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On 4/26/2021 at 11:40 AM, Sand said:

Luckily I was nowhere near this line.  So much for the goal of "taxes on an index card".  It just keeps getting worse.

Turbotax may be the next 2T company.  :P

I used TT to figure everything out, then switch to a cheaper company to do the actual filings.  TT does better and asking questions to get to a better end result.  The one that gets me is the "is your prior year state tax refund taxable by the feds"

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1 hour ago, The Z Machine said:

I used TT to figure everything out, then switch to a cheaper company to do the actual filings.  TT does better and asking questions to get to a better end result.  The one that gets me is the "is your prior year state tax refund taxable by the feds"

I'm a pretty frugal guy (I saved 50%+ of salary last year), but I honestly don't care how much TT costs.  I'm buying it every year.  It just works.  

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Posted (edited)
On 4/30/2021 at 7:56 PM, Sand said:

I'm a pretty frugal guy (I saved 50%+ of salary last year), but I honestly don't care how much TT costs.  I'm buying it every year.  It just works.  

I've been using the free (to us) H&R block every year. Maybe our filing is just easy. We use the standard deduction, while we have some capital gains they're not complicated or significant (most of our investments are in retirement accounts), I just haven't felt the need to use an expensive service. 

I'm not sure if TT is expensive, but if you were to sell it, what's the legit sales pitch? Is it better than H&R block and why?

Edited by -OZ-
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6 hours ago, -OZ- said:

I've been using the free (to us) H&R block every year. Maybe our filing is just easy. We use the standard deduction, while we have some capital gains they're not complicated or significant (most of our investments are in retirement accounts), I just haven't felt the need to use an expensive service. 

I'm not sure if TT is expensive, but if you were to sell it, what's the legit sales pitch? Is it better than H&R block and why?

Never used the others.  Why do I use it?  I have a long history with the TT files (that have all my cap gain losses stored down in there for future years) and the program is pretty logical.  There likely isn't a massive difference between that and H&R on an objective basis.

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7 hours ago, -OZ- said:

I've been using the free (to us) H&R block every year. Maybe our filing is just easy. We use the standard deduction, while we have some capital gains they're not complicated or significant (most of our investments are in retirement accounts), I just haven't felt the need to use an expensive service. 

I'm not sure if TT is expensive, but if you were to sell it, what's the legit sales pitch? Is it better than H&R block and why?

In my experience those programs are basically identical.  I used H&R Block for a long time, until one year I had a weird, one-off tax situation that H&R Block's software couldn't handle and TurboTax's could.  Functionally they are very similar.  If H&R Block's program is cheaper and covering your needs, there's no reason to switch.

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Question to see if I'm understanding correctly. Fiancee changed jobs. So with her old plan we're just planning on rolling it over into her work plan. 

We can't do ROTH IRA because we don't have the cash to pay the taxes. Is there any benefit to a rollover IRA over combining with her previous employers if we just plan to invest in S&P index fund?

Also, her previous plan, not sure what it was invested in..my guess some Target Year Fund. Does it get transferred as is, switched an equivalent in her current employers plan, or you can pick the value of it to something else they offer?

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1 hour ago, Charlie Harper said:

Question to see if I'm understanding correctly. Fiancee changed jobs. So with her old plan we're just planning on rolling it over into her work plan. 

We can't do ROTH IRA because we don't have the cash to pay the taxes. Is there any benefit to a rollover IRA over combining with her previous employers if we just plan to invest in S&P index fund?

Also, her previous plan, not sure what it was invested in..my guess some Target Year Fund. Does it get transferred as is, switched an equivalent in her current employers plan, or you can pick the value of it to something else they offer?

There are pros and cons of rolling over an employer plan to an IRA.  Biggest pro is that she would probably have better/lower cost investment choices compared to the new employer plan.  Some cons are that she would not be eligible for a backdoor Roth contribution if she has a rollover IRA and employer plans allow you to access money penalty free at 55 if separated from service. 

The rollover should come over basically as cash and should be able to be invested in whatever investments are offered by the new plan.

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2 minutes ago, Tom Hagen said:

There are pros and cons of rolling over an employer plan to an IRA.  Biggest pro is that she would probably have better/lower cost investment choices compared to the new employer plan.  Some cons are that she would not be eligible for a backdoor Roth contribution if she has a rollover IRA and employer plans allow you to access money penalty free at 55 if separated from service. 

