Originally Posted by StartngOvr
(Post 3178031)
First year I am eligible for the catch-up contribution. Looking over my contribution elections, it appears it is not possible to make the catch-up contribution to the 401(a) after tax bucket. Looks like only choices are 401(k) pre-tax or Roth 401(k). Anyone else seen this? Suggestions?
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Originally Posted by StartngOvr
(Post 3178031)
First year I am eligible for the catch-up contribution. Looking over my contribution elections, it appears it is not possible to make the catch-up contribution to the 401(a) after tax bucket. Looks like only choices are 401(k) pre-tax or Roth 401(k). Anyone else seen this? Suggestions?
I have not used the 401k side or catch up contributions at Delta. Please get a real answer from Fidelity. *DYODD, YMMV, objects in mirror... |
Originally Posted by Gunfighter
(Post 3178099)
The catch up contributions are only for IRA and 401k accounts, so your catch up would have to go in the 401k. The 401a side is generally viewed as the vehicle for Mega Back door Roth. You may have to contribute 19,500 on the 401k side before you are eligible for the catch up. Please get real advice from a professional or at least call the Delta Netbenefits group at Fidelity to discuss the specifics.
I have not used the 401k side or catch up contributions at Delta. Please get a real answer from Fidelity. *DYODD, YMMV, objects in mirror... |
Just a general question about the “mega-back door Roth conversion”:
For those of you who are converting 5 figures a year into a Roth, I would think that you are currently in the highest tax bracket that you will see in your life. Why pay taxes on those dollars at your highest rate now when retirement income will almost certainly put you in a lower bracket? Is it because you anticipate tax rates increasing in general in the future? What am I missing? |
Originally Posted by Forgotmyhat
(Post 3178188)
Just a general question about the “mega-back door Roth conversion”:
For those of you who are converting 5 figures a year into a Roth, I would think that you are currently in the highest tax bracket that you will see in your life. Why pay taxes on those dollars at your highest rate now when retirement income will almost certainly put you in a lower bracket? Is it because you anticipate tax rates increasing in general in the future? What am I missing? |
Originally Posted by Forgotmyhat
(Post 3178188)
Just a general question about the “mega-back door Roth conversion”:
For those of you who are converting 5 figures a year into a Roth, I would think that you are currently in the highest tax bracket that you will see in your life. Why pay taxes on those dollars at your highest rate now when retirement income will almost certainly put you in a lower bracket? Is it because you anticipate tax rates increasing in general in the future? What am I missing? I use a rule of thumb that money invested in a generalized, diversified portfolio will double every 10 years (the average is actually closer to every 8 years, but it makes the math easy to say 10) If you have 10 years to grow that money, you can expect your money to be worth 2x what it is now. 20 years, 4x. 30 years, 8x. So say I have $10,000 to invest, I have 20 years until retirement, and I'm currently in the highest tax bracket (37%) and plan on retiring into a moderate one (24%). - Put it in a traditional: I pay nothing in taxes now. When I retire, that money is worth $40,000. At a that time, I start taking withdrawals on it, 4% ($1600) at a time. I'll pay $384/yr in taxes on that money into perpetuity, and I end up with $1216/yr to use. - Put it in a Roth: I pay $3700 in taxes now out of pocket. At retirement, it's still worth $40,000, but now when I take my withdrawals, I have all $1600 to use, and it'll take less than 10 years for it to pay for itself. I never pay taxes on the extra $30,000. The lower the differential on tax brackets or the more the money grows, the faster it pays for itself. Not to mention the other benefits such as the lack of a RMD and the fact that you can take out contributions from a Roth IRA penalty free at any time. EDIT: Real world example. My wife and I are about to convert her last job's 401(k) to her Roth IRA, about $53,000. We'll pay about $12,700 on taxes on it this year, but in the 30 years until we retire, it'll grow to $425k+. At a 4% withdrawal rate and the same tax bracket, it'd only take about 3 years to pay for itself. |
Originally Posted by Forgotmyhat
(Post 3178188)
Just a general question about the “mega-back door Roth conversion”:
Is it because you anticipate tax rates increasing in general in the future? What am I missing? Are some on these forums 1%ers? from the annual W2 thread the answer appears to be yes. As a regional guy my answer is an emphatic no, but I have invested and will live a pretty decent life off those investments in retirement.... if the tax man doesn't take half away. |
Originally Posted by PilotWombat
(Post 3178197)
Growth.
I use a rule of thumb that money invested in a generalized, diversified portfolio will double every 10 years (the average is actually closer to every 8 years, but it makes the math easy to say 10) If you have 10 years to grow that money, you can expect your money to be worth 2x what it is now. 20 years, 4x. 30 years, 8x. So say I have $10,000 to invest, I have 20 years until retirement, and I'm currently in the highest tax bracket (37%) and plan on retiring into a moderate one (24%). - Put it in a traditional: I pay nothing in taxes now. When I retire, that money is worth $40,000. At a that time, I start taking withdrawals on it, 4% ($1600) at a time. I'll pay $384/yr in taxes on that money into perpetuity, and I end up with $1216/yr to use. - Put it in a Roth: I pay $3700 in taxes now out of pocket. At retirement, it's still worth $40,000, but now when I take my withdrawals, I have all $1600 to use, and it'll take less than 10 years for it to pay for itself. I never pay taxes on the extra $30,000. The lower the differential on tax brackets or the more the money grows, the faster it pays for itself. Not to mention the other benefits such as the lack of a RMD and the fact that you can take out contributions from a Roth IRA penalty free at any time. EDIT: Real world example. My wife and I are about to convert her last job's 401(k) to her Roth IRA, about $53,000. We'll pay about $12,700 on taxes on it this year, but in the 30 years until we retire, it'll grow to $425k+. At a 4% withdrawal rate and the same tax bracket, it'd only take about 3 years to pay for itself. 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. |
Originally Posted by Forgotmyhat
(Post 3178229)
. 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. The trick is to Invest the 37% pretax savings, but withdraw taxable money from that or the company contribution funds taxable only to a 24% tax bracket, the take any remaining spending needs from tax free Roth money. |
Originally Posted by Forgotmyhat
(Post 3178188)
Just a general question about the “mega-back door Roth conversion”:
For those of you who are converting 5 figures a year into a Roth, I would think that you are currently in the highest tax bracket that you will see in your life. Why pay taxes on those dollars at your highest rate now when retirement income will almost certainly put you in a lower bracket? Is it because you anticipate tax rates increasing in general in the future? What am I missing? Even with that benefit gone, there are many who expect the same or higher tax bracket in retirement. 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. |
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