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Personal Finance Advice and Education! (3 Viewers)

After the market action in the jar couple weeks my investments have hit a major milestone.  Kinda of stunned it happened so quick.  I'm sure it will be fine next week, but FI is calling!

Like Oz I plan on adding 25k of Bonds for years to come to provide a good bond cushion.  Current bond choices in the market are poor - gotta be creative.  Also moving a significant chunks to crypto stablecoin places to catch 9% interest they are giving.  

ETA- 401k maximum raised to 20.5k next year.  Every bit helps.
it hit me while walking the dogs.  
If I retire at 55 and take a deferred civilian pension, I have 5 years of gap to cover not having the civilian pension. That’s roughly $1400-1700 monthly to cover. Let’s call it $20k annual. 5 years, that’s $100k. Of course the federal pension is inflation adjusted (imperfectly but it does increase with inflation), as are I bonds. Use the other $100k for down payment on a cottage (or use the VA loan and buy a boat). 
we have other investments but I bonds seem a good replacement for the pension. 
So that pretty much settles the fixed income portion of our finances and provides an adequate floor, if the house were paid off we’d be able to live quite comfortably just on the safety net. 
 

just some thoughts, not sure if this thinking helps anyone else. 

 
Apparently no post-tax dollars can be used for Roth IRA conversions regardless of income level.  Hoping this doesn't make it through
It was in, and then out, and now it's back in again.  Fingers crossed that it's removed by the Senate, otherwise all non-deductible backdoor and mega backdoor Roth conversions are outlawed effective January 1.  From what I'm told by our lobbyists here at work, these particular provisions don't raise a lot of revenue, and they aren't universally supported on the Hill.

My company literally just gave us the ability to make after-tax 401(k) contributions (up to 8% of pay) effective January 1, putting the mega backdoor Roth in play, but it'll be a moot point if these provisions don't get taken back out.  That's another $24,400 that I could get into a Roth every year, but it might be done before it even happens.

 
My wife just had a relative pass, and my mother-in-law was responsible for the estate.  The mother-in-law would like to give her $20,000 from the estate to invest for retirement.

Now, I'm an investment novice, so I'm trying to read up on how best to do this, but I'm finding myself getting a bit confused.  I decided to tap into the FBG knowledge base and see if I'm on the right track.  My thought was put 6k into a Roth IRA now (Fidelity), then invest the remaining 14k into a brokerage account, selling enough each year to get 6k to put into the Roth until I've moved it all into the Roth.  We are below the income threshold for Roth contributions, and neither of us currently have any IRA's.  We both just invest in the 401k's offered by our employers.  Our current retirement timeframe is 15 years for me, 17 years for her.

I understand that selling from the brokerage each year will initially subject me to short term capital gains taxes, but I guess I'm not sure what else to do.  We would like to invest the 20k in the most tax friendly way.

Any suggestions or information will be greatly appreciated.
One item to remember is you can contribute to a Roth up to tax day.  So you can make a 2021 contribution up to April 15, 2022 (I’d double check the exact date).  

I’d personally leave the 2022 contribution in cash and make it in 2022 as soon as you have the money. 

As a note, if you sell a security at a loss in a brokerage account you can’t buy it in a Roth IRA until 30 days later.  Wash sale rules still apply.  It is easy enough to avoid using ETFs; just buy one that’s slightly different.  

 
It was in, and then out, and now it's back in again.  Fingers crossed that it's removed by the Senate, otherwise all non-deductible backdoor and mega backdoor Roth conversions are outlawed effective January 1.  From what I'm told by our lobbyists here at work, these particular provisions don't raise a lot of revenue, and they aren't universally supported on the Hill.

My company literally just gave us the ability to make after-tax 401(k) contributions (up to 8% of pay) effective January 1, putting the mega backdoor Roth in play, but it'll be a moot point if these provisions don't get taken back out.  That's another $24,400 that I could get into a Roth every year, but it might be done before it even happens.
honestly, the back door thing is stupid to allow. Just raise the limit. More people would benefit. 

