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

[aneftp]

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 accounts and converted it in post tax roth. Pay 700k plus on federal taxes

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[GassYous]

I don't know about that but I did hear recently that you can convert unused 529 money into roth ira for 2024, 35k$ lifetime limit

 

[triggermaster]

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 accounts and converted it in post tax roth. Pay 700k plus on federal taxes

Sorry I can’t answer your question, but in what scenario is that possibly beneficial? Avoiding RMDs? You think your tax bracket could actually go up? Or what?

 

[Angler]

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 accounts and converted it in post tax roth. Pay 700k plus on federal taxes

Wow, that's a big gift to Uncle Sam! I thought I was doing big conversions (six digits) to fill my 24% bracket since I'm retired with zero income.

Sorry I can’t answer your question, but in what scenario is that possibly beneficial? Avoiding RMDs? You think your tax bracket could actually go up? Or what?

One reason to do this would be to trim your net worth to avoid some estate taxes in the future. Come 2026, it's likely that the estate tax exemption will fall. But still, this is a problem that most people would love to have.

Yeah, I'd like to understand the reasoning behind such a large Roth conversion. And no, I didn't do this in 2010!

 

[aneftp]

Sorry I can’t answer your question, but in what scenario is that possibly beneficial? Avoiding RMDs? You think your tax bracket could actually go up? Or what?

6-7k post tax non deductible Roth back door is chump change

I see
This on white coat investor etc and other forums like this.

I’m talking real big time Roth conversion.

That’s why I asked.

So the answer is no one plays with big time tax conversions. Everyone talks a big game with Backdoor roth but 6-7k (honestly) means very little to me each year to do.

 

[aneftp]

Wow, that's a big gift to Uncle Sam! I thought I was doing big conversions (six digits) to fill my 24% bracket since I'm retired with zero income.



One reason to do this would be to trim your net worth to avoid some estate taxes in the future. Come 2026, it's likely that the estate tax exemption will fall. But still, this is a problem that most people would love to have.

Yeah, I'd like to understand the reasoning behind such a large Roth conversion. And no, I didn't do this in 2010!

I was going to do this. Had it all planned out in 2008 (it was well known tax law change) but bride back door Roth and solo 401k became popular.

Than economy crashed and I didn’t have enough cash to cover the taxes due even if it were spread over two years

It made no sense for me to take money from my retirement to pay the taxes with that maneuver

So I was just wondering if anyone did this.

 

[Angler]

Lots of things happened in 2008.

No one knows for sure, but I believe that tax rates will not go down further in our future. We have one of the tax-friendliest countries anywhere, with tax rates at historic lows. Our deficits are large and the government will have to service these loans with some kind of income. If ones future tax rate is going to be higher than the current tax rate, then it makes 100% sense to convert.

It sounds like you might have some regret not doing this massive mega conversion. I just looked at 2008 tax brackets. Highest bracket was 35% which is less than now. But still... Don't regret! Just look forward!

 

[triggermaster]

6-7k post tax non deductible Roth back door is chump change

I see
This on white coat investor etc and other forums like this.

I’m talking real big time Roth conversion.

That’s why I asked.

So the answer is no one plays with big time tax conversions. Everyone talks a big game with Backdoor roth but 6-7k (honestly) means very little to me each year to do.

Sure, but do you really think your tax bracket will be higher in retirement? Even with a normal sized Roth to strategically use if your taxable withdrawals would otherwise push you into a higher tax bracket?

Even if your tax bracket is slightly higher in early retirement, it’ll be many years into retirement before your mega Roth conversion pre-paid taxes will be less than just paying taxes on your yearly withdrawals. You may never save more in taxes than you are choosing to pay. If you ‘God forbid’ die within several years of your conversion, that money is lost forever to your heirs.

Seems like a lot of risk with little if any potential gain. Tell me how I’m wrong.

 

[aneftp]

Sure, but do you really think your tax bracket will be higher in retirement? Even with a normal sized Roth to strategically use if your taxable withdrawals would otherwise push you into a higher tax bracket?

Even if your tax bracket is slightly higher in early retirement, it’ll be many years into retirement before your mega Roth conversion pre-paid taxes will be less than just paying taxes on your yearly withdrawals. You may never save more in taxes than you are choosing to pay. If you ‘God forbid’ die within several years of your conversion, that money is lost forever to your heirs.

Seems like a lot of risk with little if any potential gain. Tell me how I’m wrong.

