Roth conversions pros if younger

[BLADEMDA]

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22% tax bracket. I will be converting at the top of the 24% tax bracket and likely into the 32% Bracket. You keep asking for proof and I provided you with A+ level software, Boldin, which would clearly show the long term benefits of Roth accounts at the 32% bracket or for some, at the 35% Bracket.

I also fully expect that 24% bracket to become the 28% bracket circa 2030 as well as the 32% becoming 33% or 35%. The USA is broke and no politician from either party has cut spending since Bill Clinton. That means we need more revenue and despite the rhetoric on the far left for taxing Musk and Bezos 5% of their net wealth it won't put a dent in the deficit. The fact is AOC and Bernie are CORRECT and we aren't paying enough in Federal taxes.

 

[BLADEMDA]

watch from 2 minutes to 3.50 minutes

 

[BLADEMDA]

 

[Southpaw]

22% tax bracket. I will be converting at the top of the 24% tax bracket and likely into the 32% Bracket. You keep asking for proof and I provided you with A+ level software, Boldin, which would clearly show the long term benefits of Roth accounts at the 32% bracket or for some, at the 35% Bracket.

I also fully expect that 24% bracket to become the 28% bracket circa 2030 as well as the 32% becoming 33% or 35%. The USA is broke and no politician from either party has cut spending since Bill Clinton. That means we need more revenue and despite the rhetoric on the far left for taxing Musk and Bezos 5% of their net wealth it won't put a dent in the deficit. The fact is AOC and Bernie are CORRECT and we aren't paying enough in Federal taxes.

Earn less. Convert more.

 

[BLADEMDA]

Southpaw if you only watch one video i have ever posted watch this one. Taxes are going up with the next Democrat administration.

 

[aneftp]

this is Google Gemini pro ($20/mo/free with Google workspace via Chase Chase reserve business visa)

answer to my question (I’m starting to use Ai more)

“
At age 40 in the highest tax bracket, a slow, partial Roth conversion using excess cash is a powerful tax-diversification strategy, provided you can pay taxes using non-retirement funds. This approach (often called "filling up the bracket") lets you lock in current tax rates, secure tax-free growth for 20+ years, avoid future RMDs, and reduce your estate tax burden. [1, 2, 3, 4]
Why This Strategy Works Now

• Tax-Free Growth: Converting now allows that $100,000 yearly investment to grow tax-free for over two decades, which often outweighs the high upfront tax cost.
• Tax Diversification: You are reducing the size of your taxable, required-minimum-distribution (RMD) accounts, providing flexibility in retirement.
• Excess Cash Availability: Using outside funds to pay taxes keeps the full conversion amount invested, maximizing the benefits. [1, 2, 3, 4, 5]

Potential Disadvantages/Considerations

• Highest Bracket Taxes: You are paying the highest possible marginal rate today. If you believe your tax bracket will be significantly lower in retirement, a conversion now might be inefficient.
• Roth 5-Year Rule: Funds converted to a Roth must remain for five years to avoid penalties on withdrawals.
• Medicare/Social Security: Higher taxable income from conversions can increase Medicare premiums (IRMAA). [1, 2, 3, 4, 5]

Recommended Approach

1. Partial Conversions: Do not convert everything at once. Convert amounts that stay within your current high tax bracket, or just to the edge of the next one.
2. Use Outside Funds: Pay the tax with your excess cash, not by withholding from the IRA.
3. Timing: Consider doing conversions late in the year (e.g., November/December) to have a better understanding of your total annual income.

 

[aneftp]

Earn less. Convert more.

Sounds easy to say. But currently my 2025 tax returns have 75k in dividends that are taxable. That’s why I mentioned if I wait to age 65 to start converting my dividends reinvestment taxation maybe approaching 150k (or more) annually. Yes it’s a nice problem to have.

