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Switch to 100% post tax retirement contributions into a Roth at midpoint of career?
Posted on 7/25/18 at 4:36 pm
Posted on 7/25/18 at 4:36 pm
Not there yet but it is in sight. To date almost all of my retirement investments have been pre-tax with company match. I am thinking of doing all after-tax for the 2nd half and roll all of my after tax 401k contributions into a Roth every 6 months. I will still get my company match but it must stay in the 401. I would also be maxing my direct contributions into the Roth each year outside of the conversions. All pretax 401k contributions would stay in the 401.
Good idea? Bad? I like the idea of retiring and using Roth funds to lower my tax burden but wonder if I am missing something with this plan.
Also I am maxing out my pre-tax HSA contributions and investing the bulk of that money in the HSA offered funds.
Good idea? Bad? I like the idea of retiring and using Roth funds to lower my tax burden but wonder if I am missing something with this plan.
Also I am maxing out my pre-tax HSA contributions and investing the bulk of that money in the HSA offered funds.
This post was edited on 7/26/18 at 9:43 am
12
Posted on 7/25/18 at 4:53 pm to weagle99
I feel like if this was a good idea everyone would be doing it
Posted on 7/25/18 at 5:35 pm to weagle99
Do you expect to move up more in your career? Or are you plateaued?
Posted on 7/25/18 at 5:44 pm to Upperdecker
My salary should continue to rise at a somewhat predictable annual rate.
Posted on 7/25/18 at 6:08 pm to weagle99
Historically tax rates are pretty low currently so... yea it could very well make sense
Posted on 7/25/18 at 6:44 pm to weagle99
If you're lucky enough to have a employer with a 401k plan that allows post tax contributions and withdrawals it sounds like a great idea. I didn't realize this was even a thing until I just searched for articles on it. Wish federal employees/military had this option with TSP!
Posted on 7/25/18 at 7:37 pm to weagle99
quote:
am thinking of doing all after-tax for the 2nd half and roll all of my after tax 401k contributions into a Roth every 6 months
So this is a backdoor roth right? Why not do the transfer sooner than 6 months. Otherwise you will pay taxes on gains, right?
Posted on 7/25/18 at 8:00 pm to HailToTheChiz
It's like a backdoor, but within a 401k plan that allows pre and post tax contributions AND allows for rollover.
it was briefly discussed recently
it was briefly discussed recently
Posted on 7/25/18 at 8:05 pm to HailToTheChiz
quote:
So this is a backdoor roth right? Why not do the transfer sooner than 6 months. Otherwise you will pay taxes on gains, right?
My plan limits me to (2) Roth conversions per year.
This post was edited on 7/25/18 at 8:07 pm
Posted on 7/25/18 at 8:16 pm to weagle99
Oh nice, then yes do it as you said 
Posted on 7/25/18 at 9:19 pm to TorchtheFlyingTiger
quote:
Wish federal employees/military had this option with TSP!
The TSP offers employee post tax Roth contributions, but all of the governments contributions go into the pre tax account.
Posted on 7/25/18 at 9:29 pm to weagle99
I’m a fan of creating a variety of retirement accounts that provide for flexibility in tax strategy at retirement.
Posted on 7/25/18 at 9:48 pm to weagle99
I've been thinking about this exact thing. Early 40's and I'm mostly all in one 401k basket. I recently found out my company also offers a Roth 401k which sticks to the same $18,500 max. So with the new tax rules, how would things change if I go 100% Roth 401k? How much will my take home pay be reduced? No way we can get close to itemizing more than the standard deduction now. Does this matter? Home office also says I can do a 50-50 contribution into the two accounts.
Posted on 7/25/18 at 10:13 pm to ScottieP
quote:
TSP offers employee post tax Roth contributions,
But TSP doesnt allow in service withdrawal (except hardship or age based) so there's no way to get it into a Roth IRA where I could access contributions before 59 1/2 for early retirement. And any partial withdrawal is drawn proportionally from Roth and traditional so you can't manage tax impact efficiently. Besides the Roth 401k option is capped at $18,500 whereas true post tax 401k is apparently capped at $55k for 2018 which could be rolled over to a Roth IRA.
