Mega backdoor Roth

[Dr. Anonymouss]

I know my anesthesia people are very business and financially savvy, so this is for those of you who have done this or know a lot about it…

From my understanding, your job needs to allow two things to take advantage of this: 1.) in plan conversions 2.) after tax contributions

Have any of you found it difficult to find jobs that provide these details in the 401k plans? And also, if any of you currently have a job that does not have these features have you found an alternative way to bypass this with a side business?

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[chessknt]

It is usually not financially advantageous to do this because you'll get hit on the full amount at your marginal rate. If for some reason that is more desirable than the pre tax savings then you'll need to find an employer who has this set up (benefits people will know if this can be done). If you are 1099 you can do this easily with minimal hassle through fidelity.

 

[aneftp]

It is usually not financially advantageous to do this because you'll get hit on the full amount at your marginal rate. If for some reason that is more desirable than the pre tax savings then you'll need to find an employer who has this set up (benefits people will know if this can be done). If you are 1099 you can do this easily with minimal hassle through fidelity.

The most tax advantage way is if u had a California/New York city pretax 8-11% state income tax savings from doing pretax 401k/403n/457b.

Than move to no state income tax state like Washington Nevada Florida or Texas than do the mega Roth conversion.

That goes u an immediate tax savings doing the tax conversion since u would have realize those pretax state income tax savings

 

[Dr. Anonymouss]

It is usually not financially advantageous to do this because you'll get hit on the full amount at your marginal rate. If for some reason that is more desirable than the pre tax savings then you'll need to find an employer who has this set up (benefits people will know if this can be done). If you are 1099 you can do this easily with minimal hassle through fidelity.

Correct, there are a lot of variables that would affect the decision on if converting to Roth is more tax advantageous. Age being one of them and current tax rate being another. But okay thank you. I didn’t realize with 1099 it was that easy. I’ll look into this

 

[GassYous]

It is usually not financially advantageous to do this because you'll get hit on the full amount at your marginal rate. If for some reason that is more desirable than the pre tax savings then you'll need to find an employer who has this set up (benefits people will know if this can be done). If you are 1099 you can do this easily with minimal hassle through fidelity.

But the earnings are tax free

 

[linkin06]

max out 401k and back door first. Then do mega back door. Then regular brokerage.

 

[chessknt]

But the earnings are tax free

But you have an extra 35-37% to invest now in taxable with the pretax 401 option. Even with tax drag it is far from a sure thing to come out on top with a Roth even after 20 years of growth assuming that growth is identical in your taxable account depending on your retirement income bracket.

 

[Ronin786]

Real mega Roth conversion (not backdoor Roth) 2010/2011

Just wondering because we have various ages in this form Did anyone do the real mega Roth conversion for tax year 2010? Pay the taxes over 2 years. People talk about backdoor Roth but that’s just a minor yearly $6-7k non deductible maneuver I’m talking about 2 million plus in pretax...

forums.studentdoctor.net

If you want to have some fun

 

[aneftp]

But you have an extra 35-37% to invest now in taxable with the pretax 401 option. Even with tax drag it is far from a sure thing to come out on top with a Roth even after 20 years of growth assuming that growth is identical in your taxable account depending on your retirement income bracket.

The real question is the analysis says if u have multiple options like I do
401a pretax
403b (pre or post tax)
457b pretax (although some jurisdictions can have post tax Roth options)

If u are married and can keep ur agi before the 32% marginal tax threshold (under 460k agi) mention ur effective tax is really 23-24% after deductions. You can make 525-550k and depending on deductions and access to retirement accounts put that 23k-30k post tax Roth and not be in the highest marginal rate

Everyone assumes it’s 35-37% top marginal rate. It not always the case with Roth

Plus living in a no state income tax like Florida further complicates the equation

If I were single or widow or married filing separately. For sure I would do pretax deduction.

Or if I knew my agi were pushing over 600k. I would think twice pretax vs post tax.

 

[dchz]

It is usually not financially advantageous to do this because you'll get hit on the full amount at your marginal rate. If for some reason that is more desirable than the pre tax savings then you'll need to find an employer who has this set up (benefits people will know if this can be done). If you are 1099 you can do this easily with minimal hassle through fidelity.

But the earnings are tax free

But you have an extra 35-37% to invest now in taxable with the pretax 401 option. Even with tax drag it is far from a sure thing to come out on top with a Roth even after 20 years of growth assuming that growth is identical in your taxable account depending on your retirement income bracket.

Real mega Roth conversion (not backdoor Roth) 2010/2011

Just wondering because we have various ages in this form Did anyone do the real mega Roth conversion for tax year 2010? Pay the taxes over 2 years. People talk about backdoor Roth but that’s just a minor yearly $6-7k non deductible maneuver I’m talking about 2 million plus in pretax...

forums.studentdoctor.net

If you want to have some fun

I think i see the confusion:

Assuming your marginal tax rate (federal and state combined) is higher than the marginal tax rate of your withdraws in retirement. The best treatment of income for someone at a high marginal tax bracket is to defer taxes (or not pay taxes at all, but that's rarely legal).