Add in social security for both spouses (60k). I’m immediately at 210k ish if I try to convert at age 65. Or delay social security. I’m already looking at at min 24% tax bracket based on 2026 tax bracket or if my spouse dies and I’m single at 32% tax bracket 200k. I would have very little wiggle room to avoid higher taxes. Even if I worked zero.

That’s why blade mention once your net worth gets up there. The traditional way of thinking of just pretax 401k during your highest tax bracket years may not apply to us.

Everyone hates paying taxes. For this partial Roth conversion spread over years should be considered. This assumes you have cash sitting around and not stretching yourself thin to pay the Roth conversion taxes

I do weird things. Like I setup my future children 529 (put in my name first obviously since they didn’t exist) 4 years before they were born. It’s also helped build their 529 accounts.

 

[Arch Guillotti]

I do weird things. Like I setup my future children 529 (put in my name first obviously since they didn’t exist) 4 years before they were born. It’s also helped build their 529 accounts.

Sounds like fraud.

 

[sevo00]

Sounds like fraud.

It’s actually not. It’s completely legal. Feel free to look it up.

 

[aneftp]

Sounds like fraud.

It was/is legal even back in 2006. You can have ur own 529 and let it grow tax free.

It’s actually really beneficial for those who have extra cash laying around. Key word again being extra cash available.

 

[Lab Lover]

Meh, I think that for most Anesthesiologists- Roth 401ks, IRAs, conversions are over rated. I am not saying that they are a bad choice-just that they may not be a good choice.

For most of our careers we will brush up against the top tax bracket. So there's that.

Worried about having a huge 401K and Traditional IRA with mandatory RMDs that put you in a high tax bracket? Fair Point. But as one accumulates a decent portfolio and adds fixed income to a 100% or high stock portfolio-Fixed income should be held in 401k, IRA as they are tax inefficient and should be held in qualified accounts. Granted, that fixed income has lower expected returns than stocks, but the key word is expected. Not guaranteed. Muni bonds are tax free, but suffer lower yields than taxable bonds. Equities do take dramatic hits from time to time and are best held in taxable accounts as tax efficient funds and periodically should be mercilessly tax harvested by specific share identification method and flipped for a highly correlated fund. E.g., total stock market for S & P 500 fund or VV or other large cap ETF.

I do agree that if one is able to early retire and have low income tax rates prior to taking Social Security, Converting is usually the best option.

Not saying this is the right approach....Just what I have done. May or may not work out depending on future tax law/rates, and other reasons.

I actually have more non-qualified assets with huge unrealized capital gains that will be taxed at capital gains rates- Than qualified assets that will be taxed at ordinary income tax rates.

 

[Arch Guillotti]

It was/is legal even back in 2006. You can have ur own 529 and let it grow tax free.

It’s actually really beneficial for those who have extra cash laying around. Key word again being extra cash available.

maybe but most of us aren’t that obsessed with all this esoteric tax tripe.

all the AI generatee copypasta is ridiculous. Max pretax contributions. Invest the rest wisely.

Cash benefit plans allow you to divert a ridiculous amount pretax.

I converted some money to a Roth when the “window” was open. Almost 7 figures today.

The hard part is not putting the money away, it’s figuring out how to take it out.

 

[Southpaw]

I always debate finances with my sister and brother. (Both 20-25 million) Both very high net worth individuals. But they are both dual income high powered professional spouses (late 50s)

I’m just medium net worth. (5-7 million) and sole earner. But younger (51)

Anyways. I have more Roth which is just important.

I’m in process of converting more and more Roth year. One paper it sounds like a dumb move paying 37% taxes now. Maybe in the future I only live off 25% tax rate.