 
As a note, if you sell a security at a loss in a brokerage account you can’t buy it in a Roth IRA until 30 days later.  Wash sale rules still apply.  It is easy enough to avoid using ETFs; just buy one that’s slightly different.  
Do you, or anyone else, know just how different the equity has to be? 
I’d assume you couldn’t sell VOO and then buy IVV, but what if you sold TQQQ and bought QQQ? 

 
-OZ- said:
Do you, or anyone else, know just how different the equity has to be? 
I’d assume you couldn’t sell VOO and then buy IVV, but what if you sold TQQQ and bought QQQ? 
I've heard various claims either way on this stuff. My sense is that the IRS doesn't have precise guidance.

 
-OZ- said:
Do you, or anyone else, know just how different the equity has to be? 
I’d assume you couldn’t sell VOO and then buy IVV, but what if you sold TQQQ and bought QQQ? 
It’s a gray area as far as I know.  I agree on VOO/IVV.  Not sure on TQQQ if leverage is enough.  I would say no. But then again, what are the odds the IRS looks at it.  It really comes down to audit risk.  

 
It’s a gray area as far as I know.  I agree on VOO/IVV.  Not sure on TQQQ if leverage is enough.  I would say no. But then again, what are the odds the IRS looks at it.  It really comes down to audit risk.  


I've heard various claims either way on this stuff. My sense is that the IRS doesn't have precise guidance.
Thanks, that’s pretty much what I figured. 
i may or may not have violated the rule a decade or so ago :oldunsure:

 
It’s a gray area as far as I know.  I agree on VOO/IVV.  Not sure on TQQQ if leverage is enough.  I would say no. But then again, what are the odds the IRS looks at it.  It really comes down to audit risk.  
I would think it's a major distinction.

 
Curious to hear what non stock( typical equities at least) investments anyone is looking into to hedge against inflation kicking up.  For example I’ve started looking into tracts of farmland, alternative investments. Have only dipped my toe in crypto and am already real estate heavy. 
 

Some great info in here and informed posters, while not the exact fit for the thread if anyone has anything they are doing to protect themselves figured this is a good place to hear. 

 
Curious to hear what non stock( typical equities at least) investments anyone is looking into to hedge against inflation kicking up.  For example I’ve started looking into tracts of farmland, alternative investments. Have only dipped my toe in crypto and am already real estate heavy. 
 

Some great info in here and informed posters, while not the exact fit for the thread if anyone has anything they are doing to protect themselves figured this is a good place to hear. 


I-bonds?

 
Curious to hear what non stock( typical equities at least) investments anyone is looking into to hedge against inflation kicking up.  For example I’ve started looking into tracts of farmland, alternative investments. Have only dipped my toe in crypto and am already real estate heavy. 
 

Some great info in here and informed posters, while not the exact fit for the thread if anyone has anything they are doing to protect themselves figured this is a good place to hear. 
Yep - Ibonds and real estate are probably the best inflation tuned assets out there.  BTC might be, but it's way too new to prove.  Commodities should be, but I generally avoid that area of the market.

 
Yep - Ibonds and real estate are probably the best inflation tuned assets out there.  BTC might be, but it's way too new to prove.  Commodities should be, but I generally avoid that area of the market.
Something like VIPSX? What’s the best route to take? 

 
Something like VIPSX? What’s the best route to take? 
I know nothing on that one, sorry.  I don't know what they hold.

But, if nothing else, grab all the I-bonds you can this year, overpay your taxes by 5k and get 5k more that way, and grab as much as you can again in January.  For my wife and I that means 45k earning 5% over the next year straight from the US treasury.  Can't beat that with a stick.

 
Public Service Announcement if you don't know already.

I'm being advised to roll over any after tax 401k contributions to a Roth IRA prior to years end in case the Build Back Better act gets passed into law.  Also to suspend contributions to after tax until we find out if it passes or not.  

