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re: Starting a retirement fund in your mid 30’s?
Posted on 8/7/20 at 8:59 am to SG_Geaux
Posted on 8/7/20 at 8:59 am to SG_Geaux
quote:
This sounds like a really dumb idea. Are they calculating the lost return they might make on that 70k?
The person is my brother in law. He mentioned the idea to me and I told him it was foolish. His thoughts are that he’s got the amount he has in 4 1/2 years by paying the minimum to get the match. If he were to bump up his contributions to 8% (and an additional 1% per raise/promotion) he could recoup the amount in 3 years. I mentioned not only would he lose the 40k, he’d also lose the gains over that period he could have had. He says that he’s aware of that but believes he’ll put enough away in the next 30+ years, and with his pensions, that he’ll be ok.
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Posted on 8/7/20 at 9:01 am to DiamondDog
quote:
Start saving more than the 401k match and invest in a Roth as well.
I can’t. Make way too much money
This comment always lets me know who has no idea what they're doing when it comes to maximizing their investment opportunities.
Posted on 8/7/20 at 10:21 am to TheWiz
Backdoor Roth. What I don’t understand is how often I am supposed to convert contributions from a regular IRA. Does this have to be done all at once? Can they be filtered in.
Also it seems I’d be taxed twice. Once with the after market contributions I am making into the IRA and then with the Roth conversion. Is this correct?
Since I know I don’t know what I’m doing.
Also it seems I’d be taxed twice. Once with the after market contributions I am making into the IRA and then with the Roth conversion. Is this correct?
Since I know I don’t know what I’m doing.
Posted on 8/7/20 at 10:26 am to DiamondDog
quote:
The average person isn’t retiring a multimillionaire. They are just low fixed income
I know how woefully unprepared MOST people are. The OP asked for Money Board's advice. Want to be average? Go to the Outdoor Board or OT where they'll tell you what truck and gear to finance or to just spend your income on hookers and blow.
Posted on 8/7/20 at 10:27 am to DiamondDog
quote:
Also it seems I’d be taxed twice. Once with the after market contributions I am making into the IRA and then with the Roth conversion. Is this correct?
Nope.
Not sure who you are with but I use vanguard. Every year around the first of February, I make a $6,000 contribution to the money market portion of my Traditional IRA. It has to season for a day or two with Vanguard. Then Vanguard has a button that says something along the lines of convert to Roth IRA. Click it, designate it to your money market, let is season for the 1-2 day period, then purchase VTSAX inside your Roth, and lastly enjoy the profits.
You might even be able to skip the Roth money market part and go straight to whatever funds you want. For some reason, that is how we have always done our accounts. I might be wasting a step.
Then make sure you use all of the appropriate forms come tax time. It will try to tax you again, thinking you took a distribution, until you enter in the correct form's information. Then it will balance out correctly. I think it is Form 8606.
This post was edited on 8/7/20 at 10:31 am
Posted on 8/7/20 at 10:33 am to TheWiz
So I’m not paying a tax on the conversion? This is the part I’m not understanding. Everything I read is the downside would you’d have to pay tax on the conversion.
Posted on 8/7/20 at 10:33 am to DiamondDog
quote:
Also it seems I’d be taxed twice. Once with the after market contributions I am making into the IRA and then with the Roth conversion. Is this correct?
No that is not correct. You are putting after tax money into a tradition IRA and then converting it to a roth. The only taxes owed due to the conversion is on the gains of that non-deductible tIRA contribution. If you put the money into a money market type fund you can generally convert before any real gains.
One thing to look into is the pro rata rule. Do you currently have any pre-tax money in a traditional IRA? If you do then that could be an issue but if you can roll that into your company 401k it opens back up the opportunity to do a backdoor roth. Do some research on it as it is not that difficult and will be very beneficial down the road. You can also look into if your 401k plan would allow you to do a mega backdoor roth but that is another level of complexity.
This post was edited on 8/7/20 at 10:36 am
Posted on 8/7/20 at 10:39 am to DiamondDog
quote:
So I’m not paying a tax on the conversion? This is the part I’m not understanding. Everything I read is the downside would you’d have to pay tax on the conversion.
No tax on the conversion. Well, I mean you could pay taxes if you convert gains or if you have previously held funds that you already deducted the contributions from on your taxes.
If you put it into a money market fund inside your traditional and move it after a day or two, you should literally only make a penny or two. You can't DCA, this has to be lump sum to work.
Posted on 8/7/20 at 10:39 am to GAFF
Do they have the debt and spending under control? Easy lump sum solutions often reinforce the behavior and short term gratification that got people into debt in first place. Longterm outcome will likely be better if they feel the pain of cutting spending drastically to pay the debt from their income. Once its paid off their reduced spending habits free up income to throw more at investments and reduces their baseline spending needs for retirement.
Posted on 8/7/20 at 10:42 am to TheWiz
Nerdwallet Link.
Whitecoat investor has some really good info on the backdoor Roth. Google and read up from him too.
How to create a backdoor Roth IRA
Here’s a step-by-step guide on how to make a backdoor Roth IRA conversion:
1. Put money in a traditional IRA account. You might already have an account, or you might need to open one and fund it. (If you need to open an account, see our picks for the best IRA providers.)
2. Convert the account to a Roth IRA. Your IRA administrator will give you the instructions and paperwork. If you don’t already have a Roth IRA, you’ll open a new account during the conversion process.
3. Prepare to pay taxes. Only post-tax dollars go into Roth IRAs. So if you deducted your traditional IRA contributions and then decide to convert your traditional IRA to a backdoor Roth, you’ll need to give that tax deduction back. When it comes time to file your tax return, be prepared to pay income tax on the money you converted to a Roth. And see below for details on the pro-rata rule, which plays a big part in determining your tax bill.
