tennisguru

Boy this is the truth with this job. Rough math puts me at over 100k going into tax-advantaged vehicles every year for the rest of my career. Max out my and wife’s 401ks, + 50k company DC, + 2 backdoor Roth IRAs, + 8k HSA. All of that will be millions of dollars at retirement. And really other than the IRAs I don’t really feel the money loss since everything else comes out of my paycheck or is from the company. That’s one reason I’ve gotten away from doing straight budgets because I know that money in my bank account is already after a significant amount of savings, and even then we done spend all our take home pay each month so savings are still going into other buckets for extra investing or big future purchases.

LeineLodge

That was sort of the genesis of this thread. Once doing all of that stuff, what’s the next logical step, given the great likelihood that it’s my kids that will be the beneficiaries.

Higney’s “why” question is apt. Barring wanting to spend a lot more money every year - we don’t - it comes down to where is the most appropriate place to put excess savings.

I’m sure there are 17k different answers to this question but most will fall into 3 buckets:

1. Don’t quite have this ”problem” yet, still building up savings, paying off house, whatever. Not yet saving beyond the buckets tennis mentions above. Still pretty awesome compared to most other jobs.

2. Do have this “problem” but have a use in mind for the excess, thus not wanting it all locked away in retirement accounts. Willing to trade some tax efficiency for access to the capital.

3. No specific need in the foreseeable future for the excess, combined with a wide(ning) delta between income/expenses. All other things being equal why not save in the most efficient way possible. I think the mega has some potential utility in this specific case.

Realistically #3’s could get another ~$60k extra into Delta sheltered accounts if you want to. Those saving a lot more annually might preference this. Others might split the baby and not go so hardcore.

To bring it all the way back around, it only applies to pilots in the #3 case above that are weighing 401a-to-Roth vs Brokerage (both will be taxed this year) and consider the savings otherwise equal, either due to proximity to retirement (50+) or confidence that they have enough other liquid $ to not need the Roth money until retirement. Or at least 5 years when you can pull out converted contributions.

It’s avoiding tax on capital gains by trading some liquidity for 5 years. True first world problem.

Planetrain

If a lot of that earmarked money for person #3 ultimately will go to their heirs, isn’t the brokerage account financially equal considering the heir gets a stepped up basis, negating significant capital gains?

I swing towards brokerage option due to lack of complexity, access to the money for purchases/opportunities/bailouts/security/black swans/etc between now and retirement, and the fear Roth money will be a tax-free promise for an ultimately narrow audience. Eventually Congress will figure a way to pull the football so-to-speak, and penalize high net worth Roth holders either through Medicare premium hikes, plus-ups like the Obamacare tax, investment taxes, etc. Maybe not in the next few years, but I fear it will catch up eventually. Kinda like the uncomfortableness of lower AMD thresholds being a $cary threat on the horizon of a Biden-led reelection.

higney85

A brokerage acct can have many positive benefits. Yes, you can use it now, yes it’s better on taxes, and when you pass your heirs get a reset on the basis. Big part of estate planning is determining how your assets will transfer and to who, while avoiding probate with a trust. That IRA/401K could be a tax headache to adult kids but could be a godsend to young kids. That Roth IRA can be awesome to adult kids. The brokerage acct is an amazing tool for leaving a legacy without saddling someone with a tax bill.

Hossharris

to be fair … a tax bill that they also get a big bucket of money to pay ….

throw me in that briar patch

higney85

I saw your response this morning and thought about it later. I hate to be a broken record but the "why" keeps screaming. From an estate planning view, once you and your spouse (if applicable) are gone... you don't want to see probate from the grave. All love is lost to attorneys. At the same time, things can take some simple structure while alive to not only avoid probate, but pass on assets to those you love, in many cases spanning generations. How it's structured can pass more on to those who will either see an end return, or have a bigger tax bill only by your actions. That's part of estate planning and creating a team of a CPA, estate attorney, and CFP/CFA to make sure it all works to your desires and wishes. The IRS is like a pilot in the sense of "but did they"; stay within the laws (not saying anyone is skirting them) to create an EFFICIENT transfer of wealth. If over age 50-55, you should have a team, imho.

back to the original topic, that was pages ago- anything invested outside of a tax deferred account max (401k, IRA- if under income limits-, HSA, MBCBP) is after tax, including a brokerage. Yes, a brokerage is more tax advantaged, yes- personally I/we (spouse) use the brokerage acct investment for overall growth... but it's still taxable income that (likely in the realms we are discussing) will be subject to future tax. The question becomes WHY are you wanting to do the Mega back door with 401A? It's taxed now (like anything you would do outside a taxable acct, sourced from after tax dollars) but grows tax free....vs NOT loading up the 401K with an extra few tens of thousands to use for what? If saving for retirement, it's the best, but what if your savings plan has other ideas before 59.5? Needs before retirement? Stability before retirement? Income before retirement? Health issues that lean on being "done" before 65 (you or spouse)? Desire to just call in and say "I'm done" early?