Anyone know when the Senate is going to vote on this dumpster fire of a bill?

 
My comment had nothing to do with politics, other than it is a piece of political legislation.  
Your comment was also thin on source of financial recommendation and actual info supporting the opinion. I'd love to know more than "BBB Bad - drastically change what you do" 

 
Your comment was also thin on source of financial recommendation and actual info supporting the opinion. I'd love to know more than "BBB Bad - drastically change what you do" 
The bill is supposedly going to put a cabash on backdoor contributions and mega backdoor conversions for high income earners......     so not sure how many it really affects in reality.  

*I have Roth_IRA, Roth 401k and regular 401k and IRA and never worried about backdooring my funds

Tax-free savings in retirement are great to have at your disposal.

But provisions in the Build Back Better bill would limit some of the ways to accrue them in the future — at least for high-income savers.

The provisions are included in the version of the bill that recently passed the House, and is set to go to the Senate for consideration in December.

No more ‘backdoor’ conversions to Roth IRAs

A key way to build tax-free savings is to contribute to a Roth IRA.

While you won’t get a tax break for your contributions to a Roth IRA, the after-tax money you put in will then grow tax-free and can be withdrawn tax-free once you reach retirement age. In 2022 you can contribute up to $6,000 a year ($7,000 if you’re 50 or older).

High earners, however, are prohibited from contributing directly to a Roth IRA if their modified adjusted gross income in 2022 is at least $144,000 ($214,000 if married).

But they can still create a Roth IRA through a so-called “backdoor” strategy that involves converting their other IRA savings.

Although high-income taxpayers are precluded from making deductible contributions to a traditional IRA, they are allowed to make non-deductible ones.

In transferring a non-deductible IRA to a Roth, you would owe tax on the gains that had accrued on your contributions. That’s avoidable, however, if you make the conversion immediately after making your non-deductible IRA contribution, since there would be no time for the money to grow.

But this strategy may get the ax. Starting next year, the House-passed bill would prohibit all taxpayers from converting their after-tax contributions using this”backdoor”conversion method to a Roth IRA.

No more ‘mega backdoor’ conversions to a Roth 401(k) either

The bill would also prohibit a similar strategy that is currently permitted when it comes to Roth 401(k)s.

Roth 401(k)s are another great way to build tax-free retirement savings and they are now offered by a majority of employers that offer tax-deferred 401(k) plans. Unlike Roth IRAs, Roth 401(k)s do not have any income eligibility rules and they allow for much higher contributions — up to the 401(k) limit of $20,500 starting next year ($27,000 if you’re at least 50).

On top of that, your employer also may let you make after-tax contributions to your regular 401(k), the gains on which would be taxable when you withdraw them.

Under current law, you may convert those pre-tax and after-tax savings from your 401(k) account into a Roth and thereby skip having to pay taxes on future withdrawals.

In total, savers effectively can sock away up to $61,000 next year ($67,500 if you’re at least 50) — once your contributions, your employer match and your after-tax contributions are counted.

So for high-income earners, it is possible to convert large sums of money into a Roth 401(k) through what’s known as a ‘mega backdoor’ strategy.

Under the bill, however, starting next year, taxpayers would be prohibited from converting the after-tax portion of their 401(k) savings into a Roth.

Then, a decade from now — in 2032 — anyone with modified AGI over $400,000 (or $450,000 if married and filing jointly) would also be prohibited from converting their pretax savings into a Roth. That would apply whether their pre-tax savings come from their 401(k) or a traditional, deductible IRA.

What won’t change

There is no predicting whether lawmakers will preserve the Roth restrictions in the House-passed Build Back Better bill — or even if the bill itself will become law.

But if the prohibitions on backdoor Roth conversions do survive, Roth IRAs, Roth 401(k)s and Roth conversions will still be useful vehicles for the many savers who meet the income and other eligibility rules governing Roths.