The rollover should come over basically as cash and should be able to be invested in whatever investments are offered by the new plan.

I think you can always do a backdoor roth.  If you keep the money in the traditional IRA, then your roth conversions would be subject to the pro-rata rule and the taxes will wipe out the benefit of the roth accounts.  

If the work plan is a 401k/403B, then it shouldn't affect anything.  You'll go from one of those types of accounts to a similar account.  You can convert it to a roth IRA at any time and pay taxes.  If your goal is to have it as roth--you won't owe taxes on it until 2022.  

@Charlie Harper my guess is they'll sell out of every position and send a check to the new brokerage service.  My wife went from Fidelity at her old job to some other company.  They sent my wife a check that she had to run around and mail to the new service, which put it in a target date fund.  But we have the option to get out of that and invest it as we see fit.  BUT the options are non-existent.  There's target date funds, and 3-4 generic index funds.  

 

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5 minutes ago, jm192 said:

I think you can always do a backdoor roth.  If you keep the money in the traditional IRA, then your roth conversions would be subject to the pro-rata rule and the taxes will wipe out the benefit of the roth accounts.  

If the work plan is a 401k/403B, then it shouldn't affect anything.  You'll go from one of those types of accounts to a similar account.  You can convert it to a roth IRA at any time and pay taxes.  If your goal is to have it as roth--you won't owe taxes on it until 2022.  

@Charlie Harper my guess is they'll sell out of every position and send a check to the new brokerage service.  My wife went from Fidelity at her old job to some other company.  They sent my wife a check that she had to run around and mail to the new service, which put it in a target date fund.  But we have the option to get out of that and invest it as we see fit.  BUT the options are non-existent.  There's target date funds, and 3-4 generic index funds.  

 

You are right, I should have been more clear and said she couldn't do a tax free backdoor Roth.

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48 minutes ago, jm192 said:

How long have people been waiting for their tax return?

I did mine a while ago (early April, I think) and it came back in the normal amount of time.

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On 5/7/2021 at 9:30 AM, Charlie Harper said:

Question to see if I'm understanding correctly. Fiancee changed jobs. So with her old plan we're just planning on rolling it over into her work plan. 

We can't do ROTH IRA because we don't have the cash to pay the taxes. Is there any benefit to a rollover IRA over combining with her previous employers if we just plan to invest in S&P index fund?

Also, her previous plan, not sure what it was invested in..my guess some Target Year Fund. Does it get transferred as is, switched an equivalent in her current employers plan, or you can pick the value of it to something else they offer?

A little late here but if still on the fence, you might consider doing the rollover for a brokerage bonus depending on the size of the balance. A few extra hundred bucks for free is always nice.

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Another question regarding rollovers:

Wife just started a new job. She previously had a 401k with Fidelity at her previous job. She will be eligible for a 401k at her new job after 30 days (so a couple of weeks from now).

Our plan is to contribute the same amount we always have. 

As for the old Fidelity account, I'm assuming we don't HAVE to move it - or do most companies require you to move it to a new account? I honestly have no idea and she hasn't received anything from her old company about it.

And if we HAVE to move it, does it make sense to just move it to her new companies platform - can't remember which one they use but it's not Fidelity. 

I also have a Schwab account where I moved an old 401k from my old company. I guess I could just park it there.

Any thoughts or best practices here? 

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2 hours ago, ChiefD said:

Another question regarding rollovers:

Wife just started a new job. She previously had a 401k with Fidelity at her previous job. She will be eligible for a 401k at her new job after 30 days (so a couple of weeks from now).

Our plan is to contribute the same amount we always have. 

As for the old Fidelity account, I'm assuming we don't HAVE to move it - or do most companies require you to move it to a new account? I honestly have no idea and she hasn't received anything from her old company about it.

And if we HAVE to move it, does it make sense to just move it to her new companies platform - can't remember which one they use but it's not Fidelity. 

I also have a Schwab account where I moved an old 401k from my old company. I guess I could just park it there.

Any thoughts or best practices here? 