The Mega is absolutely amazing in the terms of paying tax now and growth is free. It's still after tax money to start. Sure, you can load up the traditional 401k and take the 23k deduction, but that becomes future tax/RMD. You can max out everything possible for retirement but want to walk away at 55 and see a tax and penalty wall. The balance of "how" each dollar is used joins into you and your spouse's (if applicable goals) tied into income needs and desires, based on what will be available (pensions/SS/annuities/nheritance). Personally, the retirement of my wife and I will be on my savings, she's a stay at home mom with our young kids. I believe SS will means test out and it's our dollars, that may be a political stance, but that's my play, in addition to taxes going back up and rising further.

Things are currently structured with that mindset. If SS exists, I'll still buy the beer on the 19th if you beat me at this point without regard for getting SS dollars. Why? Because we made a plan. I'm not better than anyone, but a plan was made, and is being executed, with the "why " for dollars in place. Options aren't a problem, but lack of plan to a "why" can sink anyone's future. Uncle Sam will be there to get the pieces missed.

max8222

A pilot at the majors that has a family should have a family Trust set up. Most assets should be in the trust for a smooth transition when the time comes plus having your major assets in the trust limits your liabilities in the event some one tries to sue you.

I am not an attorney so you should consult a Trust attorney. Hopefully your union has setup a legal firm that you pay a small monthly fee. A solid trust can cost over $4K. If you have a legal plan at work only about $20 a month.

Planetrain

I’m of the opinion the usefulness of a trust varies state to state and depends on the complexity of assets and heirs. If you have property in multiple states, a Brady bunch collection of kids, heirs that will fight, heavily specific itemized bequeaths, or live in California… than yes a trust helps.

OTOH, property held in joint tenancy goes to the other person, retirement and life insurance goes to the beneficiaries. In some states, probate isn’t so bad.

Company gives us free will preparation through Hyatt Legal Services. I would go talk to them first, and see if the trust upsell is worth it.

higney85

There is a family trust, but a revocable living trust can do the same with more tax efficiency for a married couple. A family trust can become irrevocable and taxed as ordinary income, where the revocable living trust is still under your tax return (until both named pass). When creating generational wealth and things in perpetuity a family trust can make sense. I'm also not an attorney.

But for DL pilots, we do have free access to Hyatt legal for will and legal document use. You can search on DLnet for Hyatt legal (By MetLife) or look in Aerodocs->ALPA-> new hires-> retirement and insurance presentation. Page 12. That's the phone number and code needed. It's located other places but those are 2 ways to get the needed info. You can call Hyatt legal, tell them you are a DL pilot, they will verify your address and send you an email with all the estate planning attorneys in your area that accept their services along with billing codes for them to use. Call around from the list (or see if a referral happens to be on the list) and call them up with the provided codes.

You can set up/update a Will, power of attorney, healthcare directive, and revocable living trust. I've used it a few times at this point (each new kiddo and each house move) and only had to pay the few bucks for county clerk fees with moving my house in/out of the trust (want to say it was like $9 or $12 each time). The rest of the cost is covered. My guy said it was worth an easy $4-5k had I paid out of pocket and not through the legal plan.

notEnuf

You are very generous is all I can say. Our philosophies differ so I'll make a quick point. I will get as close to spending all of my "millions" BEFORE I go in an attempt to extract joy from my success. My children are and will be educated enough to figure it out like I did. That is my contribution or legacy if you like. Self reliance. If there is money left it's likely I won't decide anything. Statistically my wife will out live me by several years. Also, in her advanced years one or more of our children will likely step in to assist and they will be rewarded as she sees fit. The ones unable to assist will be deadbeats or too succesful to commit time to her. Lastly, taxes defererred at death is a win. Why would I pay taxes now that are not due? Things will change in the future and it's likeley these are my high income years. Our Uncle Sam will come up with more ways to extract money from the dead and the successful living.