So tax-deferred (401k) is better than growing tax-free (mega-backdoor roth 401k/ backdoor roth). at a high marginal tax bracket.

But there are situations where that's not achievable:

Before I was partner in USAP, the employer allowed up to ~60k of a tax vehicle as a 401k (mega backdoor roth enabled). If i defer the maximum ($~20kish) and have them match it ($~10kish), and add on profit sharing from USAP ($~10k). I am still $~20k short of the 60k limit for this investment vehicle. This $40k was in pre-tax / tax-deferred dollars.

For that remaining 20k, I contributed post tax dollars to have the vehicle at a total of $60k. This $20k i contributed is Roth rather than tax deferred.

Would i rather have that to be tax deferred? Yes. But that's not possible as USAP won't give me anymore free money.
Is the remainder $20k i contributed in post-tax dollars better off in the vehicle? Yes, because otherwise it would sit in a brokerage vehicle and pay taxes on the growth as well.

After I became partner the deferral of all 60k became possible, I am able to defer 20k and have them match 10k, and then contribute 30k of my profit sharing in a tax-deferred manner. So now my retirement vehicle from USAP is $60k of tax deferred dollars every year.

Hope that clears it up. Felt like a lot of people in the other thread was talking past everyone and I didn't want to derail it. But I just can't stand another shouting match of intelligent people who can't see context.

 

[dchz]

The most tax advantage way is if u had a California/New York city pretax 8-11% state income tax savings from doing pretax 401k/403n/457b.

Than move to no state income tax state like Washington Nevada Florida or Texas than do the mega Roth conversion.

That goes u an immediate tax savings doing the tax conversion since u would have realize those pretax state income tax savings

That's only a saving if your marginal tax rate right now is lower than your marginal tax rate (or effective tax rate) during retirement.

 

[Dr. Anonymouss]

I think i see the confusion:

Assuming your marginal tax rate (federal and state combined) is higher than the marginal tax rate of your withdraws in retirement. The best treatment of income for someone at a high marginal tax bracket is to defer taxes (or not pay taxes at all, but that's rarely legal).

So tax-deferred (401k) is better than growing tax-free (mega-backdoor roth 401k/ backdoor roth). at a high marginal tax bracket.

But there are situations where that's not achievable:

Before I was partner in USAP, the employer allowed up to ~60k of a tax vehicle as a 401k (mega backdoor roth enabled). If i defer the maximum ($~20kish) and have them match it ($~10kish), and add on profit sharing from USAP ($~10k). I am still $~20k short of the 60k limit for this investment vehicle. This $40k was in pre-tax / tax-deferred dollars.

For that remaining 20k, I contributed post tax dollars to have the vehicle at a total of $60k. This $20k i contributed is Roth rather than tax deferred.

Would i rather have that to be tax deferred? Yes. But that's not possible as USAP won't give me anymore free money.
Is the remainder $20k i contributed in post-tax dollars better off in the vehicle? Yes, because otherwise it would sit in a brokerage vehicle and pay taxes on the growth as well.

After I became partner the deferral of all 60k became possible, I am able to defer 20k and have them match 10k, and then contribute 30k of my profit sharing in a tax-deferred manner. So now my retirement vehicle from USAP is $60k of tax deferred dollars every year.

Hope that clears it up. Felt like a lot of people in the other thread was talking past everyone and I didn't want to derail it. But I just can't stand it if another shouting match of intelligent people who can't see context happened again.

That’s a good point! Thanks

 

[aneftp]

That's only a saving if your marginal tax rate right now is lower than your marginal tax rate (or effective tax rate) during retirement.

We can go on and on about the Roth vs pretax
20k Roth vs 20k pretax 401k/403b whatecer

Say that’s a $6000 tax savings going with the pretax

That $6000 will get reinvested elsewhere or spent. If it gets reinvested elsewhere. It will get taxed again. Maybe u can avoid it with some real estate 1031 exchanges whatever u choose. But that $6000 money will likely get exposed to taxes for the next 20 years.

As If im in my age 50s range. Or my marginal tax brackets dips into the 35% range (I’m in the 32% marginal range ) effective tax rate range 23% last year. I’d considering going all pretax

There are also legacy goals whether to give ur kids money and age 72/73 min distribution rules won’t apply to Roth money. It appears everyone in here is a super saver like me. 5-6 million in todays pretax money exposes you to at least a 200k a year minimum distribution and who knows what tax brackets there are in the future. Plus whatever brokerage accounts you have.

My colleague pays 100k along in taxes in his brokerage account year. Yes he does well. But at some point he’s got to stop working and even when he stops working he’s gonna to get hit with the rmd and pay taxes on brokerage.

And if his wife dies. Than all that money is exposed to top 35% bracket for singles. Even at low 225k agi.

 

[dchz]

My colleague pays 100k ALONE* in taxes in his brokerage account year. Yes he does well. But at some point he’s got to stop working and even when he stops working he’s gonna to get hit with the rmd and pay taxes on brokerage.