4. Prepare to pay taxes on the gains in your traditional IRA. If the money in that traditional IRA has been sitting there awhile and there are investment gains, you’ll also owe tax on those gains at tax time.
Whitecoat investor has some really good info on the backdoor Roth. Google and read up from him too.
How to create a backdoor Roth IRA
Here’s a step-by-step guide on how to make a backdoor Roth IRA conversion:
1. Put money in a traditional IRA account. You might already have an account, or you might need to open one and fund it. (If you need to open an account, see our picks for the best IRA providers.)
2. Convert the account to a Roth IRA. Your IRA administrator will give you the instructions and paperwork. If you don’t already have a Roth IRA, you’ll open a new account during the conversion process.
3. Prepare to pay taxes. Only post-tax dollars go into Roth IRAs. So if you deducted your traditional IRA contributions and then decide to convert your traditional IRA to a backdoor Roth, you’ll need to give that tax deduction back. When it comes time to file your tax return, be prepared to pay income tax on the money you converted to a Roth. And see below for details on the pro-rata rule, which plays a big part in determining your tax bill.
4. Prepare to pay taxes on the gains in your traditional IRA. If the money in that traditional IRA has been sitting there awhile and there are investment gains, you’ll also owe tax on those gains at tax time.
Posted on 8/7/20 at 10:47 am to TorchtheFlyingTiger
quote:God forbid I go to the OB and get a shotgun recommendation
know how woefully unprepared MOST people are. The OP asked for Money Board's advice. Want to be average? Go to the Outdoor Board or OT where they'll tell you what truck and gear to finance or to just spend your income on hookers and blow.
Posted on 8/7/20 at 10:58 am to jimbeam
Beretta...
Posted on 8/7/20 at 11:03 am to bod312
Good because that’s what I went with
Posted on 8/7/20 at 11:18 am to TheWiz
So just break this down for me. I’m putting in several contributions up until the tax deadline for 2020. I don’t have to make one big contribution of $6,000 correct if I don’t invest the funds?
Posted on 8/7/20 at 11:24 am to GAFF
quote:
annual salary is 80kish.
Live on 45k
Posted on 8/7/20 at 12:32 pm to TorchtheFlyingTiger
quote:
Do they have the debt and spending under control?
They actually do. They put away a good bit monthly to savings. He made the comment that if they were to do this they'd have 40k saved up in a years time. Their goal is to buy some property to build on so I assume this is an avenue to get there quicker. He's also been mulling over taking a pay cut to take a new position in his company that he says offers more growth. This might be something to set up for that? IDK.
Posted on 8/7/20 at 12:45 pm to DiamondDog
quote:
I’m putting in several contributions up until the tax deadline for 2020. I don’t have to make one big contribution of $6,000 correct if I don’t invest the funds?
Yes, you're correct in looking at it that way. You might as well just put the money into a savings account each month to avoid making any gains. Otherwise, you are just going to need to monitor closely your contributions and make sure that you do not convert any gains over.
Can someone else back me up and make sure I'm not spewing bullshite? This is how I have always known, performed, and understood the backdoor process to work.
This post was edited on 8/7/20 at 12:48 pm
Posted on 8/7/20 at 12:51 pm to TheWiz
So I’m with you and this backs up the documentation I’m seeing.
I’m already maxing my 401k at the limit 19,500.
My wife is at 6% in here and we have some room to max in her 401k.
Should I be focusing on maxing her contributions first before dealing with this Backdoor Roth IRA nonsense? I just have heard you don’t want a full burden of pretax income.
Or do I ignore the backdoor because I’ll never hit the max contribution mix of 57k and just over contribute to employer plan Roth 401k.
I’m just going to hire a financial advisor at this point. I know a Christian that’s a Jew. I’m pretty sure that means he is like Jesus of Money.
I’m already maxing my 401k at the limit 19,500.
My wife is at 6% in here and we have some room to max in her 401k.
Should I be focusing on maxing her contributions first before dealing with this Backdoor Roth IRA nonsense? I just have heard you don’t want a full burden of pretax income.
Or do I ignore the backdoor because I’ll never hit the max contribution mix of 57k and just over contribute to employer plan Roth 401k.
I’m just going to hire a financial advisor at this point. I know a Christian that’s a Jew. I’m pretty sure that means he is like Jesus of Money.
This post was edited on 8/7/20 at 12:55 pm
Posted on 8/7/20 at 12:59 pm to DiamondDog
quote:
So I’m with you and this backs up the documentation I’m seeing.
I’m already maxing my 401k at the limit 19,500.
My wife is at 6% in here and we have some room to max in her 401k.
Should I be focusing on maxing her contributions first before dealing with this Backdoor Roth IRA nonsense? I just have heard you don’t want a full burden of pretax income.
I've always been of the mindset, reduce as much taxable income via pre-tax methods (401k, FSA, HSA, etc..) as possible, cover expenses, save some fun money, invest the rest.
Everyone has their own investment plan that fits their bill. Between my wife and myself we have a 401k, SOLO 401k, Roth IRA, 403b, 457, TRSL Pension, and her Roth.
The only thing we don't max is the 457 but we still put over 50% of the contribution limit into it. I wanted more take home to get some tax diversification with Roths and we have sizable debt to pay off with student loans.
Posted on 8/7/20 at 1:04 pm to GAFF
quote:have you considered VFIFX?
someone were to start a retirement account in their mid 30’s do you think they’d be prepared to retire by 65?
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