But this is the way I look at it.
Say y have 100k pretax

1. Pay 37% taxes now
Say that 100k becomes 1 million in 21 years (wealth doubles every 7 years) roughly)

U pay zero taxes on the 1 million (u paid the 37k in taxes already 21 years ago

2. Let’s say u have the 100k pretax

It grows to 1 million but u will pay at least 25% taxes

Thats 250k taxes paid even at lower tax

So ur nets is $750k

Now let’s account for the 37k taxes u paid in 2026.
U can always reinvest. It. Let’s say it goes to 300k
So u still need to pay capital gains on the growth of the 300k (from the 37k u saved in 2026 not to do the Roth conversion)

At 23.8%

So u net 750k plus 230k equal 980k

Paying taxes now still gives u a small advantage in 20 years since u converted earlier and the advantage becomes even greater the longer u hold ur Roth.

Am I missing anything? With my thought process?

Even accounting for the taxes paid to convert today.

I don’t want to complicate other things u can do with the 37k in 2026 like doing real estate investing bitcoin etc.

And more importantly this assumes u have the cash sitting around to pay the Roth conversion taxes.

I’m going back to your OP bc you so quickly go off the rails, go off on tangential topics, and it becomes impossible to follow you. I generally think just about every financial post from you is a slight of hand humblebrag, whether intentional or not.

Convert to Roth if you want. You seem fine to pay the tax issues with dividends. Honestly I don’t really understand why you asked the question. I mean I do, but don’t think you’ll admit to it.

 

[Southpaw]

Meh, I think that for most Anesthesiologists- Roth 401ks, IRAs, conversions are over rated. I am not saying that they are a bad choice-just that they may not be a good choice.

For most of our careers we will brush up against the top tax bracket. So there's that.

Worried about having a huge 401K and Traditional IRA with mandatory RMDs that put you in a high tax bracket? Fair Point. But as one accumulates a decent portfolio and adds fixed income to a 100% or high stock portfolio-Fixed income should be held in 401k, IRA as they are tax inefficient and should be held in qualified accounts. Granted, that fixed income has lower expected returns than stocks, but the key word is expected. Not guaranteed. Muni bonds are tax free, but suffer lower yields than taxable bonds. Equities do take dramatic hits from time to time and are best held in taxable accounts as tax efficient funds and periodically should be mercilessly tax harvested by specific share identification method and flipped for a highly correlated fund. E.g., total stock market for S & P 500 fund or VV or other large cap ETF.

I do agree that if one is able to early retire and have low income tax rates prior to taking Social Security, Converting is usually the best option.

Not saying this is the right approach....Just what I have done. May or may not work out depending on future tax law/rates, and other reasons.

I actually have more non-qualified assets with huge unrealized capital gains that will be taxed at capital gains rates- Than qualified assets that will be taxed at ordinary income tax rates.

Going back go the OPs question, which I think is a very good one for both retirement and especially legacy planning - don’t you think it’s valuable to get as much as you can in a Roth at as early an age as possible, and just let it sit and grow untouched. No RMDs. Just chilling and growing.

Is there a better account which you could leave your spouse and or kids? No tax implications. Simply the need to empty the account within 10 years of inheritance?

I mean, perhaps that in itself is a huge benefit of Roth 401k’ing. Yes, you’re paying taxes at 35+% and you probably won’t be paying that much on retirement (but who really knows ….), but if you’re planning that as much that you’ll never touch it seems quite valuable. Or as a sort of insurance policy account in case you spend too much or live longer than expected, that money is there and has grown for decades facing no RMDs.

I’m still curious as to the actual math, and my guess is that it favors saving it all pre-tax for our tax bracket, but I do see a lot of benefit to Roth’ing.

 

[Lab Lover]

Going back go the OPs question, which I think is a very good one for both retirement and especially legacy planning - don’t you think it’s valuable to get as much as you can in a Roth at as early an age as possible, and just let it sit and grow untouched. No RMDs. Just chilling and growing.

Is there a better account which you could leave your spouse and or kids? No tax implications. Simply the need to empty the account within 10 years of inheritance?

I mean, perhaps that in itself is a huge benefit of Roth 401k’ing. Yes, you’re paying taxes at 35+% and you probably won’t be paying that much on retirement (but who really knows ….), but if you’re planning that as much that you’ll never touch it seems quite valuable. Or as a sort of insurance policy account in case you spend too much or live longer than expected, that money is there and has grown for decades facing no RMDs.