There was a huge advantage to be gained. It’s been 13 years. But different era back in 2010. My accountant had just died rip. He was only 46. The stock market crashed and was starting to turn around.

Anyways. It seems like people can still do the Roth conversion today as well but no one really does it

Say don’t have access to employer Roth 401k. But regular 401k pretax. You put $22500 pretax in it

You can immediately convert it to Roth as well. I just don’t see
People doing this yearly. They are allowed to do it once every 12 months.

 

[abolt18]

I did a Roth conversion of a little over $60K this year after I left my previous employer. Best time to do it after finishing fellowship so I had 6 months fellowship income and 5 months attending job, making it my last chance to do this in my low tax bracket. Also maxed out Roth 403b this year for the last time. Plan to do all pre-tax going forward.

 

[Coffee PRN]

I did a Roth conversion of a little over $60K this year after I left my previous employer. Best time to do it after finishing fellowship so I had 6 months fellowship income and 5 months attending job, making it my last chance to do this in my low tax bracket. Also maxed out Roth 403b this year for the last time. Plan to do all pre-tax going forward.

I had 6 months residency income and 5 months attending too, you didn't hit the 35% bracket?

 

[pgg]

So the answer is no one plays with big time tax conversions. Everyone talks a big game with Backdoor roth but 6-7k (honestly) means very little to me each year to do.

Taking the tax hit at your current marginal rate in excess of 35% is just bad planning.

Even people with a SDN-anesthesia-standard $10M portfolio and an aggressive 4% SWR are "only" going to be withdrawing $400K per year in retirement. Even if that's all taxed, the bill certainly isn't going to come anywhere near 35%.

It's not that any of us think overall taxes will be lower years and decades from now when we are retired. It's just that it's obvious none of us are going to be making taxable withdrawals in amounts that approach that rate, even if the USG jacks up taxes in the future.


I made one large IRA to Roth conversion about 10 years ago. I was deployed overseas for most of that year and had a very large combat zone tax exclusion. My taxable income that year was going to be extremely low. I converted enough of a SEP IRA to being my taxable income up to something around (IIRC) a 18%ish overall rate.

I'd never convert a multimillion $ IRA to a Roth and pay the taxes on it now. I think that's dumb.

 

[aneftp]

Taking the tax hit at your current marginal rate in excess of 35% is just bad planning.

Even people with a SDN-anesthesia-standard $10M portfolio and an aggressive 4% SWR are "only" going to be withdrawing $400K per year in retirement. Even if that's all taxed, the bill certainly isn't going to come anywhere near 35%.

It's not that any of us think overall taxes will be lower years and decades from now when we are retired. It's just that it's obvious none of us are going to be making taxable withdrawals in amounts that approach that rate, even if the USG jacks up taxes in the future.


I made one large IRA to Roth conversion about 10 years ago. I was deployed overseas for most of that year and had a very large combat zone tax exclusions. My taxable income that year was going to be extremely low. I converted enough of a SEP IRA to being my taxable income up to something around (IIRC) a 18%ish overall rate.

I'd never convert a multimillion $ IRA to a Roth and pay the taxes on it now. I think that's dumb.

But people still do Roth 401k (if their employer’s offer it $22500/$30k). If you still have 15 plus years to go. I’d still recommend doing Roth especially in no state income tax state like Florida where I live.

So why aren’t people say age 40 with just pretax 401k with an AMC doing an immediate conversion of pretax 401k to roth annually? That’s a much smaller amount? Psychological? Not sure but covering a smaller 22k pretax to post tax when amc doesn’t give Roth 401k option seems like a no brainer

But I did debate years ago when I was in my mid to late 30s doing that mega Roth conversion in 2010. I just didn’t have the cash after housing crash and stock market crash to pay the taxes without taking money out of the pretax account which defeated the purpose of the conversion

 

[triggermaster]

But people still do Roth 401k (if their employer’s offer it $22500/$30k). If you still have 15 plus years to go. I’d still recommend doing Roth especially in no state income tax state like Florida where I live.

So why aren’t people say age 40 with just pretax 401k with an AMC doing an immediate conversion of pretax 401k to roth annually? That’s a much smaller amount? Psychological? Not sure but covering a smaller 22k pretax to post tax when amc doesn’t give Roth 401k option seems like a no brainer

But I did debate years ago when I was in my mid to late 30s doing that mega Roth conversion in 2010. I just didn’t have the cash after housing crash and stock market crash to pay the taxes without taking money out of the pretax account which defeated the purpose of the conversion

Maybe if you tried to give a reason WHY you think it might be a good idea, people could argue for or against that reason.