You did go on and on about edge cases. None of it made any sense in the other thread. You seemed determined to spew flight of idea speech like you're on a manic episode in this thread again. (sorry, i can't help myself, that will be my only ad hominem attack. Please present your thoughts in more coherent manner and make them easier to follow. Also please re-read your thoughts and proofread them). I might regret engaging you in conversation; I reserve the right to not waste my time.

My attempt to engage you intellectually:

The question I'm trying to answer is:

A. Pre tax deferred

or

B. Post tax growth tax free

My thesis is:

If Marginal tax rate Now (MTN) is higher than Marginal tax rate at Retirement (MTR), AKA MTN > MTR, then it's advantageous to defer tax and eat the MTR while it's coming out of the vehicle. We should generally do that to the best of our ability, considering all uncertainties.

Say that’s a $6000 tax savings going with the pretax

That $6000 will get reinvested elsewhere or spent. If it gets reinvested elsewhere. It will get taxed again. Maybe u can avoid it with some real estate 1031 exchanges whatever u choose. But that $6000 money will likely get exposed to taxes for the next 20 years.

I don't see any relevance in this comment as it pertains to answering whether or not one should contribute pre tax or post tax into the vehicle. the future tax that the $6k is exposed to will be irrelevant as it has to get taxed either at the time of going into the vehicle or coming out of the vehicle. The additional tax after coming out of the vehicle is not relevant to the original question.

As If im in my age 50s range. Or my marginal tax brackets dips into the 35% range (I’m in the 32% marginal range ) effective tax rate range 23% last year. I’d considering going all pretax

If my marginal tax rate is 23% currently, I might consider going all post-tax. As I think my Marginal tax @ retirement will be higher than 23%, but that is certainly uncertain and doesn't change the logic of the decision.

There are also legacy goals whether to give ur kids money and age 72/73 min distribution rules won’t apply to Roth money. It appears everyone in here is a super saver like me. 5-6 million in todays pretax money exposes you to at least a 200k a year minimum distribution and who knows what tax brackets there are in the future. Plus whatever brokerage accounts you have.

Yes there are nice advantages to Roth accounts, it might be a consideration for paying tax at the entrance of the vehicle if it's a close decision.
The other unknown is future tax bracket. That is certainly a risk and unknown, but that risk/unknown doesn't change the logical now, we are taking our best guess. You can come up with many different ways in which the MTN and MTR will change. But the logic is the same.

My colleague pays 100k along in taxes in his brokerage account year. Yes he does well. But at some point he’s got to stop working and even when he stops working he’s gonna to get hit with the rmd and pay taxes on brokerage.

And if his wife dies. Than all that money is exposed to top 35% bracket for singles. Even at low 225k agi.

Again, i think this is tangential at best. Are you saying you will defer tax or contribute post tax to the investment vehicle based on when you think your wife dies?

 

[aneftp]

You did go on and on about edge cases. None of it made any sense in the other thread. You seemed determined to spew flight of idea speech like you're on a manic episode in this thread again. (sorry, i can't help myself, that will be my only ad hominem attack. Please present your thoughts in more coherent manner and make them easier to follow. Also please re-read your thoughts and proofread them). I might regret engaging you in conversation; I reserve the right to not waste my time.

My attempt to engage you intellectually:

The question I'm trying to answer is:

A. Pre tax deferred

or

B. Post tax growth tax free

My thesis is:

If Marginal tax rate Now (MTN) is higher than Marginal tax rate at Retirement (MTR), AKA MTN > MTR, then it's advantageous to defer tax and eat the MTR while it's coming out of the vehicle. We should generally do that to the best of our ability, considering all uncertainties.




I don't see any relevance in this comment as it pertains to answering whether or not one should contribute pre tax or post tax into the vehicle. the future tax that the $6k is exposed to will be irrelevant as it has to get taxed either at the time of going into the vehicle or coming out of the vehicle. The additional tax after coming out of the vehicle is not relevant to the original question.


If my marginal tax rate is 23% currently, I might consider going all post-tax. As I think my Marginal tax @ retirement will be higher than 23%, but that is certainly uncertain and doesn't change the logic of the decision.


Yes there are nice advantages to Roth accounts, it might be a consideration for paying tax at the entrance of the vehicle if it's a close decision.
The other unknown is future tax bracket. That is certainly a risk and unknown, but that risk/unknown doesn't change the logical now, we are taking our best guess. You can come up with many different ways in which the MTN and MTR will change. But the logic is the same.


Again, i think this is tangential at best. Are you saying you will defer tax or contribute post tax to the investment vehicle based on when you think your wife dies?

Globally what im saying is everyone situation is different.

Although this forum makes it feel like everyone will have in excess of 10 million (in todays money 2024 year) by the time they retire (15 million? In 8-10 years?). Which means their tax bracket will be the same in retirement.

Certainly most of the guys I know who are 60-65 and nearing retiring or at retirement already have 10 plus million and planning on spending in excess of 350k post tax money in 2024 money (even with primary and vacation homes paid off)

 

[triggermaster]

Globally what im saying is everyone situation is different.