And nothing likely will change for anyone when it comes to their 2021 savings strategies. “We’re executing 2021 contributions [and] conversions by December 31 as our best thinking is the bill will have no effect on 2021. For 2022 and beyond, we’re taking a wait-and-see approach,” said New Jersey-based CPA and certified financial planner Joseph Doerrer.

But for his high-income clients, Doerrer said he is strategizing when and what portion of their savings it makes sense to convert to a Roth before the window potentially closes for them in 2032.

“We’re modeling out smaller piecemeal conversions, if we have any favorable play in their tax brackets, to chip away at their pre-tax balances in the event there is the 10-year or so proposed window after which Roth conversions would be unavailable to higher income individuals.”

For Florida-based certified financial planner Mari Adam, her advice to clients remains the same regardless of the fate of the Roth provisions in the bill.

“Save consistently, spend moderately and invest for the long-term,” she said. “The only advice I would add? Stay nimble. Tax rules change, so stay flexible and avoid committing to any financial strategy that can’t easily be undone when the tax regime changes.”

 
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Your comment was also thin on source of financial recommendation and actual info supporting the opinion. I'd love to know more than "BBB Bad - drastically change what you do" 
Sorry I can't give you a link, this was sent out by our corporate attorneys today.  Along with other stuff specific to our privately held stock options.

On November 19, 2021 the U.S. House of Representatives passed H.R. 5376 referred to by the Biden Administration as the Build Back Better Act. One of the provisions of the Act would eliminate the ability to rollover after tax contributions made to the 401(k) plan to Roth accounts. There is considerable uncertainty on whether this act will become law. Whether the bill fails or becomes law will not be known until late in December when the ability to act on the implications of this law are limited. 

Considering this uncertainty, it would be prudent to convert any after tax contributions you have made to the plan to your Roth IRA prior to year-end. If you convert your funds and the law does not pass the downside is minimal. If, however, the bill passes and you were unable to rollover your funds to a Roth IRA, you will have limits on your investment options and will not be able to purchase additional interests with these funds. Earnings from these funds will be taxed at ordinary rates when distributed and will be subject to the distribution rules of the plan and IRS regulations.
My layman's interpretation is if the BBB gets passed as-is the Mega Back Door Roth door with shut.  And if you don't rollover any contributions to your after tax 401K before the end of the year that money might get trapped there.

I assume there are similar implication for the regular Back Door Roth.

 
Is a backdoor Roth IRA worth it?

A backdoor Roth IRA is probably a bad idea if ...

The only way you can pay the taxes due is with money from your IRA withdrawal. Not only are you sacrificing any future investment growth on that money, there's also the risk that, if you're under age 59-1/2, you'll owe the 10% early withdrawal penalty on that money.

You'll need the money in five years or less. Money converted from an IRA to a Roth IRA falls under a Roth five-year rule: If you don't wait five years to withdraw it, you could owe taxes and a 10% penalty.

The withdrawal from your IRA will push you into a higher income tax bracket. It's generally a good idea to convert just enough that you're not pushed into paying a higher tax rate that year.

 
Who Benefits from Backdoor Roth Conversions?

The upshot of these various rule changes is that Roth conversions, which became a wealth management strategy for the very wealthy only as recently as 2010, will soon be a thing of the past for the well-off.

“You’re not going to see conversions in the top tax brackets [if these rules go into effect],” said Steffen. “Low income people don’t have the assets to convert, or the liquidity to pay the tax.”

A quick glance at the latest IRS data tells the story: Among more than 200 million U.S. tax filers, fewer than 724,000 did a Roth conversion in 2018. Roughly 60% of those conversions were carried out by households that made between $100,000 and $500,000.

The annual income thresholds outlined above—$400,000 for single tax filers, and $450,000 for married couples—would be adjusted for inflation over time. The new rules would essentially bar the 18% of Roth conversions that were done by taxpayers who took in more than half-a-million in income.

The mega backdoor Roth seems like a particularly egregious loophole. Under this strategy, people with plenty of money to spare make so-called after-tax contributions to their 401(k)s—these can amount to as much as $58,000 for those under 50 in 2021, if your plan allows it—and then roll the funds into a tax-free Roth account.