I’m still curious as to the actual math, and my guess is that it favors saving it all pre-tax for our tax bracket, but I do see a lot of benefit to Roth’ing.

There certainly is a case to be made for what you are saying. I do have some Roth dollars. Roths are the last dollars that should be spent and the first dollars left to one's heirs. I am just saying that other than that clear advantage, It is a coin toss whether they are a good idea for those that will spend the bulk of their career at or near the top tax bracket.

 

[anonperson]

It was/is legal even back in 2006. You can have ur own 529 and let it grow tax free.

It’s actually really beneficial for those who have extra cash laying around. Key word again being extra cash available.

Yeah. It's definitely legal. You can change the beneficiary of the 529s to anyone.

The main issue is having adequate cash to fund. 4 years before my kids were born I was still in medical school so no money.

 

[okayplayer]

It’s a great topic and one of those that requires a crystal ball to know the “correct answer” (you’d have to know future tax brackets, future account balances etc. which is obviously unknowable). A lot of this comes down to current state income tax where you work, current tax bracket and plans for retirement (high vs low state income tax state) IMO. Reasonable people will disagree.

A lot of people are discussing concerns about RMDs and associated tax hits in the future. You can tap into pretax accounts penalty free at 59.5 (earlier with SEPP if you are an early retiree). If you retire at 59.5 and strive for tax efficiency you will draw down both pre and post-tax buckets (+/- Roth conversions) in an optimal fashion prior to 73 (RMD age). The more you spend out of the pretax accounts in those 14 years, the less your RMDs will be and the more tax efficiency you’ll have.

 

[abolt18]

I had a year as an attending between residency and fellowship. Being at a state institution, we had fantastic retirement accounts available. During that 12 months I maxed out Roth 457b and Roth 403b contributions twice each (latter half of one year, first half of next year), then mandatory 5% employee contributions with 10% employer match (all pre-tax), so when I left that institution after fellowship to start my current job, I moved all that money into my Roth IRA and did a Roth conversion of all the pretax money. Now all the Roth I do is backdoor Roth IRA (and I've done it consistently for me and my wife since 2018 or 2019). I wish my employer allowed mega backdoor Roth with my 403b just so I could access the untouched retirement space right now.

I'm sitting on $500K in Roth all in VTI right now at 38 yrs old, which with very conservative calculations should be over $2M in retirement. I don't envision a need to do any more Roth conversions in my life, but I'm glad to have a good mix of Roth, Pretax, and taxable for maximum flexibility in retirement.

Edited to fix a couple typos.

 

[Lab Lover]

I had a year and an attending between residency and fellowship. Being at a state institution, we had fantastic retirement accounts available. During that 12 months I maxed out Roth 457b and Roth 403b contributions twice each (latter half of one year, first half of next year), then mandatory 5% employee contributions with 10% employer match (all pre-tax), so when I left that institution after fellowship to start my current job, I moved all that money into my Roth IRA and did a Roth conversion of all the pretax money. Now all I do is backdoor Roth IRA (and I've done it hay consistently for me and my wife since 2018 or 2019). I wish my employer allowed mega backdoor Roth with my 403b just so I could access the untouched retirement space right now.

I'm sitting on $500K in Roth all in VTI right now at 38 yrs old, which with very conservative calculations should be over $2M in retirement. I don't envision a need to do any more Roth conversions in my life, but I'm glad to have a good mix of Roth, Pretax, and taxable for maximum flexibility in retirement.

That was the clearly a perfect time to max out Roth. Young, low income tax bracket for a year or two, the cash to pay the taxes on hand on the Roth contribution and anticipated high future tax bracket indefinitely.
I am not anti-Roth. I just think that for those of us who will be in or near the top tax bracket for most of our earning years, it is not a slam dunk.