Although this forum makes it feel like everyone will have in excess of 10 million (in todays money 2024 year) by the time they retire (15 million? In 8-10 years?). Which means their tax bracket will be the same in retirement.

Certainly most of the guys I know who are 60-65 and nearing retiring or at retirement already have 10 plus million and planning on spending in excess of 350k post tax money in 2024 money (even with primary and vacation homes paid off)

That’s far from the norm. People with more just talk about it more.

 

[nimbus]

That's only a saving if your marginal tax rate right now is lower than your marginal tax rate (or effective tax rate) during retirement.

Also depends on your investment returns. If you end up with good returns, it’s better to pay taxes on 100k now rather than pay taxes on 1mil later. That said, you can also manage your taxes later by managing your draw.

 

[nimbus]

That’s far from the norm. People with more just talk about it more.

Average physician net worth by age

A report from FiPhysician, which provides investment and retirement advice to physicians, released a breakdown of physicians 45 and older, and their average net worth's.

www.beckersasc.com

 

[aneftp]

Average physician net worth by age

A report from FiPhysician, which provides investment and retirement advice to physicians, released a breakdown of physicians 45 and older, and their average net worth's.

www.beckersasc.com

Useless survey without including what specialty/divorce/marital status/duo or in single income

I swear (and I don’t swear). People who do these surveys or studies are just lazy.

 

[aneftp]

Wrong

What’s ur effective tax rate?

Mine is looking like 23% for tax year 2023. 23% last 2022. 21% this the year for 2021 tax year.

If u are making more than 500-550k w2 (even adjusted for 1099 income paying urself even after leftover earnings after deductions and solo 401k/defined benefits deductions) and married. You are exposing yourself to too much taxes

 

[nimbus]

Useless survey without including what specialty/divorce/marital status/duo or in single income

I swear (and I don’t swear). People who do these surveys or studies are just lazy.

No less useless than your anecdotes.

You describe outliers with regard to income and wealth and imply they are typical

 

[nimbus]

Another useless survey.

Physician net worth: Which specialties see over $5M, under $500K

Physician compensation rose in 2022, with 60% reporting a family net worth above the national average. Average compensation was $352,000.

www.beckershospitalreview.com

13% of anesthesiologists have a net worth >$5mil. 19% have a net worth <$500k.

 

[chessknt]

You did go on and on about edge cases. None of it made any sense in the other thread. You seemed determined to spew flight of idea speech like you're on a manic episode in this thread again. (sorry, i can't help myself, that will be my only ad hominem attack. Please present your thoughts in more coherent manner and make them easier to follow. Also please re-read your thoughts and proofread them). I might regret engaging you in conversation; I reserve the right to not waste my time.

My attempt to engage you intellectually:

The question I'm trying to answer is:

A. Pre tax deferred

or

B. Post tax growth tax free

My thesis is:

If Marginal tax rate Now (MTN) is higher than Marginal tax rate at Retirement (MTR), AKA MTN > MTR, then it's advantageous to defer tax and eat the MTR while it's coming out of the vehicle. We should generally do that to the best of our ability, considering all uncertainties.




I don't see any relevance in this comment as it pertains to answering whether or not one should contribute pre tax or post tax into the vehicle. the future tax that the $6k is exposed to will be irrelevant as it has to get taxed either at the time of going into the vehicle or coming out of the vehicle. The additional tax after coming out of the vehicle is not relevant to the original question.


If my marginal tax rate is 23% currently, I might consider going all post-tax. As I think my Marginal tax @ retirement will be higher than 23%, but that is certainly uncertain and doesn't change the logic of the decision.


Yes there are nice advantages to Roth accounts, it might be a consideration for paying tax at the entrance of the vehicle if it's a close decision.
The other unknown is future tax bracket. That is certainly a risk and unknown, but that risk/unknown doesn't change the logical now, we are taking our best guess. You can come up with many different ways in which the MTN and MTR will change. But the logic is the same.


Again, i think this is tangential at best. Are you saying you will defer tax or contribute post tax to the investment vehicle based on when you think your wife dies?

You are correct it is pointless to engage. The math clearly favors pre-tax except in egregious imaginary scenarios.

MTR for anesthesiologists working full time is going to be 32% or more. Let's assume 32%

10k pre-tax means 3200 post-tax dollars to invest in year 1-->if returns are 8% annually (which I think is high) then the post-tax return on the 3200 (assuming you aren't using qualified dividends for lower tax rates or a more tax efficient vehicle) would be ~5% compounding annually so after 20 years you would have ~8500 post tax + 46600 pre tax; assume a 22% MTR in retirement and your total is 8500 + 35882=44382 at 20 years using worse case scenario assumptions of inefficient tax and a retirement MTR in the married 250k+ income range all being pulled from pretax accounts.

vs. 10k Roth @8% returns yields 46600. So a whopping 5% gain over the pretax scenario if you assume almost the worse case scenario for your pre-tax situation.

