Hopefully, my mother opts for another place. She really liked Nashville when she visited on vacation and talks that up a bit. Honestly, I’d rather visit Nashville than New York for the holidays.
Do you mean upstate NY? I would assume the NYC is more desirable than Nashville.
Nashville is at least entertaining. Even if someone hates country music, there is lots of other music there.
Beware of Nashville inflation!
No. The city.
Go back there every year for over a decade and it bores the hell out of you fast.
FYI we have Chick-Fill-A now, come back and give us a chance if you havent been in a while.
ETA: Also Dairy Queen IIRC
where is she retiring from?
New York.
Gonna end up being a snowbird since her boyfriend has a rural cottage upstate.
I had this at my first job. That was also the only time in my life I was close to living paycheck to paycheck. I had the glee too, but it was very rational.
So my new job’s 401(k) has the following features:
- Allows after-tax 401(k) contributions, I think up to the limit of $61k.
- Allows automatic “in-plan conversions” of after-tax amounts to Roth amounts.
Unless I’m missing something, I think this means that after-tax contributions are effectively the same as Roth, except they’re gigantic? And then when I leave this job, I can just roll those contributions into a Roth IRA? This seems way to good to be true, but the Fidelity website is strongly hinting that this is how it works.
That is the mega backdoor Roth and yes, it is exactly as described. My coworker does Roth 401k for the whole thing because matching after tax is effectively bigger than matching pre tax.
The only problem with this is if you have existing IRAs you have to roll those over in proportion to the amount you put into the mega backdoor roth. This tax consequence kept me from doing it.
For that I rolled my regular IRA into my 401k.
I don’t think I’m following. If I have a $5k after-tax 401(k) amount and a $10k TIRA, and I want to convert the $5k in the 401(k) to Roth, what happens?
I don’t think that has any tax implications, as long as you do the conversion before the $5k has any capital gains and keep the Roth amount inside the 401(k) plan.
The situation that Riverman is talking about is if you have a pre-existing IRA account with a value in excess of contributions that you want to convert all or a portion of to a Roth IRA.
Gotcha. I knew about this problem, but if there’s a traditional 401(k) and a separate after-tax amount, that rule doesn’t apply, right?
I think 401(k)s are set up differently to avoid that problem because the pre-tax contributions are always segregated from the post-tax contributions.
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This is for the backdoor roth (which I also do).
bobman is getting the MEGA-backdoor roth which doesn’t have the problem.
I’m embarrassed to even post this, but the recent chatter about Roth conversions got me thinking and I wanted to test my understanding. The prevailing wisdom that I’ve always considered with retirement investing is that you’re pretty much always going to be in a lower tax bracket when you retire, so you dump all the pretax money you can now into stuff like your 401k, and then withdraw it later and pay regular income tax on it based on your current tax bracket. Cool.
Let’s say I have 100k in my 401k or a traditional IRA (I assume it would be similar for either vehicle), and I wanted to consider doing a Roth conversion of those funds.
Let’s say for the sake of easy math that adding an additional 100k to my 2022 income would leave me in the 24% federal bracket (obviously there may be a bit more tax liability for the portion of the conversion that bumped you into a higher bracket, but you could potentially mitigate that by converting over a couple years, yada yada).
Assume that you have the cash on hand and are able to pay the tax bill.
So, you perform the conversion and end up with a 24k tax bill and 100k in your shiny new (or existing) Roth IRA.
That money sits invested for the next 20 years in boring index funds. Let’s say the world doesn’t end and the market returns an average of 10% over that time, and your Roth IRA now has something like 670k in it in 2044.
If you went and withdrew that whole thing at that point (sadly I’ll be plenty over 59.5 then), you could withdraw that whole chunk of change tax free.
Option B, you didn’t do the Roth conversion, your 401k/IRA (which was invested in the same index funds) would have that same 670k, and when you withdraw it, you’d end up paying tax on those withdrawals based on your current income/tax bracket.
Am I crazy to think that there is like, no chance that your marginal rate at that time would be low enough to make NOT converting it a better deal? Even if your marginal rate in retirement was 12%, .12(670k) = 80k in taxes.
Obviously I made a ton of assumptions (current marginal tax bracket, rate of growth, the world not ending, having the $ on hand to pay the 2022 tax bill), but I feel like I must be missing something extremely elementary here…
Did I just blow my own mind here?!
Edit: Is there something to the argument that I could take the 23k from the 2022 tax bill if I converted that today and invested that instead earning 10% and that would turn into ~150k and offset the higher taxes I’d pay on 401k withdrawals in 2044?
If you’re putting in pretax money into your 401k then you would have a lot more than 670k at retirement because your initial capital investment is much higher. Also if you are going to have more than 670k (say like 3 million) perhaps required minimum distributions push you into a high tax bracket anyway.
From what I’ve read, Roth IRA do not have RMD and Roth 401k do have them. I guess I don’t really understand this stuff well enough either
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