 

[Southpaw]

I had a year and an attending between residency and fellowship. Being at a state institution, we had fantastic retirement accounts available. During that 12 months I maxed out Roth 457b and Roth 403b contributions twice each (latter half of one year, first half of next year), then mandatory 5% employee contributions with 10% employer match (all pre-tax), so when I left that institution after fellowship to start my current job, I moved all that money into my Roth IRA and did a Roth conversion of all the pretax money. Now all I do is backdoor Roth IRA (and I've done it hay consistently for me and my wife since 2018 or 2019). I wish my employer allowed mega backdoor Roth with my 403b just so I could access the untouched retirement space right now.

I'm sitting on $500K in Roth all in VTI right now at 38 yrs old, which with very conservative calculations should be over $2M in retirement. I don't envision a need to do any more Roth conversions in my life, but I'm glad to have a good mix of Roth, Pretax, and taxable for maximum flexibility in retirement.

Yeah that’s impressive. Well done.

 

[aneftp]

I had a year and an attending between residency and fellowship. Being at a state institution, we had fantastic retirement accounts available. During that 12 months I maxed out Roth 457b and Roth 403b contributions twice each (latter half of one year, first half of next year), then mandatory 5% employee contributions with 10% employer match (all pre-tax), so when I left that institution after fellowship to start my current job, I moved all that money into my Roth IRA and did a Roth conversion of all the pretax money. Now all I do is backdoor Roth IRA (and I've done it hay consistently for me and my wife since 2018 or 2019). I wish my employer allowed mega backdoor Roth with my 403b just so I could access the untouched retirement space right now.

I'm sitting on $500K in Roth all in VTI right now at 38 yrs old, which with very conservative calculations should be over $2M in retirement. I don't envision a need to do any more Roth conversions in my life, but I'm glad to have a good mix of Roth, Pretax, and taxable for maximum flexibility in retirement.

Time is on ur side with the with Roth conversions early in ur career

Anyways with the secure 2.0 law. U will have more options to put another 9-10k a year post tax Roth as catchup contributions at age 50 on top of your backdoor Roth.

Obviously some higher earners are not happy with this law. Cause they see the govt wanting to collect as much tax revenue today and think about other sources of tax revenue later down the road.

I just see it as I have deposable money leftover to just put in Roth. Even if I’m losing the traditional way of getting a catch up age 50 and older $8-9k pretax deduction.

 

[Splenda88]

It depends on what circle of friends you compare yourself with. Aneftp hangs out with a very select group not to mention his brother and sister.

Lol. There isn't too much of a difference in lifestyle between him and his 2 siblings. Maybe his siblings can charter jets 1 to 2 times a year...

 

[Splenda88]

I’m going back to your OP bc you so quickly go off the rails, go off on tangential topics, and it becomes impossible to follow you. I generally think just about every financial post from you is a slight of hand humblebrag, whether intentional or not.

Convert to Roth if you want. You seem fine to pay the tax issues with dividends. Honestly I don’t really understand why you asked the question. I mean I do, but don’t think you’ll admit to it.

Why would he humblebrag in a physician forum? Everyone of you guys are already multi millionaires in your 40s. Some people just like to discuss finance.

 

[aneftp]

Why would he humblebrag in a physician forum? Everyone of you guys are already multi millionaires in your 40s. Some people just like to discuss finance.

I talk to a few of the guys and gals on these forums in person or over the phone or even via text over finances. Some guys literally stop working extra for the year once they reach their goals because they run out of legal tax deductions. So they have maxed out every strategy they can. So we are on top alternative strategies and the topic of Roth conversions came up even at highest tax bracket.

Anyways. It’s seems like most people are against it (the conversions). I just wanted to see others thoughts.

 

[Splenda88]

I talk to a few of the guys and gals on these forums in person or over the phone or even via text over finances. Some guys literally stop working extra for the year once they reach their goals because they run out of legal tax deductions. So they have maxed out every strategy they can. So we are on top alternative strategies and the topic of Roth conversions came up even at highest tax bracket.