Absolutely move it to an IRA and not her new 401k. You can definitely leave it but an IRA is easy to duplicate the exact same investments with much lower fees. Heck, I’m pretty sure Fidelity and others have zero cost funds. You also then have the ability to invest in different things if you want. 401ks have higher fees and limited options and honestly, I don’t think you can even do a loan as a non-employee if that’s a concern. I’ve parked everything I have at Fidelity and luckily both of our 401ks are there as well so it’s so easy.

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40 minutes ago, stbugs said:

Absolutely move it to an IRA and not her new 401k. You can definitely leave it but an IRA is easy to duplicate the exact same investments with much lower fees. Heck, I’m pretty sure Fidelity and others have zero cost funds. You also then have the ability to invest in different things if you want. 401ks have higher fees and limited options and honestly, I don’t think you can even do a loan as a non-employee if that’s a concern. I’ve parked everything I have at Fidelity and luckily both of our 401ks are there as well so it’s so easy.

Yup, roll it over to an IRA for the most flexibility in investment options.  Then you can buy all the CYDY you want, pretty sure her new 401K won't have that as an option.

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2 hours ago, ChiefD said:

Another question regarding rollovers:

Wife just started a new job. She previously had a 401k with Fidelity at her previous job. She will be eligible for a 401k at her new job after 30 days (so a couple of weeks from now).

Our plan is to contribute the same amount we always have. 

As for the old Fidelity account, I'm assuming we don't HAVE to move it - or do most companies require you to move it to a new account? I honestly have no idea and she hasn't received anything from her old company about it.

And if we HAVE to move it, does it make sense to just move it to her new companies platform - can't remember which one they use but it's not Fidelity. 

I also have a Schwab account where I moved an old 401k from my old company. I guess I could just park it there.

Any thoughts or best practices here? 

Typically you do not need to move an old 401k.  Sometimes the company or its retirement provider may “kick” you out if its a small balance ($2500 or less).  With that said it probably makes sense to move it to the new 401k or an IRA.  Stbugs gave great advice on why to chose an IRA (unlimited investment options and lower costs most likely).  The negatives of an IRA are no loan provisions and you lose the ability to withdrawal at 55 if your wife retires early (though there are ways to avoid penalties in IRAs for early w/d).  It’s a good idea to explore the plan rules (loan provisions for example), costs and investment options of the previous and current plan before you make a move.

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Posted (edited)
1 hour ago, stbugs said:

Absolutely move it to an IRA and not her new 401k. You can definitely leave it but an IRA is easy to duplicate the exact same investments with much lower fees. Heck, I’m pretty sure Fidelity and others have zero cost funds. You also then have the ability to invest in different things if you want. 401ks have higher fees and limited options and honestly, I don’t think you can even do a loan as a non-employee if that’s a concern. I’ve parked everything I have at Fidelity and luckily both of our 401ks are there as well so it’s so easy.

This more or less closes off your backdoor Roth option. Because you have to move all IRA funds "pro rata" so you'll start to incur taxes on the backdoor conversion.

Edited by Instinctive
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1 hour ago, stbugs said:

Absolutely move it to an IRA and not her new 401k. You can definitely leave it but an IRA is easy to duplicate the exact same investments with much lower fees. Heck, I’m pretty sure Fidelity and others have zero cost funds. You also then have the ability to invest in different things if you want. 401ks have higher fees and limited options and honestly, I don’t think you can even do a loan as a non-employee if that’s a concern. I’ve parked everything I have at Fidelity and luckily both of our 401ks are there as well so it’s so easy.

In some states 401k accounts have more legal protections from lawsuits and such.  Some put 401k and IRAs in the same tier as far as legal protections.  I'd assume OP has to check Kansas law on that, but it's worth looking into.

37 minutes ago, Instinctive said:

This more or less closes off your backdoor Roth option. Because you have to move all IRA funds "pro rata" so you'll start to incur taxes on the backdoor conversion.

This is where I am. :kicksrock:

 

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50 minutes ago, Instinctive said:

This more or less closes off your backdoor Roth option. Because you have to move all IRA funds "pro rata" so you'll start to incur taxes on the backdoor conversion.

Right. If you want to do backdoor at some point and they have low cost fees, you should just leave it be.

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1 hour ago, Instinctive said:

This more or less closes off your backdoor Roth option. Because you have to move all IRA funds "pro rata" so you'll start to incur taxes on the backdoor conversion.