The point seems to be one of fairness: The retirement system just wasn’t meant to do this.

Would the BBB Backdoor Roth Reforms Impact You?

Most Americans then are spared from these changes that, no matter how just they happen to be, don’t do much to help average folks save for retirement.

In fact, the concept of Roth conversions has little effect on middle income earners: Only 86,000 tax filers who made between $50,000 and $100,000 (out of almost 52 million) even used a Roth conversion in 2018.

Instead, more Americans would be affected by changes that have been debated as part of proposed legislation known as Secure Act 2.0, including updating the Saver’s Credit and implementing auto-enrollment in retirement plans.

The former would turn the Saver’s credit into a refundable credit, which means low-income households who might not owe taxes could benefit, while the latter would require most employers to enroll their employees in a 401(k)-type plan.

The Secure Act 2.0 legislation will likely go through many more twists and turns as it evolves, so it’s not certain which of those reforms may ultimately make it.

Though it does much to address the upper class, the BBB wouldn’t address the needs of middle-class workers who already use an employer-sponsored retirement but don’t have enough saved. Just 55% of households helmed by someone between 55 and 64 have a retirement account, according to the Federal Reserve, and those households have a median holding of just $134,000, hardly enough to live on once you stop working.

In fact the most important asset for pre-retirees is their future Social Security benefits, which also happens to significantly reduce wealth inequality.

Given that the recent Trustees Report showed a key Social Security trust fund will be depleted one year earlier than expected, you’d think lawmakers would take this opportunity to shore up the pension program.

Unfortunately, any reforms will have to wait for a later date.

“It’s not the flavor of the day,” said Steffen.

 
If you call a bill a “dumpster fire”, you’re being political. Stop being so obtuse.
Financially for me, and I assume other people, this is going to be a dumpster fire.  We can disagree, but, one thing for sure we can do without is the name calling.   

 
Financially for me, and I assume other people, this is going to be a dumpster fire.  We can disagree, but, one thing for sure we can do without is the name calling.   
FIrst the current version won't go into affect 2029 and will for be people making over 400K.

According to Forbes 724000 people used this loophole to convert out of 200million

 
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Who Benefits from Backdoor Roth Conversions?

The upshot of these various rule changes is that Roth conversions, which became a wealth management strategy for the very wealthy only as recently as 2010, will soon be a thing of the past for the well-off.

“You’re not going to see conversions in the top tax brackets [if these rules go into effect],” said Steffen. “Low income people don’t have the assets to convert, or the liquidity to pay the tax.”

A quick glance at the latest IRS data tells the story: Among more than 200 million U.S. tax filers, fewer than 724,000 did a Roth conversion in 2018. Roughly 60% of those conversions were carried out by households that made between $100,000 and $500,000.

The annual income thresholds outlined above—$400,000 for single tax filers, and $450,000 for married couples—would be adjusted for inflation over time. The new rules would essentially bar the 18% of Roth conversions that were done by taxpayers who took in more than half-a-million in income.

The mega backdoor Roth seems like a particularly egregious loophole. Under this strategy, people with plenty of money to spare make so-called after-tax contributions to their 401(k)s—these can amount to as much as $58,000 for those under 50 in 2021, if your plan allows it—and then roll the funds into a tax-free Roth account.

The point seems to be one of fairness: The retirement system just wasn’t meant to do this.

Would the BBB Backdoor Roth Reforms Impact You?

Most Americans then are spared from these changes that, no matter how just they happen to be, don’t do much to help average folks save for retirement.

In fact, the concept of Roth conversions has little effect on middle income earners: Only 86,000 tax filers who made between $50,000 and $100,000 (out of almost 52 million) even used a Roth conversion in 2018.

Instead, more Americans would be affected by changes that have been debated as part of proposed legislation known as Secure Act 2.0, including updating the Saver’s Credit and implementing auto-enrollment in retirement plans.