Anyways. It’s seems like most people are against it (the conversions). I just wanted to see others thoughts.

I am against it because I probably won't wait to accumulate 5M before calling it a day.

Even if I do, I don't think I should lose sleep over paying an extra 20k in tax per year with a net worth > 5M.

In any case, I max out both my 401k and Roth 401k. I also do back door Roth IRA for myself and my spouse.

 

[sloh]

Even if I do, I don't think I should lose sleep over paying an extra 20k in tax per year with a net worth > 5M.

This 100%

 

[DesiredMemberName?]

I am against it because I probably won't wait to accumulate 5M before calling it a day.

Even if I do, I don't think I should lose sleep over paying an extra 20k in tax per year with a net worth > 5M.

In any case, I max out both my 401k and Roth 401k. I also do back door Roth IRA for myself and my spouse.

What do you mean you max your 401k and your Roth 401k?

My understanding is that you have a maximum of 401k contributions, and you can decide how to split them between Roth and Pretax accounts.

 

[Splenda88]

What do you mean you max your 401k and your Roth 401k?

My understanding is that you have a maximum of 401k contributions, and you can decide how to split them between Roth and Pretax accounts.

The company I work for has a post tax 401k contribution after you reach the max (24.5k) 401k contribution. For instance, there will be 24.5k this year that will go into my [pretax] 401k and another 24.5k that will go into [post-tax or Roth] 401k. It has its pros and cons. I use it as a force savings mechanism.

Roth 401(k) | Pros and Cons of a Roth 401(k) | Fidelity

Is a Roth 401(k) right for you? The answer depends on your financial priorities now versus the future.

www.fidelity.com

 

[DesiredMemberName?]

The company I work for has a post tax 401k contribution after you reach the max (24.5k) 401k contribution. For instance, there will be 24.5k this year that will go into my [pretax] 401k and another 24.5k that will go into [post-tax or Roth] 401k. It has its pros and cons. I use it as a force savings mechanism.

Roth 401(k) | Pros and Cons of a Roth 401(k) | Fidelity

Is a Roth 401(k) right for you? The answer depends on your financial priorities now versus the future.

www.fidelity.com

Ah, ok. I was thinking max meant $72k. We have the option for Roth or Pretax 401k, but we can’t contribute more than 72k between the two for 2026.

 

[aneftp]

Ah, ok. I was thinking max meant $72k. We have the option for Roth or Pretax 401k, but we can’t contribute more than 72k between the two for 2026.

Yeah. They are talking about mega-Roth employer “in plan” after taxes contribution (using employer money) rollover with immediate conversions to avoid further taxation within the 401k in addition to the regular 401k Roth/pretax option limited to $24500 for 2026.

Whatever it’s called.

The dude who runs my solo401k.net (I have no affiliation) can do that if you are self employed and it’s low cost

The Mega Back Door Roth Using a Solo 401k Plan - My Solo 401k Financial

Learn how our Roth Solo 401k plan can allow you to maximize Roth contributions using the Mega Back Door Roth.

www.mysolo401k.net

 

[DesiredMemberName?]

Yeah. They are talking about mega-Roth employer “in plan” after taxes contribution (using employer money) rollover with immediate conversions to avoid further taxation within the 401k in addition to the regular 401k Roth/pretax option limited to $24500 for 2026.

Whatever it’s called.

The dude who runs my solo401k.net (I have no affiliation) can do that if you are self employed and it’s low cost

The Mega Back Door Roth Using a Solo 401k Plan - My Solo 401k Financial

Learn how our Roth Solo 401k plan can allow you to maximize Roth contributions using the Mega Back Door Roth.

www.mysolo401k.net

Yeah, I’m familiar. I have the ability to contribute directly to a Roth 401k as I am self employed. I was questioning his ability to “max out” both pre and post tax 401k as to me “maxing out” means $72k for 2026.

