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Backdoor Roth question
Posted on 12/24/19 at 5:35 pm
Posted on 12/24/19 at 5:35 pm
Can you explain the rationale for a high income earner to do this? Aren't you just locking in your money at a higher tax rate? Wouldn't it be unlikely your income at retirement would reach the same high tax rate?
6
Posted on 12/24/19 at 5:53 pm to GeauxTigers777
You are neglecting to factor in RMDs.
Posted on 12/24/19 at 6:21 pm to OleWarSkuleAlum
Unless I'm missing something, even with 10,000,000 in retirement, your rmd wouldn't get you to the top tax bracket. It would take close to 14 mil in retirement to get greater than 500k
This post was edited on 12/24/19 at 6:31 pm
Posted on 12/24/19 at 6:42 pm to GeauxTigers777
quote:
Can you explain the rationale for a high income earner to do this? Aren't you just locking in your money at a higher tax rate? Wouldn't it be unlikely your income at retirement would reach the same high tax rate?
Most high income earners that do the backdoor Roth are phased out of the traditional IRA deductions anyway.
So whats the point of contributing post tax dollars to get taxed again on the withdrawal and growth? At least this way you're only taxed on the initial contribution.
Posted on 12/24/19 at 7:36 pm to GeauxTigers777
We are historically at one of the lowest tax brackets currently.
We got major financial issues as a nation and if I was a bettin man, Congress will raise taxes to continue their spending problem in the future to come. Therefore, I’d much rather pay those taxes today in a historically low bracket.
We got major financial issues as a nation and if I was a bettin man, Congress will raise taxes to continue their spending problem in the future to come. Therefore, I’d much rather pay those taxes today in a historically low bracket.
Posted on 12/24/19 at 8:53 pm to GeauxTigers777
Pay taxes on $25k today to grow tax deferred and pull out $100k tax free later.
Posted on 12/24/19 at 10:00 pm to Janky
Flip side of that is have about 35 - 40% (after state tax) more money growing during that same time span.
Posted on 12/24/19 at 10:16 pm to GeauxTigers777
1) If you are a high income earner you won't get a deduction for your traditional IRA contributions
2) Since you are already paying taxes on your earned income and you are not eligible for the deduction you might as well convert some of that into a tax advantaged retirement investment.
There is no downside unless you somehow don't have the cash to save. The money is protected against taxes at retirement anyway so worrying about tax rates at different life stages is a non-sequitor.
2) Since you are already paying taxes on your earned income and you are not eligible for the deduction you might as well convert some of that into a tax advantaged retirement investment.
There is no downside unless you somehow don't have the cash to save. The money is protected against taxes at retirement anyway so worrying about tax rates at different life stages is a non-sequitor.
Posted on 12/24/19 at 10:46 pm to Puffoluffagus
quote:
Most high income earners that do the backdoor Roth are phased out of the traditional IRA deductions anyway.
So whats the point of contributing post tax dollars to get taxed again on the withdrawal and growth? At least this way you're only taxed on the initial contribution.
Hey i understood this.
Posted on 12/26/19 at 3:16 pm to Janky
quote:
Pay taxes on $25k today to grow tax deferred and pull out $100k tax free later.
...as long as the feds don't change the tax laws.
Posted on 12/29/19 at 8:40 pm to BestBanker
This is my worry that in coming years the IRS comes after these. Bigger worry is them coming after 401ks period.
Posted on 12/30/19 at 8:09 am to MikeD
I cant predict the future.
But I dont see the government changing laws on 401k or roth.
I do see the government creating new taxes (federal sales tax, VAT, etc..) that will reach the same funds in some way.
But I dont see the government changing laws on 401k or roth.
I do see the government creating new taxes (federal sales tax, VAT, etc..) that will reach the same funds in some way.
Posted on 12/30/19 at 10:56 pm to GeauxTigers777
Money hads already been taxed, so only gains between contribution and conversion are taxable... conversion happens within a month or two usually, so gains (if there are any) are minimal
Posted on 12/31/19 at 7:01 am to jrobic4
quote:
Money hads already been taxed, so only gains between contribution and conversion are taxable... conversion happens within a month or two usually, so gains (if there are any) are minimal
Contributions into a traditional IRA are deductible therefore they have not been taxed. 100% of the converted amount is taxable in most cases.
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