Great point. I've kept my last 401k in their plan for now because it had cheap Vanguard index funds and if I want to do a backdoor Roth in the next few years, that's less money in IRAs for pro rata. 

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1 hour ago, Instinctive said:

This more or less closes off your backdoor Roth option. Because you have to move all IRA funds "pro rata" so you'll start to incur taxes on the backdoor conversion.

 

30 minutes ago, Desert_Power said:

Right. If you want to do backdoor at some point and they have low cost fees, you should just leave it be.

Correct me if I’m wrong but doesn’t that only matter if you have after tax funds in the IRA as well? In this case this would be a rollover from a 401k and most likely pre-tax money before and after. Sure there are exceptions but if you have only pre-tax money in a 401k (pretty much 99.9% of the cases) and you roll it over to a new IRA then there are no back door Roth issues. If you want to contribute after tax money to that IRA, just open a normal IRA alongside the rollover IRA.

I’m not going to even pretend to know about Kansas laws if you get divorced and such but our buddy @ChiefD would benefit from making his wife’s money more exposed.

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2 minutes ago, stbugs said:

 

Correct me if I’m wrong but doesn’t that only matter if you have after tax funds in the IRA as well? In this case this would be a rollover from a 401k and most likely pre-tax money before and after. Sure there are exceptions but if you have only pre-tax money in a 401k (pretty much 99.9% of the cases) and you roll it over to a new IRA then there are no back door Roth issues. If you want to contribute after tax money to that IRA, just open a normal IRA alongside the rollover IRA.

I’m not going to even pretend to know about Kansas laws if you get divorced and such but our buddy @ChiefD would benefit from making his wife’s money more exposed.

I think that's right. I haven't looked into the backdoor too deeply. The last time I did it seemed like any IRA was going to make it a PITA, but I'm not the CPA in my house. :lol: 

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5 minutes ago, stbugs said:

 

Correct me if I’m wrong but doesn’t that only matter if you have after tax funds in the IRA as well? In this case this would be a rollover from a 401k and most likely pre-tax money before and after. Sure there are exceptions but if you have only pre-tax money in a 401k (pretty much 99.9% of the cases) and you roll it over to a new IRA then there are no back door Roth issues. If you want to contribute after tax money to that IRA, just open a normal IRA alongside the rollover IRA.

I’m not going to even pretend to know about Kansas laws if you get divorced and such but our buddy @ChiefD would benefit from making his wife’s money more exposed.

Never mind, I read a different article and it mentioned all IRAs count. I am interested in the back door at some point when our taxes aren’t so high as dual income, but we do have two rollover IRAs that are the bulk of our savings and it’s all pre-tax anyway ask it wouldn’t matter anyway. Also, hopefully it will continue but I’ve done a lot better in the IRA in stocks than I would have if I stayed in the 401k (about 60% better since 2018 even with a bad 2021) so I’ve already “paid” the taxes plus by rolling it over.

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Posted (edited)
12 minutes ago, Desert_Power said:

 

I think that's right. I haven't looked into the backdoor too deeply. The last time I did it seemed like any IRA was going to make it a PITA, but I'm not the CPA in my house. :lol: 

No worries, I read another thing as well and I get the examples for concern but I’d think it’s definitely a more rare case where you have a lot of non-deductible contributions to traditional 401ks and traditional IRAs where you want to rollover that non-deductible first and honestly if it’s years of waiting the extra 401k fees could easily eat into whatever tax savings you think you might get.

I’m not a CPA either and I’m sure there are cases that make sense but I guess I’ve never gotten putting extra money into traditional 401k/IRAs. If you make enough, you’ll want the tax deduction and if you don’t, wouldn’t you just do the Roth? Also, if long term capital gains are at low rates, just investing that extra money in a taxable  account would be a great way to avoid RMDs in the future and avoid paying a lot of taxes.

Edited by stbugs
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6 hours ago, jm192 said:

How long have people been waiting for their tax return?

Feds took my payment really quick. 

Bama paid the refund maybe 3 weeks after filing.

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Seems like there have been some other posts clarifying, but to answer the questions:

The backdoor Roth IRA is extremely easy. It only matters if you make over the contribution limit for a Roth IRA. Otherwise you could just do a normal one.

