GoneSailing

Conversely, if you live in a high tax state (while employed) but plan on retiring in a low/zero tax state, sheltering your retirement account in a tax-deferred account makes sense for some. Add that to the list of reasons there is no "one size fits all" for our pilot group.

herewego

When you realize that you have enough invested that your tax rate will be higher when you start withdrawing than if you do the conversion now. It could be because you've saved up lots so your RMD will put you in a high bracket, or the fear that candidates plans for taxing only the tippy top are unrealistic and you will be considered one of those who needs to be taxed to pay for everyone else.

DWC CAP10 USAF

I guess a better way to ask is this: does it makes sense for a person(new hire to year 3'ish) who is not reaching the $19.5k employee limit and/or not maxing out the $6k IRA contributions to be doing either a back door coversion or a mega back door, or generally speaking should one first hit those metrics before worrying about the back door strategies (so to speak)?

captkdobbs

There’s no need to do the back door stuff until you hit the limits. Until then, you can do regular Roth contributions.

higney85

There are many, very, wrong things in the last 5 pages. The initial discussions of a 401K rollover, backdoor roth, mega roth, have many legit points, but there is soo much garbage in this thread that I want to clearly state- talk to your financial planner, and hope he/she/it/them are fiduciaries. What started as a simple question, with a few options, is now 5 pages with many huge errors, after my initial reply.

Redbird611

My strategy prior to Delta was to take advantage of Roth options while in low income tax brackets. I did Roth 401k & Roth IRA and maxed both at Delta until I made too much to contribute to Roth IRA. I then began backdoor Roth IRA routine to continue to contribute. I had no traditional IRAs so no pro-rata rule to worry about. I switched to traditional 401k when I unexpectedly reached the 35% tax bracket, but will likely switch back. If I don’t my ratio of Roth to tax-deferred money will shrink rapidly due to traditional 401k and company contributions significantly outweighing my backdoor Roth IRA contribution every year.

For someone wanting to increase their Roth ratio, the early invest Mega backdoor routine allows maximum after-tax savings by rushing your 401a after-tax contributions to the 415c limit before the company contributes much traditional DC. Another Mega backdoor use is filling up to the 415c limit if your max 401k (Roth or traditional) plus company DC won’t fill it up. If you aren’t filling up your 401k and backdoor Roth IRA maximums this is probably a moot point. Reaching the 415c limit wouldn’t be the trigger to start a Mega backdoor strategy, but reaching your 401k limit could be.

Some also use the Mega backdoor with the goal of getting money out of Fidelity. There are good reasons to do that and good reasons not to. In short, the backdoor Roth IRA is appropriate when you income out of traditional IRA deduction and normal Roth IRA contributions. The Mega backdoor timing depends on overall financial strategy, and could be appropriate immediately or not at all.

GogglesPisano

Speaking of backdoor Roth. If your spouse doesn't work, can you set up an IRA/Back Door Roth for her in addition to one for yourself?

Hossharris

YES! You can.

BeechPilot33

It makes sense to try and put as much as the 57k as you can in roth 401k early in your career. As you get into your peak earning years it makes more sense to do traditional or a bigger balance towards traditional. Especially if your after retirement income is lower than your peak earning years, which for most people will be true.

Remember, a traditional skims your taxes off the top while you are working. So it could drop you into a lower tax bracket. In retirement it fills the bucket from the bottom. In other words you pay less on the top tax bracket while working and when your retired it won't reach those higher brackets because you can throttle how much you take out. A caveat is if you have significant income after retirement that fills those bottom buckets for you like a side biz or high earning spouse that is still working.

GogglesPisano

Exactly. 401a while lower income. Traditional while higher income. For most legacy CA's it is highly unlikely their income will be higher in retirement.