in order to get that $1M into a Roth, it costs something...$370k. That’s money that you don’t get to spend or better yet invest...it’s gone.
For pilots (and those with equivalent career earnings) I would understand the back door Roth strategy if you think that tax rates will increase in the future...for whatever reason. But barring this, you will be taxed at your maximum life tax bracket.
Of course I maxed out my Roth when I was in the military at a VERY low tax rate (some years under 3% effective), knowing that in retirement I would likely be in a higher bracket. But now as a high-earner, I can’t make the math work to convert at this point in my career. Just doesn’t add up to me.
For pilots (and those with equivalent career earnings) I would understand the back door Roth strategy if you think that tax rates will increase in the future...for whatever reason. But barring this, you will be taxed at your maximum life tax bracket.
Of course I maxed out my Roth when I was in the military at a VERY low tax rate (some years under 3% effective), knowing that in retirement I would likely be in a higher bracket. But now as a high-earner, I can’t make the math work to convert at this point in my career. Just doesn’t add up to me.
01-05-2021, 06:21 PM
#174
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Joined APC: Jun 2019
Position: Currently freeloading
Posts: 524
Originally Posted by Forgotmyhat
Awesome, thank you for the detailed response. A follow-on question: you say you would pay $3700 in taxes by converting it, but that would leave only $6300 to invest...making just $25200 at retirement. I know you said you would pay the $3700 out of pocket, but either way, that $3700 is now unable to be invested and you miss out on future growth. Therefore, the time to re-coupe must also account for 20 years worth of growth on that $3700, no?
Not trying to get into a ****ing contest or argument, just making sure I’m covering all the bases.
Not trying to get into a ****ing contest or argument, just making sure I’m covering all the bases.
01-05-2021, 06:25 PM
#175
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Joined APC: Apr 2020
Posts: 287
Originally Posted by PilotWombat
Eh...I've heard that argument and I don't buy it. If you are low to middle class and are truly limited in the amount of money you have to play with (say, $1000 in a year), then that's a realistic way to look at it. Or, alternatively, if you truly plan on living like a pauper and investing every cent you earn that isn't taken by the government, then sure. But let's be honest...the very fact that we are talking about maximizing IRA/401(k) contributions and doing backdoor or mega backdoor roths proves we can afford to have our cake and eat it too. Unless you have 3 ex wives (or just being obstinate), each of us could pay that $3700 and hardly notice it being gone.
And it doesn’t matter how you pay the tax; either deducted from the converted funds or out of pocket, that money is gone...today. Never getting a chance to grow.
01-05-2021, 06:41 PM
#178
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Joined APC: Jun 2019
Position: Currently freeloading
Posts: 524
Originally Posted by herewego
Are some on these forums 1%ers? from the annual W2 thread the answer appears to be yes.
01-05-2021, 06:41 PM
#179
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Joined APC: Apr 2020
Posts: 287
Originally Posted by PilotWombat
IF you actually invest it. Would you? Maybe, but I expect you'd be in the minority.
01-05-2021, 06:57 PM
#180
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Joined APC: Jun 2019
Position: Currently freeloading
Posts: 524
Originally Posted by Forgotmyhat
Doesn’t matter. The money just went to Uncle Sam. You don’t even get the choice. The only sure thing is that it isn’t in your pocket or invested. Had you not made the conversion, that money would still be in your deferred account, growing.
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