As soon as you factor in tax efficient investments or have a more realistic retirement MTR (eg pulling 80k pretax only) or a shorter investing horizon the pendulum swings hard in favor of pre-tax savings. There is also the flexibility of having a large pool of taxed savings to draw from to minimize your income, qualify for healthcare subsidies, and dig the money out of pre-tax at a rate that minimizes tax exposure.

 

[aneftp]

Another useless survey.

Physician net worth: Which specialties see over $5M, under $500K

Physician compensation rose in 2022, with 60% reporting a family net worth above the national average. Average compensation was $352,000.

www.beckershospitalreview.com

13% of anesthesiologists have a net worth >$5mil. 19% have a net worth <$500k.

Age range?
40-50?
50-60?
60 and up?

 

[aneftp]

You are correct it is pointless to engage. The math clearly favors pre-tax except in egregious imaginary scenarios.

MTR for anesthesiologists working full time is going to be 32% or more. Let's assume 32%

10k pre-tax means 3200 post-tax dollars to invest in year 1-->if returns are 8% annually (which I think is high) then the post-tax return on the 3200 (assuming you aren't using qualified dividends for lower tax rates or a more tax efficient vehicle) would be ~5% compounding annually so after 20 years you would have ~8500 post tax + 46600 pre tax; assume a 22% MTR in retirement and your total is 8500 + 35882=44382 at 20 years using worse case scenario assumptions of inefficient tax and a retirement MTR in the married 250k+ income range all being pulled from pretax accounts.

vs. 10k Roth @8% returns yields 46600. So a whopping 5% gain over the pretax scenario if you assume almost the worse case scenario for your pre-tax situation.

As soon as you factor in tax efficient investments or have a more realistic retirement MTR (eg pulling 80k pretax only) or a shorter investing horizon the pendulum swings hard in favor of pre-tax savings. There is also the flexibility of having a large pool of taxed savings to draw from to minimize your income, qualify for healthcare subsidies, and dig the money out of pre-tax at a rate that minimizes tax exposure.

Dude. No high networth individual spends 85k marginal tax money Try 300-400k min for many newly retire people I know at age 70. Even my mom age 80 plus spends 100k agi a year.

 

[chessknt]

Dude. No high networth individual spends 85k marginal tax money Try 300-400k min for many newly retire people I know at age 70. Even my mom age 80 plus spends 100k agi a year.

If 70% of your accounts are in taxable you dont need to pull more than 85k from pretax and that is the only 'income' that gets hit at the MTR. You can pay yourself 400k with 3/4 of that coming from the post-tax accounts and only pay tax on the 100k. Keep in mind spending 400k post tax would be like spending all of your income at 650k without saving any of it--something that doesnt seem likely for most people, especially those who managed to get to high net worth by working.

 

[nimbus]

Age range?
40-50?
50-60?
60 and up?

It likely reflects the demographics of all working anesthesiologists. Average age in the late 40s. 35% over age 60.

Remember most of the later USAP buyouts were for just around a million. If anesthesiologists actually had decent net worth, most of those buyouts would not have happened.

 

[aneftp]

If 70% of your accounts are in taxable you dont need to pull more than 85k from pretax and that is the only 'income' that gets hit at the MTR. You can pay yourself 400k with 3/4 of that coming from the post-tax accounts and only pay tax on the 100k. Keep in mind spending 400k post tax would be like spending all of your income at 650k without saving any of it--something that doesnt seem likely for most people, especially those who managed to get to high net worth by working.

The min distribution for someone with 5 million is already 200k. Plus social security. If married. That’s another 50k. You are automatically at 250k.

 

[dchz]

Also depends on your investment returns. If you end up with good returns, it’s better to pay taxes on 100k now rather than pay taxes on 1mil later. That said, you can also manage your taxes later by managing your draw.

Respectfully disagree. So weird i have to explain math to another Asian.😋

Growth of 10% compounded for 20 years:

Paying taxes before | Paying taxes after
(X*100k) * 1.10^20 = (100K*1.10^20)*X
X * 100k * 1.10^20 = 100K * 1.10^20 * X

It's just the associative property of multiplication. What you get out of the vehicle at the end are the same whether or not you pay tax at the beginning of putting into the vehicle or when you take it out. The returns are the same in terms of %. the only thing that matters is the tax rate (X)

You pay nominally bigger amount in taxes on the way out because of the compounded growth. But you would have ended up with the same amount either way if the tax rate is the same.

 

[Dr. Anonymouss]

Respectfully disagree. So weird i have to explain math to another Asian.😋

Growth of 10% compounded for 20 years:

Paying taxes before | Paying taxes after
(X*100k) * 1.10^20 = (100K*1.10^20)*X
X * 100k * 1.10^20 = 100K * 1.10^20 * X

It's just the associative property of multiplication. What you get out of the vehicle at the end are the same whether or not you pay tax at the beginning of putting into the vehicle or when you take it out. The returns are the same in terms of %. the only thing that matters is the tax rate (X)

You pay nominally bigger amount in taxes on the way out because of the compounded growth. But you would have ended up with the same amount either way if the tax rate is the same.