The former would turn the Saver’s credit into a refundable credit, which means low-income households who might not owe taxes could benefit, while the latter would require most employers to enroll their employees in a 401(k)-type plan.

The Secure Act 2.0 legislation will likely go through many more twists and turns as it evolves, so it’s not certain which of those reforms may ultimately make it.

Though it does much to address the upper class, the BBB wouldn’t address the needs of middle-class workers who already use an employer-sponsored retirement but don’t have enough saved. Just 55% of households helmed by someone between 55 and 64 have a retirement account, according to the Federal Reserve, and those households have a median holding of just $134,000, hardly enough to live on once you stop working.

In fact the most important asset for pre-retirees is their future Social Security benefits, which also happens to significantly reduce wealth inequality.

Given that the recent Trustees Report showed a key Social Security trust fund will be depleted one year earlier than expected, you’d think lawmakers would take this opportunity to shore up the pension program.

Unfortunately, any reforms will have to wait for a later date.

“It’s not the flavor of the day,” said Steffen.
Two comments on the bold.

The first bold is false.  Anyone can move $6,000/year of regular savings to an investment vehicle that can grow tax free.  Data showing that a regular Roth is only used by more wealthy people doesn't change the fact that anyone with just $6,000/year of income can do it.

The second bold is true.  You have to have quite a bit of extra income to take advantage of a Super Roth.  But, like myself being at a point where I've worked many years and made it to a place where I'm finally wealthy enough to take advantage of it.  

 
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FIrst the current version won't go into affect 2029 and will for be people making over 400K.

According to Forbes 724000 people used this loophole to convert out of 200million
The advise I'm getting from our corporate lawyers, posted above, indicates it could affect us starting next year.   :shrug:   I'd love to learn otherwise.

 
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Two comments on the bold.

The first bold is false.  Anyone can move $6,000 of regular savings to an investment vehicle that can grow tax free.  Data showing that a regular Roth is only used by more wealthy people doesn't change the fact that anyone with just $6,000 of income can do it.

The second bold is true.  You have to have quite a bit of extra income to take advantage of a Super Roth.  But, like myself being at a point where I've worked many years and made it to a place where I'm finally wealthy enough to take advantage of it.  
Roth 401K grows tax free.   The difference to moving it to a Roth-IRA is it gives you more investment options instead of what your company is locked into 

fixed IRA

 
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The advise I'm getting from our corporate lawyers, posted above, indicates it could affect us starting next year.   :shrug:   I'd love to learn otherwise.
TBH - I'm not sure where the current version sits.  The last thing I read was 2029 but I could be wrong.  It has gone over different iterations before moving to the Senate.

 
I knew this was in there but wasn't overly upset as I dont worry about these backdoor options.

Without trying to get too political its a little ironic that what was started by a fiscal conservative as a way for the middle class to have a retirement vehicle gets abused by the rich and  the non fiscal conservative party wants to shut down the loophole 

"Mar 26, 2012,04:23pm EDT Economists have warned about exploding future revenue losses associated with Roth IRAs. With these accounts, the government is "bringing in more now, but giving up much more in the future," said economist and Forbes contributor Leonard Burman. In a study for The Tax Policy Center, Burman calculated that from 2014 to 2046, the Treasury would lose a total of $14 billion as a result of IRA-related provisions in the 2006 tax law. The losses stem from both Roth conversions and the ability to make nondeductible IRA contributions and then immediately convert them to Roths"

:crazy:   only in America :)

 
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Roth 401K grows tax free.   The difference to moving it to a Roth-401k is it gives you more investment options instead of what your company is locked into 
No.  I'm talking about taking money directly out of my savings account, putting it into a regular after tax IRA and a day later rolling it out of the regular IRA into a Roth IRA.  I can invest it in anything I want.  $7,000 (because I'm over 50) a year every year.  Anyone can do that without even having a 401K.