 

If you want to do one, any and all IRA funds you have in a traditional account are converted pro rata. You cannot choose which ones to convert. Which means you may be putting after tax dollars in there to do a backdoor, but then paying taxes on the pre-tax dollars in there from the 401(k) you rolled over.

 

The best two options are:

1) Keep the 401(k) where it is

2) Roll the 401(k) into your new employer's plan

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2 hours ago, stbugs said:

No worries, I read another thing as well and I get the examples for concern but I’d think it’s definitely a more rare case where you have a lot of non-deductible contributions to traditional 401ks and traditional IRAs where you want to rollover that non-deductible first and honestly if it’s years of waiting the extra 401k fees could easily eat into whatever tax savings you think you might get.

I’m not a CPA either and I’m sure there are cases that make sense but I guess I’ve never gotten putting extra money into traditional 401k/IRAs. If you make enough, you’ll want the tax deduction and if you don’t, wouldn’t you just do the Roth? Also, if long term capital gains are at low rates, just investing that extra money in a taxable  account would be a great way to avoid RMDs in the future and avoid paying a lot of taxes.

Yeah. We have pretty much maxed out the 401k for about 9 years and have about 5 years worth of Roth IRA until we hit the limit. Figure we will have plenty of money at 59 1/2 should we get there. I plan to retire much sooner so have just been focusing on after-tax investing (still maxing 401ks of course).

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12 hours ago, jm192 said:

How long have people been waiting for their tax return?

I did mine in February, it was a paper return. No refund received yet. When I look for info online, I get nothing. Called the IRS this past week and never got through to a person. I assume the worst (stolen identity, I’m getting audited, I made a major mistake) but holding out hope that is is just the ineptitude of the IRS. Probably an Occam’s Razor situation, most likely they are swamped and my return is massively delayed. 

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I have a silly question that Google didn't immediately answer, but will stocks go up indefinitely? Is the DOW going to be 3,000,000 some day? 

Similarly, what happens long term with inflation? It seems like the penny is almost useless. As inflation keeps going up, some day 100+ years from now would we (or future generations) get to the point even the dollar is useless?

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2 hours ago, shady inc said:

I have a silly question that Google didn't immediately answer, but will stocks go up indefinitely? Is the DOW going to be 3,000,000 some day? 

Similarly, what happens long term with inflation? It seems like the penny is almost useless. As inflation keeps going up, some day 100+ years from now would we (or future generations) get to the point even the dollar is useless?

As a group, as long as there are companies making money there will most likely be stocks. As long as there is inflation, prices and values will rise (over time, not every year). So, if we ever see a time where the general markets no longer rise, the equities market will be the least of our concerns. 

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13 hours ago, Instinctive said:

Seems like there have been some other posts clarifying, but to answer the questions:

The backdoor Roth IRA is extremely easy. It only matters if you make over the contribution limit for a Roth IRA. Otherwise you could just do a normal one.

 

If you want to do one, any and all IRA funds you have in a traditional account are converted pro rata. You cannot choose which ones to convert. Which means you may be putting after tax dollars in there to do a backdoor, but then paying taxes on the pre-tax dollars in there from the 401(k) you rolled over.

 

The best two options are:

1) Keep the 401(k) where it is

2) Roll the 401(k) into your new employer's plan

This is the best advice. 
 

rolling over to an ira prevents back door Roth - don’t take away that option. 
 

for those that did roll into an ira, you can always roll your ira into your current 401k assuming the plan allows it (I think most do)

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54 minutes ago, -OZ- said:

As a group, as long as there are companies making money there will most likely be stocks. As long as there is inflation, prices and values will rise (over time, not every year). So, if we ever see a time where the general markets no longer rise, the equities market will be the least of our concerns. 

Not only will this happen, but we can predict the year. Assuming the DJIA grows at an average rate of 7% per year (I see different estimates but this feels safe), that means it doubles roughly every decade. It is near 35K now. To get to 3 million, it would take between six and seven doublings to get there, so my five year old daughter (whom I hope will live to see the year 2112) would also see the Dow hit 3 million right around her retirement age.

Reminds me of the early 80’s when the Dow was below 1000, but a writer argued for “Dow 10000 by 2000”. Most folks were incredulous. Most folks aren’t great at math. It hit 10000 one year sooner than the prediction.