Your taxable withdrawals in retirement will almost certainly have an EFFECTIVE tax rate far lower than your current MARGINAL tax rate, even if tax brackets generally go up.

When you do a huge Roth conversion, most (or all) of the money will be taxed at the highest marginal rate. When you do yearly distributions from taxable accounts in retirement, a lot of the money will be taxed at the rate for the lower tax brackets, so it is almost inconceivable that you won’t pay higher taxes doing a conversion than leaving your investments in tax-deferred accounts.

 

[chessknt]

Taking the tax hit at your current marginal rate in excess of 35% is just bad planning.

Even people with a SDN-anesthesia-standard $10M portfolio and an aggressive 4% SWR are "only" going to be withdrawing $400K per year in retirement. Even if that's all taxed, the bill certainly isn't going to come anywhere near 35%.

It's not that any of us think overall taxes will be lower years and decades from now when we are retired. It's just that it's obvious none of us are going to be making taxable withdrawals in amounts that approach that rate, even if the USG jacks up taxes in the future.


I made one large IRA to Roth conversion about 10 years ago. I was deployed overseas for most of that year and had a very large combat zone tax exclusions. My taxable income that year was going to be extremely low. I converted enough of a SEP IRA to being my taxable income up to something around (IIRC) a 18%ish overall rate.

I'd never convert a multimillion $ IRA to a Roth and pay the taxes on it now. I think that's dumb.

But it would only take 8 hours of work to pay all the taxes on that 4MM conversion. 100k/hr emergency rate then make sure you deduct your entire mortgage from the amount with your whole home office that you use to deliver anesthesia so it is all tax free then leverage that in to $BONK futures for 10000x gains using a foreign bank account in a trust made by your very good accountant and you'll get enough money to survive at least 2 months before having to worry about your finances again.

 

[aneftp]

Maybe if you tried to give a reason WHY you think it might be a good idea, people could argue for or against that reason.

Your taxable withdrawals in retirement will almost certainly have an EFFECTIVE tax rate far lower than your current MARGINAL tax rate, even if tax brackets generally go up.

When you do a huge Roth conversion, most (or all) of the money will be taxed at the highest marginal rate. When you do yearly distributions from taxable accounts in retirement, a lot of the money will be taxed at the rate for the lower tax brackets, so it is almost inconceivable that you won’t pay higher taxes doing a conversion than leaving your investments in taxable accounts.

Most of my physician friends are budgeting 300-400k retirement annual spending. Yes. That’s sounds strange but that’s what they are counting on. So they are planning on spending close to 80% of what they are earning. So it’s not much of a tax savings with that type of budget if most of that money is in pretax

Thats
Why their “magic number” for retirement is in excess of 10 million to retire by age 57-60. Assuming living to age 82. Some docs want to save up to 15 million before retiring. To pass on money to kids.

 

[abolt18]

I had 6 months residency income and 5 months attending too, you didn't hit the 35% bracket?

Married filing jointly, plus maxed out pre-tax 457b and a fair amount of charitable giving puts us well below that mark. My wife stays home with our kids and makes a negligible income with her work.

Plus I took no call in August and 4.5 weeks of time off during the 5 months. All my incentive hours (call, weekends, etc.) in the 4th quarter get paid out in January. So my income this year is artificially suppressed. And my yearly bonus isn't till spring so even better for doing the conversion this year.

 

[pgg]

Most of my physician friends are budgeting 300-400k retirement annual spending. Yes. That’s sounds strange but that’s what they are counting on. So they are planning on spending close to 80% of what they are earning. So it’s not much of a tax savings with that type of budget if most of that money is in pretax

They're still never going to pay a 35%+ overall tax rate on those 300-400K withdrawals (even assuming it's ALL from a tax deferred account, which it surely won't be because people with $10M+ portfolios have substantial taxable accounts).

That's why a multimillion dollar Roth conversion is stupid.

 

[rick roller pump]

I find this concept kinda funny. Trying so hard to avoid paying taxes that you end up paying more taxes.

My marginal tax rate is 48%. Crazy stuff would need to happen for it to be that high in retirement (not impossible since that's 30 years out but seems unlikely).