For a 401K it depends on how flexible your program is.  It's essentially the same, but, your company takes after tax money out of your pay check and puts it into an after tax 401k - you then roll that to a regular Roth IRA up to a maximum of 58,000 ($64,500). 

In my company's retirement account I can invest in anything I want in either bucket.  I have contributions going to elective investment options and a self directed brokerage account both Roth 401K and after tax 401K (I currently have zero going to regular 401K)  When I take the after tax 401K and roll it into a Roth IRA I do have to pay tax on any gains made.  But never again once it is in a Roth IRA.   

Savings Account

Brokerage Account

IRA (contributions designated as after tax, money is only held in this account for very short periods, a day or two)

Roth IRA

401K

Roth 401K

After Tax 401K

 
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And the amounts add up. Since I am over 50:

$7,000 - Backdoor Roth

$26,000 - Roth 401K

$64,500 - Mega Backdoor Roth

-----------------

$97,500 - Total invested each year to grow TAX FREE.  

 
No.  I'm talking about taking money directly out of my savings account, putting it into a regular after tax IRA and a day later rolling it out of the regular IRA into a Roth IRA.  I can invest it in anything I want.  $7,000 (because I'm over 50) a year every year.  Anyone can do that without even having a 401K.

For a 401K it depends on how flexible your program is.  It's essentially the same, but, your company takes after tax money out of your pay check and puts it into an after tax 401k - you then roll that to a regular Roth IRA up to a maximum of 58,000 ($64,500). 

In my company's retirement account I can invest in anything I want in either bucket.  I have contributions going to elective investment options and a self directed brokerage account both Roth 401K and after tax 401K (I currently have zero going to regular 401K)  When I take the after tax 401K and roll it into a Roth IRA I do have to pay tax on any gains made.  But never again once it is in a Roth IRA.   

Savings Account

Brokerage Account

IRA (contributions designated as after tax, money is only held in this account for very short periods, a day or two)

Roth IRA

401K

Roth 401K

After Tax 401K
While technically anyone with earned income can make a non-deductible traditional IRA contribution and convert it, only people without pre-tax money in traditional, SEP or SIMPLE IRA accounts can convert tax free.  The backdoor Roth is not a real option for some people.

 
And the amounts add up. Since I am over 50:

$7,000 - Backdoor Roth

$26,000 - Roth 401K

$64,500 - Mega Backdoor Roth

-----------------

$97,500 - Total invested each year to grow TAX FREE.  
i understand but my point still stands that MOST Americans this was intended for don't have 97,000 a year to save, myself included OR it doesn't make sense in reality to pay the tax on conversion if it bumps your tax bracket and or you have large pre-tax savings already.      Sure on paper it sucks bigly they may close this loop hole but in reality its a way to stop 400K* earners a free tax haven.  *That was the limit with the last report I read

:shrug:   

ETA: And if you make less than 144000 as a single you dont need to back door a roth  So you rich people can kiss my butt :P

 
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i understand but my point still stands that MOST Americans this was intended for don't have 97,000 a year to save, myself included OR it doesn't make sense in reality to pay the tax on conversion if it bumps your tax bracket and or you have large pre-tax savings already.      Sure on paper it sucks bigly they may close this loop hole but in reality its a way to stop 400K* earners a free tax haven.  *That was the limit with the last report I read

:shrug:   
You don't need 97,000 a year.  That is a maximum number, not a minimum.  You can do it with 6,000 or even less.  Do it with $10 if you want.

Rolling a IRA over to a Roth IRA is a non-taxable event as long as the money in the IRA hasn't made any gains.  That's why it just sits in a money account for a day or two. 

Savings (any money at all) -> IRA -> Roth IRA

There is no downside.

 
While technically anyone with earned income can make a non-deductible traditional IRA contribution and convert it, only people without pre-tax money in traditional, SEP or SIMPLE IRA accounts can convert tax free.  The backdoor Roth is not a real option for some people.
No.  After tax money to IRA converted to Roth IRA is a non-taxable event.  Zero.