This post was edited on 7/25/18 at 10:24 pm
Posted on 7/25/18 at 10:23 pm to weagle99
Posted on 7/25/18 at 10:27 pm to TorchtheFlyingTiger
Not Roth 401k. Make after tax contributions to a standard 401k. Every 6 months or so remove that money and place it in a separate Roth IRA.
Employer matches any contribution up to limit, either all pre-tax, all after, or combination of both. Employer match has to stay in 401k.
Employer matches any contribution up to limit, either all pre-tax, all after, or combination of both. Employer match has to stay in 401k.
This post was edited on 7/25/18 at 10:30 pm
Posted on 7/25/18 at 11:41 pm to weagle99
As a retiree, been retired about 4 years, I can tell you I've been moving $ from pre tax accounts (traditional IRA/401K) into a Roth IRA each year to reduce the amount of taxes I will have to pay when the Required Minimum Distribution starts at age 70 1/2.
The goal has been to keep the taxable income amount below the 25% marginal tax bracket (22% in 2018), now and after 70 1/2. The 2nd goal was to reduce the amount in the pre tax accounts so that it will be easier to avoid the 22% tax bracket (was 25%) when RMD starts.
When you are working the objective is to maximize your income, when you retire the goal is to minimize your taxes by avoiding the higher tax brackets. Depending on your situation you may have to pay taxes on your pre tax account withdrawals, pension (some people still have 'em) and most of your social security income. Those can add up quickly to put you in a higher marginal tax bracket in retirement, especially if yours is a two income household. The amount of income taxes owed come April 15th has been a surprise to a lot of retired baby boomers.
The more you can put into a Roth the more flexibility you will have in retirement managing the tax bracket you fall into, if you can afford to pay the taxes now.
It sounds like a good idea to me.
The goal has been to keep the taxable income amount below the 25% marginal tax bracket (22% in 2018), now and after 70 1/2. The 2nd goal was to reduce the amount in the pre tax accounts so that it will be easier to avoid the 22% tax bracket (was 25%) when RMD starts.
When you are working the objective is to maximize your income, when you retire the goal is to minimize your taxes by avoiding the higher tax brackets. Depending on your situation you may have to pay taxes on your pre tax account withdrawals, pension (some people still have 'em) and most of your social security income. Those can add up quickly to put you in a higher marginal tax bracket in retirement, especially if yours is a two income household. The amount of income taxes owed come April 15th has been a surprise to a lot of retired baby boomers.
The more you can put into a Roth the more flexibility you will have in retirement managing the tax bracket you fall into, if you can afford to pay the taxes now.
It sounds like a good idea to me.
This post was edited on 7/25/18 at 11:43 pm
Posted on 7/26/18 at 6:07 am to nctiger71
Good information.
Posted on 7/26/18 at 6:53 am to weagle99
1) What age are you going to retire?
2) Do you plan on having a higher, lower or equivalent income level in retirement than you do now?
3) What do you think tax rates will do between now and when you retire?
2) Do you plan on having a higher, lower or equivalent income level in retirement than you do now?
3) What do you think tax rates will do between now and when you retire?
Posted on 7/26/18 at 7:15 am to weagle99
People waaaay over think this.
Sure lower taxes are better, but more money in a retirement account is BEST.
Pre tax dollar for dollar to post tax is an instant 15-35% return depending on your tax bracket. That means every 5 years you are getting an extra years worth of contributions.
Do the simply math, would you rather pay 25% taxes on 20% more money or 22% on 20% less? I mean the difference is 17% more money!!! Sure that's basic math, but we love to over complicate matters so we pay less money when in reality that's a less important goal.
I contribute to my Roth don't get me wrong, but it's mostly because I like my Schwab investment account with the options over most 401k accounts.
Sure lower taxes are better, but more money in a retirement account is BEST.
Pre tax dollar for dollar to post tax is an instant 15-35% return depending on your tax bracket. That means every 5 years you are getting an extra years worth of contributions.
Do the simply math, would you rather pay 25% taxes on 20% more money or 22% on 20% less? I mean the difference is 17% more money!!! Sure that's basic math, but we love to over complicate matters so we pay less money when in reality that's a less important goal.
I contribute to my Roth don't get me wrong, but it's mostly because I like my Schwab investment account with the options over most 401k accounts.
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