 

[cchoukal]

Yeah, I’m familiar. I have the ability to contribute directly to a Roth 401k as I am self employed. I was questioning his ability to “max out” both pre and post tax 401k as to me “maxing out” means $72k for 2026.

In the history of man, it has occurred for employees with W2s from different employers that their total 401K contributions exceed the annual max for employer and employee contributions. IRS isn't looking.

 

[abolt18]

Yeah, I’m familiar. I have the ability to contribute directly to a Roth 401k as I am self employed. I was questioning his ability to “max out” both pre and post tax 401k as to me “maxing out” means $72k for 2026.

If your plan allows it, you can indeed max out the $72K if you are able to do "after tax contributions" (this is distinctly different from Roth contributions) with your own money as the employee, and then perform an "in-plan conversion" moving that money into Roth. Lots of rules behind it. My employer does not allow it. Just look up "mega backdoor Roth" and you'll see.

 

[DesiredMemberName?]

If your plan allows it, you can indeed max out the $72K if you are able to do "after tax contributions" (this is distinctly different from Roth contributions) with your own money as the employee, and then perform an "in-plan conversion" moving that money into Roth. Lots of rules behind it. My employer does not allow it. Just look up "mega backdoor Roth" and you'll see.

Right. Maxing out means $72k total. You can’t max out the 401k to $72k and then add additional funds to the Roth.

 

[coffeebythelake]

If your plan allows it, you can indeed max out the $72K if you are able to do "after tax contributions" (this is distinctly different from Roth contributions) with your own money as the employee, and then perform an "in-plan conversion" moving that money into Roth. Lots of rules behind it. My employer does not allow it. Just look up "mega backdoor Roth" and you'll see.

Yes you typically require a specialized plan administrator to do the mega backdoor Roth. It costs about 500 bucks a year but I think it is worth it to do in select scenarios.

 

[coffeebythelake]

In the history of man, it has occurred for employees with W2s from different employers that their total 401K contributions exceed the annual max for employer and employee contributions. IRS isn't looking.

Yes that is true. I think i exceed the limit for one year (by a few hundred dollars only( because of two employers. One w2 employed and one with my locum llc

 

[BLADEMDA]

In the history of man, it has occurred for employees with W2s from different employers that their total 401K contributions exceed the annual max for employer and employee contributions. IRS isn't looking.

This goes for just about anything the IRS does these days from 1040 to 1120S. Aneftp is quite aware of this fact. I bet you could contribute to three 401K plans and a Megabackdoor roth as well with no consequences. Would I do it? No. I worry about making a $3 error on my personal solo 401K plan and Megabackdoor Roth. The vast majority on SDN probably won't be cheating on retirement contributions even if nobody is left at the IRS to check.

 

[BobBarker]

I need to do more Roth. The brokerage account keeps growing and spilling off dividends. I won’t need my 401k and will have to go through RMD.

 

[BLADEMDA]

I need to do more Roth. The brokerage account keeps growing and spilling off dividends. I won’t need my 401k and will have to go through RMD.

Here is my take on this entire thread:

1. Backdoor Roth- If you have an old IRA or you wife has an old IRA then open a solo 401K small business plan at Fidelity or Schwab. Roll the old IRAs into the solo 401K plan. A husband and wife only need 1 solo 401K plan. This maneuver allows you to do a backdoor Roth every year while avoiding the Pro rata rule.

2. Roth 401K- If your tax bracket is at 32% or less then consider at least some contributions to the Roth 401K. Taxes in the USA will go up in the near future so 32% or less is a bargain for many of you. At 35% tax rates the Roth 401K option is less convincing today but I will still be going that route as my current 401K balances will force large RMDs not to mention the Widows tax.

3. Tax Rates- They are highly unlikely to go down in the future and your future tax rate in retirement could exceed 30% so some hedging today at less than 35% makes fiscal sense especially if you have 2+ decades for the money to grow tax free.

