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Started By
Message
New Tax Reform 401k Limits Clarification
Posted on 10/30/17 at 12:19 am
Posted on 10/30/17 at 12:19 am
I see a lot of gnashing of teeth over the $2400 limit. Correct me if I am wrong, but why don’t you just contribute post-tax up to your company match and then just recharacterize into a Roth IRA with zero tax? This is of course if your employer does not offer a Roth 401k.
This may be beneficial either way to avoid the RMDs even on a Roth 401k. Tax pros help me out.
This may be beneficial either way to avoid the RMDs even on a Roth 401k. Tax pros help me out.
This post was edited on 10/30/17 at 12:20 am
6
Posted on 10/30/17 at 1:16 am to OleWarSkuleAlum
There are no rules, so its kinda hard to clarify anything, much less how to "work" the system.
Posted on 10/30/17 at 4:48 am to Volvagia
Trump said 401k limits are not changing and also a lot of us already max our Roth ira's.
Posted on 10/30/17 at 7:02 am to OleWarSkuleAlum
I would think high income professionals are expecting to be in a lower tax bracket in retirement than they are now. I would rather most of my contributions be pre-tax at the moment.
Posted on 10/30/17 at 7:04 am to OleWarSkuleAlum
I max my Roth regardless.
Posted on 10/30/17 at 8:32 am to jimbeam
Yup same here. I dont see anyway this doesn't screw us.
Posted on 10/30/17 at 8:48 am to OleWarSkuleAlum
You pay taxes when you convert pretax money to Roth money, so there’s no gaming the system there.
Posted on 10/30/17 at 8:49 am to OleWarSkuleAlum
I max my Roth as it is.
Fortunately my employer offers a Roth 401 and I suspect plenty of others will too if this becomes law.
Fortunately my employer offers a Roth 401 and I suspect plenty of others will too if this becomes law.
Posted on 10/30/17 at 8:54 am to GREENHEAD22
Screw it. If this happens I'm buying farmland 
Posted on 10/30/17 at 9:24 am to jimbeam
Count me in.
Posted on 10/30/17 at 1:53 pm to foshizzle
quote:
I max my Roth as it is.
Fortunately my employer offers a Roth 401 and I suspect plenty of others will too if this becomes law.
Why bother even contributing to your Roth 401k when you can simply contribute post-tax money to your traditional 401k. You then recharacterize the post tax money into a Roth IRA much like a IRA conversion without limit? That way you avoid the RMD required with any 401k and you don’t have to worry about your limit in the Roth IRA.
This post was edited on 10/30/17 at 1:54 pm
Posted on 10/30/17 at 1:57 pm to OleWarSkuleAlum
quote:
Why bother even contributing to your Roth 401k when you can simply contribute post-tax money to your traditional 401k.
Wait wut?
How are you contributing post-tax money to a pre-tax vehicle?
Did you mean to say "Traditional IRA" and not "Traditional 401k"?
This post was edited on 10/30/17 at 1:59 pm
Posted on 10/30/17 at 5:33 pm to Teddy Ruxpin
quote:
How are you contributing post-tax money to a pre-tax vehicle?
Seriously?!? Please tell me you’re joking...
Here is a simple article from 2015 when they changed the treatment of post-tax money in 401ks
LINK
Posted on 10/30/17 at 9:22 pm to OleWarSkuleAlum
Yes seriously. Mainly because for the most part, most folks haven't discussed the mega backdoor Roth option on here so I didn't see where you were going with that. My bad, I should have read closer.
In fact, you can see only a few posts on my history where I mention this option.
Though, to be fair, this option only works with certain 401ks as I understand, and I've never found one of mine that would allow the in service distribution for it to work, so while it exists, I'm not sure many would be able to execute it.
Outside of that, I still would prefer pre-tax contributions first, but who knows the regulations may get to the point that this little quirk may be the route to go.
In fact, you can see only a few posts on my history where I mention this option.
Though, to be fair, this option only works with certain 401ks as I understand, and I've never found one of mine that would allow the in service distribution for it to work, so while it exists, I'm not sure many would be able to execute it.
Outside of that, I still would prefer pre-tax contributions first, but who knows the regulations may get to the point that this little quirk may be the route to go.
This post was edited on 10/30/17 at 9:24 pm
Posted on 10/30/17 at 10:34 pm to OleWarSkuleAlum
A few thoughts here.
1) I don't think tne limits will actually be lowered, so this is an academic discussion.
1A) If the limits were indeed lowered, you can bet your rear that the backdoor would be shut down. If they are desperate enough to go after tax dollars by lowering the pre-tax limit, they gonna go after everything including the backdoor.
2) The backdoor 401K trick only works if your plan accepts after-tax contributions. Not all plans do... in fact... I've seen more that don't than those that do.
3) The backdoor IRA is attractive because you can do it in real-time. The backdoor 401K you can't flip the switch on until you seperate (generally). If you work for a company for 20-30 more years, you can't backdoor until that time... when who knows if the backdoor will still be open, and/or what the tax rates are going to be at that time.
If the stars align... it's a sweet deal. But I don't think it's the slam dunk no-brainer that you imply it is.
1) I don't think tne limits will actually be lowered, so this is an academic discussion.
1A) If the limits were indeed lowered, you can bet your rear that the backdoor would be shut down. If they are desperate enough to go after tax dollars by lowering the pre-tax limit, they gonna go after everything including the backdoor.
2) The backdoor 401K trick only works if your plan accepts after-tax contributions. Not all plans do... in fact... I've seen more that don't than those that do.
3) The backdoor IRA is attractive because you can do it in real-time. The backdoor 401K you can't flip the switch on until you seperate (generally). If you work for a company for 20-30 more years, you can't backdoor until that time... when who knows if the backdoor will still be open, and/or what the tax rates are going to be at that time.
If the stars align... it's a sweet deal. But I don't think it's the slam dunk no-brainer that you imply it is.
Posted on 10/31/17 at 2:08 am to LSUFanHouston
quote:
If they are desperate enough to go after tax dollars by lowering the pre-tax limit, they gonna go after everything including the backdoor.
Why?
It seems like they would love for people to re characterize voluntarily their pre tax dollars to post tax dollars.
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