 

[aneftp]

They're still never going to pay a 35%+ overall tax rate on those 300-400K withdrawals (even assuming it's ALL from a tax deferred account, which it surely won't be because people with $10M+ portfolios have substantial taxable accounts).

That's why a multimillion dollar Roth conversion is stupid.

Well it wasn’t that funny in 2009/2010 with Obama being in the presidency and the bush tax cuts sunsetting. We never know what future tax rates will be.

Now we are dealing with Medicare surtaxes on investments etc.

I’m always forward thinking. I seriously would have done it back than had my porfolio not gone down 30% plus losing 250k (real cash) on homes. Not hypothetically since I purchased in 2005 at the peak.

I still think I would be ahead had I done it and had the cash to cover long term. Especially the way the stock market has behaved from 2010-2023.

 

[GravelRider]

Anything with “mega” as a prefix sounds so cool, though. Imagine all the chicks you can get when you brag about your “mega backdoor” action at the next party.

 

[triggermaster]

Well it wasn’t that funny in 2009/2010 with Obama being in the presidency and the bush tax cuts sunsetting. We never know what future tax rates will be.

Now we are dealing with Medicare surtaxes on investments etc.

I’m always forward thinking. I seriously would have done it back than had my porfolio not gone down 30% plus losing 250k (real cash) on homes. Not hypothetically since I purchased in 2005 at the peak.

I still think I would be ahead had I done it and had the cash to cover long term. Especially the way the stock market has behaved from 2010-2023.

That’s just not how math works.

New grads could do a conversion while their tax bracket is low, but they don’t typically have large tax-deferred retirement accounts. Retirees can do a conversion if their tax bracket is low enough to make it worthwhile, but only until the tax-deferred withdrawal drives their marginal rate up. For the rest of us making in the top 2 tax brackets, a mega Roth conversion would cost more than it would save.

A backdoor Roth is completely unrelated because you fund it with after tax money. You’ve already paid the taxes, so you come out ahead even if your tax bracket will be lower in retirement. A backdoor Roth lets you pay less in taxes. It doesn’t work for a mega Roth conversion because you fund it with money that hasn’t been taxed already, so you are very likely to lose.

Good luck.

 

[DesiredMemberName?]

Our forum’s self-proclaimed “Tax mastermind” can’t seem to grasp this very basic tax arbitrage concept.

 

[aneftp]

That’s just not how math works.

New grads could do a conversion while their tax bracket is low, but they don’t typically have large tax-deferred retirement accounts. Retirees can do a conversion if their tax bracket is low enough to make it worthwhile, but only until the tax-deferred withdrawal drives their marginal rate up. For the rest of us making in the top 2 tax brackets, a mega Roth conversion would cost more than it would save.

A backdoor Roth is completely unrelated because you fund it with after tax money. You’ve already paid the taxes, so you come out ahead even if your tax bracket will be lower in retirement. A backdoor Roth lets you pay less in taxes. It doesn’t work for a mega Roth conversion because you fund it with money that hasn’t been taxed already, so you are very likely to lose.

Good luck.

Yes. I understand your point but it’s like the pretax vs post tax

Say your only option is $22500 pretax with amc. No Roth option

But anyone can convert the pretax to roth (once every 12 month). Pay taxes on it. Why aren’t people doing this annually?

It’s almost the same as me putting $22500/30k in my employee Roth 403b plan (it’s all post tax) and let it ride paying taxes already

So the reasoning makes no sense for people not to convert annually as well pretax 401k/403b into post tax Roth IRA conversion and pay the taxes

 

[triggermaster]

You comparisons ARE similar, but how did you determine that the Roth 401k and mega Roth conversion BOTH make sense rather than NEITHER?

 

[aneftp]

You comparisons ARE similar, but how did you determine that the Roth 401k and mega Roth conversion BOTH make sense rather than NEITHER?

If you live in a no state income tax state like Nevada Florida Texas. The Roth IRA will always be the better choice because no state income taxes savings on pretax retirement.

 

[mdo1738]

Depends on your situation, but part of the advantage with the Roth is that you don’t have RMDs. Being able to let that grow untouched for a few more years if you’re able can be huge at that point.

 

[Dr. Rude]

Yes. I understand your point but it’s like the pretax vs post tax

Say your only option is $22500 pretax with amc. No Roth option

But anyone can convert the pretax to roth (once every 12 month). Pay taxes on it. Why aren’t people doing this annually?