 

[Dr. Anonymouss]

Respectfully disagree. So weird i have to explain math to another Asian.😋

Growth of 10% compounded for 20 years:

Paying taxes before | Paying taxes after
(X*100k) * 1.10^20 = (100K*1.10^20)*X
X * 100k * 1.10^20 = 100K * 1.10^20 * X

It's just the associative property of multiplication. What you get out of the vehicle at the end are the same whether or not you pay tax at the beginning of putting into the vehicle or when you take it out. The returns are the same in terms of %. the only thing that matters is the tax rate (X)

You pay nominally bigger amount in taxes on the way out because of the compounded growth. But you would have ended up with the same amount either way if the tax rate is the same.

But that is assuming your retirement portfolio matches the income you had while working. I clearly love Roth IRA's and the benefits they provide, but I can't imagine a situation where paying 35-37% marginal tax rate equates to greater returns than if you went pre-tax with that money. For those who are 1099 or have a lot of real-estate or a side business, then getting a marginal tax rate of 22% is not unheard of which would heavily favor Roth over Traditional. This is how I see it.

 

[aneftp]

But that is assuming your retirement portfolio matches the income you had while working. I clearly love Roth IRA's and the benefits they provide, but I can't imagine a situation where paying 35-37% marginal tax rate equates to greater returns than if you went pre-tax with that money. For those who are 1099 or have a lot of real-estate or a side business, then getting a marginal tax rate of 22% is not unheard of which would heavily favor Roth over Traditional. This is how I see it.

My marginal tax tax is 28%-32%. Effective tax rate 23%.

I do 30k Roth
42k pretax

Plus employer kicks in another 30k pretax into the 401a.

Anyway. The real issue people who are high earners is the min distribution at age 72-73 and if they have too much in pretax 401k/403b/457b/defined benefits pretax etc.

Like I posted. Assuming u have 5 million in today’s money in pretax. U will get nailed 200k rmd plus social security distribution which is also taxed.

I think people have this fantasy they will pay little taxes on their pretax distribution and live off their taxable investments. That’s Obamacare nasty 3.8% surtax on taxable investments plus the 1% Medicare surtax. Both are purposely not indexed for inflation. Like the amt in 1969 catching middle class income earners over the years.

 

[dchz]

But that is assuming your retirement portfolio matches the income you had while working. I clearly love Roth IRA's and the benefits they provide, but I can't imagine a situation where paying 35-37% marginal tax rate equates to greater returns than if you went pre-tax with that money. For those who are 1099 or have a lot of real-estate or a side business, then getting a marginal tax rate of 22% is not unheard of which would heavily favor Roth over Traditional. This is how I see it.

You are saying some of us has lower marginal tax rate now and might be in a similar marginal tax rate in the future. Then the decision is much closer. But the logic is still the same.

Therefore I agree with your assessment. Same logic, different assumptions, leading to different logically sound outcomes.

 

[finalpsychyear]

Globally what im saying is everyone situation is different.

Although this forum makes it feel like everyone will have in excess of 10 million (in todays money 2024 year) by the time they retire (15 million? In 8-10 years?). Which means their tax bracket will be the same in retirement.

Certainly most of the guys I know who are 60-65 and nearing retiring or at retirement already have 10 plus million and planning on spending in excess of 350k post tax money in 2024 money (even with primary and vacation homes paid off)

10m is a great number but not as great if it takes you till 60+ to hit it. My 2 collegues one in neurosurg and ortho spine are almost there 10 years into their field and should be there by 45. One plans on calling it a career and living off 3-4% of SWR while traveling the world. That is baller.

 

[aneftp]

10m is a great number but not as great if it takes you till 60+ to hit it. My 2 collegues one in neurosurg and ortho spine are almost there 10 years into their field and should be there by 45. One plans on calling it a career and living off 3-4% of SWR while traveling the world. That is baller.

It’s because we are in a middle of an historic 10
Year housing and stock market run

So it’s all about timing.

Some of us have had to survive 2000/2001 and 2008. It takes a few years to recover.

But if u been out since 2010 you really haven’t had a downturn in economy/housing/stock market yet

My interventional pain friend at 6 million after fellowship since 2016. Just good timing.

But number one thing that will slow u down is kids.

 

[finalpsychyear]

It’s because we are in a middle of an historic 10
Year housing and stock market run

So it’s all about timing.

Some of us have had to survive 2000/2001 and 2008. It takes a few years to recover.

But if u been out since 2010 you really haven’t had a downturn in economy/housing/stock market yet

My interventional pain friend at 6 million after fellowship since 2016. Just good timing.

But number one thing that will slow u down is kids.

Neither of my colleagues have kids and wives don't work and they don't spend crazy living in midwest with 800-1m house.

So your pain guy has kids and managed to get to 6m in just 8 full clinical years and starting year 9 in 2024!!
He must be hitting 7 figs then yearly in salary and not an overspender?