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2 hours ago, pecorino said:

Not only will this happen, but we can predict the year. Assuming the DJIA grows at an average rate of 7% per year (I see different estimates but this feels safe), that means it doubles roughly every decade. It is near 35K now. To get to 3 million, it would take between six and seven doublings to get there, so my five year old daughter (whom I hope will live to see the year 2112) would also see the Dow hit 3 million right around her retirement age.

.

It does seem crazy to think it should hit 1 million in our potential lifetimes (50 years from now, give or take) assuming the robots haven't taken over. Heck, maybe faster if they do.

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15 hours ago, wilked said:

This is the best advice. 
 

rolling over to an ira prevents back door Roth - don’t take away that option. 
 

for those that did roll into an ira, you can always roll your ira into your current 401k assuming the plan allows it (I think most do)

No, it doesn’t prevent you. You can do a back door Roth from both a rollover IRA and a 401k and it’s no different unless you have non-deductible contributions. Even if you have, it’s still doesn’t prevent you, you just have to follow the pro-rata percentages rather than just picking only non-deductible amounts to rollover. It’s not a blanket statement for everyone but for someone like me whose IRAs are all deductible (rollovers), I can still do a back door Roth conversion and I’ll just have to pay taxes, but my thought was to do some conversions when I hopefully have retired and my tax bracket is much lower.

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I’ve never heard a single person endorse using pro rata conversion on back door Roth. 
 

I agree it doesn’t prevent you...but it does prevent you from making a financial mistake. I wouldn’t recommend anyone to do backdoor Roth if it endured pro rata taxing 

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10 hours ago, stbugs said:

No, it doesn’t prevent you. You can do a back door Roth from both a rollover IRA and a 401k and it’s no different unless you have non-deductible contributions. Even if you have, it’s still doesn’t prevent you, you just have to follow the pro-rata percentages rather than just picking only non-deductible amounts to rollover. It’s not a blanket statement for everyone but for someone like me whose IRAs are all deductible (rollovers), I can still do a back door Roth conversion and I’ll just have to pay taxes, but my thought was to do some conversions when I hopefully have retired and my tax bracket is much lower.

This is one of those things where you're technically correct (as I stated in my post), but you don't understand the impact or spirit of the post. It wipes out your benefit to do pro rata conversions and pay the taxes. The literal point of IRAs is to eliminate tax drag on your growth. If you're stuck converting pro rata, you:

A) don't eliminate that drag

B) actually increase the taxes you have to pay in the long run, because now you have to pay taxes on all the gains of those after tax dollars whenever you convert them alongside the rest of your taxable ones (unless you do it all at once, and if you rolled a 401(k) into your traditional to convert, my base assumption is you're going to get a huge ### tax bill on it because it's a decently sized chunk of change.

C) Given that you can only put in $6k (or $7k if you're over 50), if you are rolling a 401(k) into a traditional, I have to believe it's the vast majority of the dollars in there now. Neither my wife nor I have held a single job for over 4 years, and all 4 401(k)s we have in existence are in the six figure range. Given the pro rata rule, that means 95% of what we convert would get taxed. The whole point of the backdoor Roth being to avoid taxes.

 

So, yeah, you can still do it. But really you can't. There are certainly worlds where it makes sense (maybe you had your last job for a year and you don't save anyway so it's only a couple grand and the tax hit is worth it because the funds you have access to are so awful, etc etc...) but I think those worlds are few and far between, and if you're going to state aggressively that things are possible in a thread about other people's personal finances, you should be accurate or stay quiet.

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Posted (edited)

I don't really get why it helps so much but the HSA option seems to be a huge tax deduction, I usually put that in last in turbotax and it puts me from owing to refund territory.  What am I doing wrong to not estimate this properly?  I mean it's not like Trump level deduction, but it seems to shave off an easy 1500 or so putting those forms in.

Edited by culdeus
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7 hours ago, culdeus said:

I don't really get why it helps so much but the HSA option seems to be a huge tax deduction, I usually put that in last in turbotax and it puts me from owing to refund territory.  What am I doing wrong to not estimate this properly?  I mean it's not like Trump level deduction, but it seems to shave off an easy 1500 or so putting those forms in.

I mean an HSA is a 1 for 1 pre-tax deduction. 