It’s almost the same as me putting $22500/30k in my employee Roth 403b plan (it’s all post tax) and let it ride paying taxes already

So the reasoning makes no sense for people not to convert annually as well pretax 401k/403b into post tax Roth IRA conversion and pay the taxes

because the only way it makes sense is to believe that you will be in a higher tax bracket during the withdrawal phase. Nothing is certain, but for lots of us it just seems unlikely.

 

[aneftp]

because the only way it makes sense is to believe that you will be in a higher tax bracket during the withdrawal phase. Nothing is certain, but for lots of us it just seems unlikely.

I have done Roth 401k for the last 7 plus years

It’s highly recommend for almost everyone under age 50

Same reason people do the backdoor Roth. Post tax money.

 

[triggermaster]

I have done Roth 401k for the last 7 plus years

It’s highly recommend for almost everyone under age 50

Same reason people do the backdoor Roth. Post tax money.

Wrong. With the 401k you could contribute pre-tax money and lower your tax bill. With the backdoor Roth you don’t qualify for a tax-deductible traditional IRA, so you might as well do a backdoor Roth. With a backdoor Roth, you are paying the taxes whether you put it in a Roth IRA or not.

It’s really not that complicated. You should just go read up on the subject on your own or watch videos on YouTube. It just doesn’t seem to be sinking in.

 

[aneftp]

Wrong. With the 401k you could contribute pre-tax money and lower your tax bill. With the backdoor Roth you don’t qualify for a tax-deductible traditional IRA, so you might as well do a backdoor Roth. With a backdoor Roth, you are paying the taxes whether you put it in a Roth IRA or not.

It’s really not that complicated. You should just go read up on the subject on your own or watch videos on YouTube. It just doesn’t seem to be sinking in.

What?
Roth 401k (22500/30000) is still recommended over pretax 22500/30000 for anyone with a 15 year horizon

Backdoor Roth is $6500

 

[chessknt]

What?
Roth 401k (22500/30000) is still recommended over pretax 22500/30000 for anyone with a 15 year horizon

Backdoor Roth is $6500

By who?

Just keeping numbers round assuming 35% tax bracket now and 15% in retirement with growth for 20 years:

$100 in 401 + $35 in taxable both with 4% returns annually=$219 pre tax (186 after taxes) + $77 ( maybe call it 60 to be generous for taxes) tax free=$246 post tax

Vs

$100 in roth 401 with 4% annually= $219 post tax

 

[aneftp]

By who?

Many non amc anesthesia providers provide Roth 403b/401k options

 

[chessknt]

Many non amc anesthesia providers provide Roth 403b/401k options

I updated post with math for my point but my question is who is recommending a Roth 401 over a regular pretax 401?

 

[BLADEMDA]

They're still never going to pay a 35%+ overall tax rate on those 300-400K withdrawals (even assuming it's ALL from a tax deferred account, which it surely won't be because people with $10M+ portfolios have substantial taxable accounts).

That's why a multimillion dollar Roth conversion is stupid.

My CFP recommended I convert IRA to Roth IRA at retirement when my marginal rate was 24-28 percent. He said it made sense longer term for my kids. I could convert $100 or 250K into a Roth IRA. He told me to move my Ira money into my business 401K first because that money didn’t needed to be converted. For example, if I have a 1 million Ira move 800k into my 401k leaving me 200k to convert into a Roth IRA. That year I would use my cash reserves, bonds or appreciated stocks to keep my taxable income low. If I wanted more Roth IRA money I could do anoyjer conversion of 100K the following year. They big issue is I need to survive 5 years to make this conversion make sense

 

[BLADEMDA]

By who?

Just keeping numbers round assuming 35% tax bracket now and 15% in retirement with growth for 20 years:

$100 in 401 + $35 in taxable both with 4% returns annually=$219 pre tax (186 after taxes) + $77 ( maybe call it 60 to be generous for taxes) tax free=$246 post tax

Vs

$100 in roth 401 with 4% annually= $219 post tax

My CFP said there are some advantages to a Roth 401k or Roth 403b in terms of inheritance for my kids. I am more likely to survive the mandatory 5 years and I don’t need to worry about the conversions later in life. I had always used pre tax retirement accounts but he stressed that if I didn’t need the Roth money it was a superior way to leave money for my kids.

I decided Against it but he still wants me to covert money into a Roth IRA before I get too old or too sick.