 

[aneftp]

Neither of my colleagues have kids and wives don't work and they don't spend crazy living in midwest with 800-1m house.

So your pain guy has kids and managed to get to 6m in just 8 full clinical years and starting year 9 in 2024!!
He must be hitting 7 figs then yearly in salary and not an overspender?

He has one kid. Two physician household. But he’s the real money machine. Combine they make 1.5. But he’s got surgery center shares also. That’s the key.

Big baller. Lambo , some high end 120k Mercedes , etc. low cost of living area in the south.

He’s 39 years old.

 

[Dr. Anonymouss]

He has one kid. Two physician household. But he’s the real money machine. Combine they make 1.5. But he’s got surgery center shares also. That’s the key.

Big baller. Lambo , some high end 120k Mercedes , etc. low cost of living area in the south.

He’s 39 years old.

That’s wild. Unfortunately most physicians will never live like that and if they do it will be toward the end of their career

 

[BLADEMDA]

Can anyone clarify the Pro-Rata rule for Roth Conversion? Let's say I have $1 million in an IRA and I want to covert $100,000 to a Roth IRA. As long as I don't have any other IRAs with post/ after tax money the Pro-rata rule doesn't apply?

My understanding is the Pro-rata rule has to do with backdoor Roth conversions and IRAs with post tax money.

How to Do a Backdoor Roth IRA [Step-by-Step Guide] | White Coat Investor

This Backdoor Roth IRA tutorial takes you step-by-step through the contribution process, including Form 8606, tax implications, common mistakes, and lots more.

www.whitecoatinvestor.com

 

[aneftp]

Can anyone clarify the Pro-Rata rule for Roth Conversion? Let's say I have $1 million in an IRA and I want to covert $100,000 to a Roth IRA. As long as I don't have any other IRAs with post/ after tax money the Pro-rata rule doesn't apply?

My understanding is the Pro-rata rule has to do with backdoor Roth conversions and IRAs with post tax money.

As long as you didn't have money in non deductible IRA and letting it grow over the years (pre 2010 rule changes) for back door roth. That's the money exposed to pro rata rule.

If all your money is pretax, regardless where it's sitting, it's an easy conversion and you just have to pay the taxes on the conversion.

 

[finalpsychyear]

He has one kid. Two physician household. But he’s the real money machine. Combine they make 1.5. But he’s got surgery center shares also. That’s the key.

Big baller. Lambo , some high end 120k Mercedes , etc. low cost of living area in the south.

He’s 39 years old.

With a Dual physician income and 1 kid and LCOL in the south and that insane salary he should be higher than 6m imo.

 

[aneftp]

With a Dual physician income and 1 kid and LCOL in the south and that insane salary he should be higher than 6m imo.

He’s only been making that type of money for 3 years.

Can’t assume it’s 1.5 million x 7 years.

Just not the way the world works.

His wife was still in fellowship till 2020.

You pay state income taxes plus 37% of taxes after 600k as married couple. So close to 43% of that so 900k of that money is exposed to 40% of income taxed. The first 600k exposed to 30% roughly.

Most people don’t understand here but the more you make the more your monthly spending goes up. He also repaid back 400k student loans.

 

[Dr. Anonymouss]

Can anyone clarify the Pro-Rata rule for Roth Conversion? Let's say I have $1 million in an IRA and I want to covert $100,000 to a Roth IRA. As long as I don't have any other IRAs with post/ after tax money the Pro-rata rule doesn't apply?

My understanding is the Pro-rata rule has to do with backdoor Roth conversions and IRAs with post tax money.

How to Do a Backdoor Roth IRA [Step-by-Step Guide] | White Coat Investor

This Backdoor Roth IRA tutorial takes you step-by-step through the contribution process, including Form 8606, tax implications, common mistakes, and lots more.

www.whitecoatinvestor.com

Correct! If you don't have any post-tax money in your non-Roth IRA's then pro-rata rule does not apply to you. In your example, you would be taxed 100% of the money you convert rather than a percentage of the money you convert as you don't have any post-tax contributions.

 

[ucsfgaspain]

He’s only been making that type of money for 3 years.

Can’t assume it’s 1.5 million x 7 years.

Just not the way the world works.

His wife was still in fellowship till 2020.

You pay state income taxes plus 37% of taxes after 600k as married couple. So close to 43% of that so 900k of that money is exposed to 40% of income taxed. The first 600k exposed to 30% roughly.

Most people don’t understand here but the more you make the more your monthly spending goes up. He also repaid back 400k student loans.

Not to steal your thunder but thought I'd chime in. You can file married but seperately and thus split the household income between the two. Works well up to a million each person at least in california tax situation. Also all the people that think it's easy to accumulate assets, it's not as easy as you think or model out.

