Airline Pilot Central Forums

Airline Pilot Central Forums (https://www.airlinepilotforums.com/)
-   Delta (https://www.airlinepilotforums.com/delta/)
-   -   Questions for you Mega-Backdoor Roth'ers... (https://www.airlinepilotforums.com/delta/114709-questions-you-mega-backdoor-rothers.html)

gliderguider 07-01-2018 12:14 PM

One more dumb question. When you change your traditional contributions to Roth, does Fidelity break down the difference w pre-tax vs Roth contributions? The money all grows, but big difference at the end w RMD’s etc. Just wondering how it is accounted for.

tunes 07-01-2018 12:35 PM


Originally Posted by gliderguider (Post 2625648)
One more dumb question. When you change your traditional contributions to Roth, does Fidelity break down the difference w pre-tax vs Roth contributions? The money all grows, but big difference at the end w RMD’s etc. Just wondering how it is accounted for.



Yes they do. I have an overall 401k balance and can expand it to see a traditional and a Roth balance.


Sent from my iPhone using Tapatalk

TED74 07-01-2018 01:23 PM


Originally Posted by tennisguru (Post 2625603)
Another way to look at it is that you're effectively investing more with your ROTH than with a traditional, assuming you're putting in the max 18.5k either way. With a traditional, when you factor in taxes, you're really only investing ~12k for yourself in the future. 18.5k put into a ROTH is as if you were investing ~24k into a traditional since the whole 18.5k is yours for the future.

If you actually want to compare apples to apples on the two returns, you have to compare investing 24k in both scenarios since that's what an even comparison would cost you now. 24k results in 18.5 of Roth investment and the rest is gone to Uncle Sam. 24k invested into traditional yields 18k of pre-tax and 4k of post-tax (2k taxes paid now).

To make an actual comparison, you then also need to know what your tax rates will be in perpetuity. Since that's not possible, plenty of people (myself included) value diversified income streams approaching and into retirement.

Gunfighter 07-01-2018 02:46 PM

There are several points to ponder regarding Roth vs Traditional.

-With a Roth you are effectively investing more for retirement, because the taxes are pre-paid. As Ted74 pointed out, 18k into a Roth is equivalent to 24k in a Traditional assuming equal income tax burdens now and at retirement.

-Roth IRA does not have a required minimum distribution (RMD), which provides flexibility in timing your withdrawals.

-Roth IRA is a better estate planning tool due to the lack of RMD.

-Having a mix between Roth and Traditional allows you to steadily withdraw from the traditional, but still take a boatload (or truck load, plane load, Porsche load, etc) all in one year without bumping up your tax bracket.

-If you expect your tax bracket will be substantially lower in retirement, a Roth may not be an ideal choice. This is often the case for those nearing retirement.

-Instead of paying the taxes up front on a Roth, it may make more sense to defer 18K in a traditional plan and invest the 6K tax savings elsewhere, like real estate, low turnover mutual fund, rare whiskey, antique guitars, collectible cars, etc.

-Like many things in life, just because you can (do a Roth), doesn't mean you should.

Phuz 07-01-2018 02:54 PM


Originally Posted by Gunfighter (Post 2625690)
There are several points to ponder regarding Roth vs Traditional.

-With a Roth you are effectively investing more for retirement, because the taxes are pre-paid. As Ted74 pointed out, 18k into a Roth is equivalent to 24k in a Traditional assuming equal income tax burdens now and at retirement.

-Roth IRA does not have a required minimum distribution (RMD), which provides flexibility in timing your withdrawals.

-Roth IRA is a better estate planning tool due to the lack of RMD.

-Having a mix between Roth and Traditional allows you to steadily withdraw from the traditional, but still take a boatload (or truck load, plane load, Porsche load, etc) all in one year without bumping up your tax bracket.

-If you expect your tax bracket will be substantially lower in retirement, a Roth may not be an ideal choice. This is often the case for those nearing retirement.

-Instead of paying the taxes up front on a Roth, it may make more sense to defer 18K in a traditional plan and invest the 6K tax savings elsewhere, like real estate, low turnover mutual fund, rare whiskey, antique guitars, collectible cars, etc.

-Like many things in life, just because you can (do a Roth), doesn't mean you should.

Agreed. Traditional accounts can make much more sense for people focused on early retirement. The Mega Backdoor Roth is an exotic product, but that doesn't mean it's best for every situation.

mispoken 07-01-2018 03:22 PM

Reasons I choose Roth vs Traditional

1- Company already makes contributions to my 401k. They will be subject to RMDs and taxes eventually.

2- Roth accounts aren’t subject to the government telling me when I must withdraw the funds (no RMDs). This will work well with my company contributions that will eventually be subject to RMDs.

3- “Tax insurance”. While my income and expenses will probably be lower on retirement, I’m GUESSING that tax rates will be much higher in 30 years. Assuming Roth rules remain in tact, they will be shielded from those higher tax rates. In theory.

That being said there is some validity to the “bird in the hand” argument. The tax advantages we can have today are real, future tax advantages are subject to the whims of the gutterment.

GogglesPisano 07-01-2018 03:29 PM

If you're making $300K+/yr right now as a line pilot ...

...how on God's green earth can your tax bracket (ie: income) be higher when you retire and your income is nothing ore than 401k withdrawals (and maybe SS)?

What am I missing?

tennisguru 07-01-2018 04:23 PM


Originally Posted by GogglesPisano (Post 2625713)
If you're making $300K+/yr right now as a line pilot ...

...how on God's green earth can your tax bracket (ie: income) be higher when you retire and your income is nothing ore than 401k withdrawals (and maybe SS)?

What am I missing?

Because while you are paying a higher rate now, it is on a much smaller sum of money. After 20-30 years of steady investing the vast majority of money in your account will be growth, not what you actually put in. All that growth money is tax free at a cost of paying taxes on a much smaller amount up front.

Schwanker 07-01-2018 04:35 PM


Originally Posted by tennisguru (Post 2625741)
Because while you are paying a higher rate now, it is on a much smaller sum of money. After 20-30 years of steady investing the vast majority of money in your account will be growth, not what you actually put in. All that growth money is tax free at a cost of paying taxes on a much smaller amount up front.

It’s a wash. Take the hypothetical 10 bagger over 25 years assuming a 30% tax rate on $100,000.



Non Roth
100,000 x 10 = 1M x .7 = $700,000

Roth
100,000 x .7 x 10 = $700,000

Either leaves you with the same $700,000 at the end of the day. A 30% hit to the whole enchilada one way or the other.

m3113n1a1 07-01-2018 04:52 PM

Can your individual contribution be up to 55k as 401a vs the 18.5k individual limit with 401k and Roth 401k contributions?


All times are GMT -8. The time now is 10:00 AM.


User Alert System provided by Advanced User Tagging v3.3.0 (Lite) - vBulletin Mods & Addons Copyright © 2024 DragonByte Technologies Ltd.
Website Copyright ©2000 - 2017 MH Sub I, LLC dba Internet Brands