Worst case scenario is you decide on 100% pre tax contributions then you pay 35% in taxes upon withdrawal or your kids pay the taxes on the inherited IRA upon your death.

 

[BLADEMDA]

Ed Slott, a prominent tax expert often called "America's IRA Expert," describes the Roth IRA as a "Swiss Army knife" because of its extreme versatility in tax, retirement, and estate planning. While most people view it simply as a retirement account, Slott argues it serves multiple critical functions beyond just providing tax-free income. [1, 2, 4]

Why Slott Advocates for the Roth Now
Slott frequently emphasizes that "tax-free is always better than tax-deferred". He highlights several reasons to prioritize this "knife" in the current environment: [1]

• Historically Low Rates: Slott believes current tax rates are low by historical standards and that "tax risk" is at an all-time high. By paying taxes now through contributions or Roth conversions, you "lock in" current rates and protect against future increases.
• The "Ticking Tax Bomb": He refers to large traditional IRAs as "ticking tax bombs" because they will eventually be decimated by taxes when RMDs begin or when heirs inherit them.
• No Age Limit: You can continue to contribute to a Roth IRA at any age as long as you have earned income, unlike some other retirement vehicles. [1, 2, 3, 4, 5]

 

[BLADEMDA]

Yes you typically require a specialized plan administrator to do the mega backdoor Roth. It costs about 500 bucks a year but I think it is worth it to do in select scenarios.

Aneftp sent me a link to a Harvard trained lawyer in California who does this for me at a low cost of $150-$175 per year.

 

[Splenda88]

I am about to get a 1099 gig that will pay me ~40k/yr. Should I use that money to fund a solo 401k vs SEP IRA?

 

[sloh]

Reading through this thread, man you guys are splitting hairs over details that won’t matter that much in the long run

 

[Splenda88]

Reading through this thread, man you guys are splitting hairs over details that won’t matter that much in the long run

Agree. These are people that will retire with 7 to 10M in net worth and yet they worry about paying in taxes an extra 10-20k/yr.

 

[Mman]

Reading through this thread, man you guys are splitting hairs over details that won’t matter that much in the long run

the main things people need to worry about are maximizing income, maximizing their savings rate, having a reasonable asset allocation, and minimizing the costs they pay for investments.

 

[BLADEMDA]

the main things people need to worry about are maximizing income, maximizing their savings rate, having a reasonable asset allocation, and minimizing the costs they pay for investments.

Dude the main thing is how much your wife and/or mistress spends each month/year not to mention the fancy watches, $100K Teslas, $20K vacations x 4, etc.

 

[BLADEMDA]

I am about to get a 1099 gig that will pay me ~40k/yr. Should I use that money to fund a solo 401k vs SEP IRA?

Solo 401K with Megabackdoor Option. I linked the dude who can assist you. He can help set up your 401K and Mega backdoor Roth option. He is dirt cheap, super smart and does your 5500EZ form as well.

George Blower, Author at My Solo 401k Financial

www.mysolo401k.net

Solo 401k Pricing - My Solo 401k Financial

We offer low priced Solo 401k or Individual 401k for investing in real estate, rentals, gold with checkbook control and solo 401k loan.

www.mysolo401k.net

 

[Mman]

Dude the main thing is how much your wife and/or mistress spends each month/year not to mention the fancy watches, $100K Teslas, $20K vacations x 4, etc.

all of that is already measured by your savings rate. If you are saving enough, you can't be spending it on that other stuff.

 

[BLADEMDA]

all of that is already measured by your savings rate. If you are saving enough, you can't be spending it on that other stuff.

I know quite a few who spend like Paris Hilton but still save $400k plus each year. The problem is they need $35 million to retire because of the spending.

 

[Splenda88]

Dude the main thing is how much your wife and/or mistress spends each month/year not to mention the fancy watches, $100K Teslas, $20K vacations x 4, etc.

That is not outrageous if you are an anesthesiologist making 700k+/yr. I spend ~30k/yr on vacation with a salary of 400k