Mega backdoor Roth. Does any chain offer it in 2018?

[KennethCool]

Is there any pharmacy chain that offers the mega backdoor roth to employees in 2018? The tax advantages are so huge that I may consider switching companies if anyone offers it.

For those unfamiliar with it, it allows employees to contribute up to $36,500 to a Roth plan every year. This is on top of the $18,500 for the 401k (and the match).

The problem is that many employers don't offer this option in their benefit packages (so stupid!!!).

In order to do it, the company must allow "after-tax" contributions and in-service rollovers.

Are there ANY pharmacy-related employers that currently allow a Mega Backdoor Roth?

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[Sine Cura]

WM doesn't

 

[pezdispenser]

For Walgreens, yes, but you can't make an after-tax contribution if you are a Highly Compensated Employee (>$120k in the previous year). I was actually under that last year so I'm reading up and will probably do a mega backdoor Roth this year.

 

[Lnsean]

Umm I think you're misunderstanding all of this. It almost seems like you want your employer to make pretax contributions to your Roth, which is not possible. You cannot make pretax contributions to any roth, backdoor or not. It's illegal. The pretax pool and after-tax pool has to remain separate. You can backdoor your Roth anytime you want by making a traditional IRA and rolling it into a Roth to bypass the contribution limit....you don't need any employer to do this for you.

 

[Pharmibippy]

mega backdoor roth is different from a regular backdoor roth. To answer OPs question, I dont know of any chains that allow it. The last two hospitals I've worked at allows the mega backdoor roth tho.

 

[pezdispenser]

Umm I think you're misunderstanding all of this. It almost seems like you want your employer to make pretax contributions to your Roth, which is not possible. You cannot make pretax contributions to any roth, backdoor or not. It's illegal. The pretax pool and after-tax pool has to remain separate. You can backdoor your Roth anytime you want by making a traditional IRA and rolling it into a Roth to bypass the contribution limit....you don't need any employer to do this for you.

This is different. You make an after-tax contribution to your 401k (and this is NOT classified as a Roth 401k either). The limit is $55k total including the usual $18.5k 401k pre-tax or Roth 401k contribtion, and I think it includes the employer match too. So that leaves around $30k for after-tax contributions.

At Walgreens it used to be called the "Voluntary Investment Plan". Most people don't use it because they are ineligible 'Highly Compensated Employees' (>$120k), or the tax benefits aren't very good. Your contributions are after-tax so you don't get any tax deduction, and the earnings are only tax deferred, so they will be taxed on withdrawal. But if the plan allows in-service withdrawals, you can roll it over to a Roth IRA, you do pay taxes on any earnings up to that point, but from then on all earnings will be tax free. Plus you can invest in whatever you want in a Roth IRA.

 

[Lnsean]

This is different. You make an after-tax contribution to your 401k (and this is NOT classified as a Roth 401k either). The limit is $55k total including the usual $18.5k 401k pre-tax or Roth 401k contribtion, and I think it includes the employer match too. So that leaves around $30k for after-tax contributions.

At Walgreens it used to be called the "Voluntary Investment Plan". Most people don't use it because they are ineligible 'Highly Compensated Employees' (>$120k), or the tax benefits aren't very good. Your contributions are after-tax so you don't get any tax deduction, and the earnings are only tax deferred, so they will be taxed on withdrawal. But if the plan allows in-service withdrawals, you can roll it over to a Roth IRA, you do pay taxes on any earnings up to that point, but from then on all earnings will be tax free. Plus you can invest in whatever you want in a Roth IRA.

Ahh I see...the tax benefits aren't really that great then. From the way OP described it, it's almost like he's expecting to contribute pretax dollars to Roth.

 

[KennethCool]

Are you kidding me? The tax benefits are HUGE. No capital gains tax when the money comes out! I have a long investment horizon, so this is VERY useful to me.

 

[BMBiology]

Are you kidding me? The tax benefits are HUGE. No capital gains tax when the money comes out! I have a long investment horizon, so this is VERY useful to me.

Do you know you would pay zero capital gain tax if you and your spouse make less than $77 k a year?

How much are you expecting to make each year during retirement?


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[KennethCool]

Like I said before, I have a long investment horizon. Nobody knows for sure what the tax rate will be in 30 years. Most likely taxes will be higher.

 

[BMBiology]

Like I said before, I have a long investment horizon. Nobody knows for sure what the tax rate will be in 30 years. Most likely taxes will be higher.

Or lower.


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[pezdispenser]

Do you know you would pay zero capital gain tax if you and your spouse make less than $77 k a year?

How much are you expecting to make each year during retirement?


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Just do both. Roth has the same taxation as a taxable account with 0% long-term capital gains tax: after tax money goes in, earnings are tax free. But you have the advantage of making short term trades inside the Roth while still paying no taxes.

 

[wagrxm2000]

77k assuming the 4% rule is 2 million. No reason anyone couldn't live off that today.

Now assuming the capital gains tax doesn't change for the 0% and it increases with inflation of 2%, you would need around 3.5 million or again assuming the 4%, 140k per year.

Two things to note, notice the 140k is higher then the average pharmacist so good luck to current new grads, your salary is not going up much higher from today's salary.

Second thing, there is no reason for a pharmacist to need 77k in retirement. You won't have a house or kids to pay for.

50k is more reasonable for today with 100k in 30 years which is 2.5 million, a number everyone should be able to achieve in 30 years.

 

[pezdispenser]

Ok I did the first step and made a $2,200 after-tax contribution to the Voluntary Investment Plan. Then I put in the request for an in-service withdrawal and I believe they will send me a check made out to Vanguard that I can rollover to my Roth IRA.

 

[Ziyan]

Ok I did the first step and made a $2,200 after-tax contribution to the Voluntary Investment Plan. Then I put in the request for an in-service withdrawal and I believe they will send me a check made out to Vanguard that I can rollover to my Roth IRA.

@pezdispenser : Any updates? I was hoping to take advantage of the fact that last year I made <$120,000 (working as an intern/new grad for half the year). However, a profit sharing rep informed me that I am ineligible to make after-tax contributions. Curious if you were successful...

 

[pezdispenser]

@pezdispenser : Any updates? I was hoping to take advantage of the fact that last year I made <$120,000 (working as an intern/new grad for half the year). However, a profit sharing rep informed me that I am ineligible to make after-tax contributions. Curious if you were successful...

I put in $18k after-tax and made 4 in-service withdrawals in 2018 which I then rolled over to my Vanguard Roth IRA. I did it all online because I don't really trust the phone reps.

I'm holding off on making 2019 after-tax contributions until they determine if I'm a HCE because my salary was just under $125k in 2018 but I made some ESPP sales which might take me over the limit if they include them as income.

 

[Momus]

It's useful if you invest a lot to taxable account. So after all said and done, you are saving 0-15% on capital gain tax and qualified dividend tax. It's not bad.