The main advantage of roth is to hedge against future tax rates. I mean taking a look at the debt payments and the impending medicare and social security inability to fund obligations. You have to get the money from somewhere and that means tax increases. (I personally am not opposed even though I will get hit hard). So I personally believe that it would be naive to think that future tax rates in retirement will model out like today. I am indifferent to tax increases because I see taxes as a good problem to have as it shows economic success. In addition, as a student of history, increasing wealth dispartity leads to social unrest and revolution. Taxes to me are the payments I make to keep the very social system that allowed me to enjoy economic prosperity. YMMV but wanted to post a somewhat nuanced perspective on this topic.

 

[ucsfgaspain]

In addition, I use my roth as a place to place my assymetric bets in. Since the future tax obligation is hedged out, I'll put my long shots in hear. Think about bitcoin ETF's, individual stock choices, etc. Indexing probably not the most ideal location.

 

[Dr. Anonymouss]

Not to steal your thunder but thought I'd chime in. You can file married but seperately and thus split the household income between the two. Works well up to a million at least in california tax situation. Also all the people that think it's easy to accumulate assets, it's not as easy as you think or model out.

The main advantage of roth is to hedge against future tax rates. I mean taking a look at the debt payments and the impending medicare and social security inability to fund obligations. You have to get the money from somewhere and that means tax increases. (I personally am not opposed even though I will get hit hard). So I personally believe that it would be naive to think that future tax rates in retirement will model out like today. I am indifferent to tax increases because I see taxes as a good problem to have as it shows economic success. In addition, as a student of history, increasing wealth dispartity leads to social unrest and revolution. Taxes to me are the payments I make to keep the very social system that allowed me to enjoy economic prosperity. YMMV but wanted to post a somewhat nuanced perspective on this topic.

This is also something very important to consider. Most view Roth versus Traditional solely from the lens of "I have a high marginal tax rate now and I won't be near that in retirement", but that is under the assumption that taxes don't increase. In 2026, the taxes are going to go up again, not insanely high, but enough for us to notice. Social security is on life support, Medicare and Medicaid spending are unsustainable, and our debt is at 34 Trillion dollars. The real problem is irresponsible spending on the part of congress, but I don't know how anything will change that unless the complete government is overthrown through civil unrest. The only way our government will be able to keep up with it's current reckless spending is through rampant inflation or increased taxes.

 

[aneftp]

Not to steal your thunder but thought I'd chime in. You can file married but seperately and thus split the household income between the two. Works well up to a million at least in california tax situation. Also all the people that think it's easy to accumulate assets, it's not as easy as you think or model out.

The main advantage of roth is to hedge against future tax rates. I mean taking a look at the debt payments and the impending medicare and social security inability to fund obligations. You have to get the money from somewhere and that means tax increases. (I personally am not opposed even though I will get hit hard). So I personally believe that it would be naive to think that future tax rates in retirement will model out like today. I am indifferent to tax increases because I see taxes as a good problem to have as it shows economic success. In addition, as a student of history, increasing wealth dispartity leads to social unrest and revolution. Taxes to me are the payments I make to keep the very social system that allowed me to enjoy economic prosperity. YMMV but wanted to post a somewhat nuanced perspective on this topic.

Correct. Govt will find ways to generate tax revenue. Obama added Medicare part b new surtax/premiums for old people who earn more than 80k. I’m sure they will find ways to add more surcharges for people who earn too much even the elderly.

The Obamacare Medicare 200k/250k income threshold was purposely NOT INDEXED for inflation to capture more tax revenue over the years. Same
With the 3.8% surtax on investment income on 200/250k (125k if married filing separately)

Anyways filing married separately works for some couples. Mainly couples making equal money but if there is a huge disparity in income it may not make much sense.

But correct to have Roth to hedge again future taxes

 

[aneftp]

This is also something very important to consider. Most view Roth versus Traditional solely from the lens of "I have a high marginal tax rate now and I won't be near that in retirement", but that is under the assumption that taxes don't increase. In 2026, the taxes are going to go up again, not insanely high, but enough for us to notice. Social security is on life support, Medicare and Medicaid spending are unsustainable, and our debt is at 34 Trillion dollars. The real problem is irresponsible spending on the part of congress, but I don't know how anything will change that unless the complete government is overthrown through civil unrest. The only way our government will be able to keep up with it's current reckless spending is through rampant inflation or increased taxes.

View attachment 382830

Married couples save around 20k in taxes if they keep their agi less than 500/550k vs single earners.

The system is designed for one income and stay at home parent for many physicians families. Even higher way second income gets exposed to too much taxes

 

[Dr. Anonymouss]

Not to go down a rabbit hole, but for all the reasons mentioned I think everyone should own some portion of precious metals. I prefer silver over gold for a multitude of reasons, but this is yet an other hedge against our own government. Im not talking about certificates either, I mean physical silver or gold. If you can't feel it with your hands, then it ain't yours.

 

[GaseousClay]

Not to go down a rabbit hole, but for all the reasons mentioned I think everyone should own some portion of precious metals. I prefer silver over gold for a multitude of reasons, but this is yet an other hedge against our own government. Im not talking about certificates either, I mean physical silver or gold. If you can't feel it with your hands, then it ain't yours.

btc on a wallet you physically own