 
You don't need 97,000 a year.  That is a maximum number, not a minimum.  You can do it with 6,000 or even less.  Do it with $10 if you want.

Rolling a IRA over to a Roth IRA is a non-taxable event as long as the money in the IRA hasn't made any gains.  That's why it just sits in a money account for a day or two. 

Savings (any money at all) -> IRA -> Roth IRA

There is no downside.
You missed my edit :)      I already contribute to a Roth because I'm not rich enough to have to backdoor :P

 
Some good news though, the exclusions on investing in entities and corporations were dropped from the bill. That would have made self-directed IRA investing like in real estate for example a massive pain.

 
No.  After tax money to IRA converted to Roth IRA is a non-taxable event.  Zero.
Not if you already have a regular IRA.  Then pro rata rules apply.  It's the reason I've never been able to do this, which is a bummer.

 OR it doesn't make sense in reality to pay the tax on conversion if it bumps your tax bracket and or you have large pre-tax savings already. 
:thumbup:   For folks with a high salary it's usually much more tax efficient to use tax deferred vehicles.  Most folks aren't going to pay 24+% federal taxes in retirement.  Usually one is much better off retiring early and doing a bunch of regular Roth conversions to move money over in a low tax environment.  Getting monies into a Roth is much kinder (with the 10 year rule) to your descendants, as well.

 
No.  After tax money to IRA converted to Roth IRA is a non-taxable event.  Zero.
Not always, read Form 8606.  The pro-rata rules mean the tax free conversion is determined by applying the ratio of non-deductible contributions as a percentage of the aggregated balance of all Traditional, SEP and SIMPLE IRA accounts to the converted amount.

https://www.personalcapital.com/blog/taxes-insurance/backdoor-roth-ira-good-move/

The Pro Rata Rule

One of the most important rules relevant to the Backdoor Roth Conversion is the Pro Rata Rule.

The Pro Rata Rule is an IRS rule that determines what amount is subject (or not) to taxes when you convert IRA dollars from a Traditional IRA to a Roth IRA. To put it simply, if you attempt to convert after-tax Traditional IRA contributions to a Roth IRA, but there are existing pre-tax IRA dollars, you will be subject to taxation on a prorated basis.

When determining your tax bill on a conversion from a traditional IRA to a Roth IRA, the IRS is going to look at all of your IRA accounts combined. For example, if all of your IRAs combined consist of 80% pre-tax money and 20% after-tax money, that 80/20 ratio determines what percentage of the after-tax money you convert to a Roth is going to be taxable. For this specific example, no matter how much money you convert or which pre-tax IRA account you pull the money from, 80% of the amount you convert to the Roth will be taxable. The IRS applies the Pro Rata Rule to your total IRA balance at year-end, not at the time of conversion.

 
Not always, read Form 8606.  The pro-rata rules mean the tax free conversion is determined by applying the ratio of non-deductible contributions as a percentage of the aggregated balance of all Traditional, SEP and SIMPLE IRA accounts to the converted amount.

https://www.personalcapital.com/blog/taxes-insurance/backdoor-roth-ira-good-move/
Thanks.  :thumbup: I think I'm learning something here.

That rule applies to the individual?  I mean you don't combine stuff for married filing jointly right?

I don't have a regular IRA.  My wife does though from a consolidation of a bunch of old 401Ks into an IIRA.  I'd need to apply the pro rata stuff if she decided to do a yearly backdoor?  She might have been doing it wrong for a few years.   :oldunsure:

Surprised my financial advisor didn't pick up on that.  But, he doesn't do my taxes so he might have assumed I was doing it right.

Thanks again.

 
This is why financial advisors without specific tax expertise shouldn't be giving tax advice.
I never asked him for any tax advise, which he(they) have.  I've always done my own taxes and wasn't until just the last couple of years that the actual doing of taxes was included in the financial advisor package that my company pays for.  I will definitely have him look over my taxes this year.  

Emailing him my questions right now.

 

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