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7 hours ago, culdeus said:

Seems to hit harder than that.  So it's just 401k type deductible?  

I could be missing something on the front end I guess, but yeah.

Benefit is money in there grows tax free AND is spent tax free.

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On 5/15/2021 at 10:13 PM, wilked said:

I’ve never heard a single person endorse using pro rata conversion on back door Roth. 
 

I agree it doesn’t prevent you...but it does prevent you from making a financial mistake. I wouldn’t recommend anyone to do backdoor Roth if it endured pro rata taxing 

So the reason for clarifying is what matters.  It seems like knit picking to be playing the ol' "I gotcha" game.  But it's not.  

If you roll over into a traditional IRA.  You can do a backdoor roth conversion.  You'll need to convert any other traditional/sep/rollover IRA's to a roth IRA as well.  

But it's important to understand that doing a rollover doesn't lock you out of the roth option permanently.  You'll have to pay taxes if you convert the rollover money to a roth, and in some cases it can be a lot.  

So don't endure the pro rata rule for your roth conversions.  If/when you want to do roth conversions, convert all of your IRA's.  

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I have a Roth IRA with Vanguard and currently have it in the 2045 fund (VTIVX).  What are your suggestions on leaving it in this fund or selling and picking a few of their other funds?  I am wondering if I can get a better return using some of the other funds without increasing the risk to much.  I have around 20 years until projected retirement.

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Posted (edited)
12 minutes ago, bcat01 said:

I have a Roth IRA with Vanguard and currently have it in the 2045 fund (VTIVX).  What are your suggestions on leaving it in this fund or selling and picking a few of their other funds?  I am wondering if I can get a better return using some of the other funds without increasing the risk to much.  I have around 20 years until projected retirement.

 

Do you have other retirement investment vehicles (like a 401k) or is the Roth your only retirement account?

Generally, if you only have a Roth, and your total investment in the market is less than ~$250k, you're probably OK leaving it in a target date fund for now until it grows beyond 250k. You might now or eventually want to change the target-date fund to one 5 or 10 years past when you think you are going to retire, because these funds are super conservative on asset allocation and might be over-invested in safe bond-type funds on a faster path than you might want. But for now, 20 years out, it's probably only 95/5% stocks/bonds and doesn't make a difference. 

If you have other retirement accounts available to you, like a 401k and a Roth, once you hit $250k total across all accounts, you might want to consider selling out of the target date funds completely and then re-allocating inside the different accounts based on tax advantages. Figure out your allocation for bonds and value- and blue-chip index funds and buy those in the 401k, then use your Roth to maximize the portion used for REITs, dividend stocks, long shots, and growth funds. That way you're getting the maximum tax-free growth in the most advantaged account. Save the bonds portion for the tax-deferred 401k. 

Edited by firstseason1987
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Complete the entire iBond form

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We apologize for the inconvenience and ask that you try again later.

Sonofa... :rant:

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3 hours ago, firstseason1987 said:

 

Do you have other retirement investment vehicles (like a 401k) or is the Roth your only retirement account?

Generally, if you only have a Roth, and your total investment in the market is less than ~$250k, you're probably OK leaving it in a target date fund for now until it grows beyond 250k. You might now or eventually want to change the target-date fund to one 5 or 10 years past when you think you are going to retire, because these funds are super conservative on asset allocation and might be over-invested in safe bond-type funds on a faster path than you might want. But for now, 20 years out, it's probably only 95/5% stocks/bonds and doesn't make a difference. 

If you have other retirement accounts available to you, like a 401k and a Roth, once you hit $250k total across all accounts, you might want to consider selling out of the target date funds completely and then re-allocating inside the different accounts based on tax advantages. Figure out your allocation for bonds and value- and blue-chip index funds and buy those in the 401k, then use your Roth to maximize the portion used for REITs, dividend stocks, long shots, and growth funds. That way you're getting the maximum tax-free growth in the most advantaged account. Save the bonds portion for the tax-deferred 401k. 

Just curious, what's significant about $250k? Or are you just using that to mean a somewhat significant amount? 

Personally, if you want to keep it easy I'd just go with 100% equities, broad market like VTSAX until my investments are 5x my annual income. Then consider going slightly more conservative but probably not make much of a move until I'm closer to 20x annual expenses.

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