 

[BLADEMDA]

• Access to your retirement money. Unfortunately, the Roth 401(k) doesn’t have the flexibility of a Roth IRA; you can't remove contributions at any time. In fact, in some ways it’s less flexible than a traditional 401(k), due to that five-year rule: Even if you hit age 59½, your distribution won’t be qualified unless you’ve also held the account for at least five years. That’s something to keep in mind if you’re getting a late start.
• Required minimum distributions in retirement. Traditional 401(k)s require account owners to begin taking distributions at age 73, but as of January 2024, Roth 401(k)s do not have RMDs. A Roth 401(k) also can easily be rolled into a Roth IRA.

Roth 401k vs. 401k: Which account is best for you? - NerdWallet

Deciding between the Roth 401(k) and the traditional 401(k)? NerdWallet outlines the factors to consider, including taxes and account rules.

www.nerdwallet.com

 

[BLADEMDA]

Under the new legislation, if you pass a 401(k) to a non-spouse, that individual must generally receive all the money in the account within 10 years of inheriting it (or within 10 years of coming of age, in the case of a minor). That means those who inherit traditional accounts have some potentially tricky tax planning.

But those who inherit Roths won’t owe taxes on the money they withdraw.

By investing in a Roth, “you’re basically making the call that, ‘I’m going to take care of this now for my kids.’ It’s the long-term strategic thing to do,” says Valega.

 

[BLADEMDA]

As a result, if you find yourself to be the beneficiary of a Roth IRA, double-check the timing of initial contributions, conversions or rollovers. Distributions of earnings and rollovers won’t necessarily qualify as tax-free if any of the five-year rules prohibit it, even though the original owner of the Roth IRA has died. Those amounts will be included in the beneficiary’s gross income and therefore subject to income taxes, just as if the money had gone to the original IRA owner instead.

 

[aneftp]

• Access to your retirement money. Unfortunately, the Roth 401(k) doesn’t have the flexibility of a Roth IRA; you can't remove contributions at any time. In fact, in some ways it’s less flexible than a traditional 401(k), due to that five-year rule: Even if you hit age 59½, your distribution won’t be qualified unless you’ve also held the account for at least five years. That’s something to keep in mind if you’re getting a late start.
• Required minimum distributions in retirement. Traditional 401(k)s require account owners to begin taking distributions at age 73, but as of January 2024, Roth 401(k)s do not have RMDs. A Roth 401(k) also can easily be rolled into a Roth IRA.

Roth 401k vs. 401k: Which account is best for you? - NerdWallet

Deciding between the Roth 401(k) and the traditional 401(k)? NerdWallet outlines the factors to consider, including taxes and account rules.

www.nerdwallet.com

You can always take out ur principal contributions at anytime before age 59 1/2 without penalty

Now the 5 year rule is for Roth GAINS Regardless of age when if you put the money in meaning if u put Roth at age 60. You can’t take out the GAINS tax free till age 65. But you can always take out the principal.

 

[Dr. Rude]

Under the new legislation, if you pass a 401(k) to a non-spouse, that individual must generally receive all the money in the account within 10 years of inheriting it (or within 10 years of coming of age, in the case of a minor). That means those who inherit traditional accounts have some potentially tricky tax planning.

But those who inherit Roths won’t owe taxes on the money they withdraw.

By investing in a Roth, “you’re basically making the call that, ‘I’m going to take care of this now for my kids.’ It’s the long-term strategic thing to do,” says Valega.

Roth Dollars are generally the last dollars a retiree should spend and the first dollars that they should pass on to their children.

 

[pgg]

What?
Roth 401k (22500/30000) is still recommended over pretax 22500/30000 for anyone with a 15 year horizon

No.

If your marginal bracket is 32% or 35% like it is for most of us on this forum, Roth 401k is dumb. You're paying 35% tax on those dollars now, when you could be making pretax contributions to a 401k. In retirement you won't be paying near 35% on 401k withdrawals. High earners should almost never be making Roth 401k contributions or converting pretax accounts to Roth accounts.

I know that you personally are committing tax fraud every year, you tell us about it so often, so maybe the marginal rate on your return is 22%. In that case maybe a Roth 401k isn't such a bad idea for you personally.

Backdoor Roth is $6500

Backdoor Roth makes sense for everyone. It's money you have to pay taxes on now anyway, so you might as well get the Roth advantage from it.

 

[aneftp]

No.

If your marginal bracket is 32% or 35% like it is for most of us on this forum, Roth 401k is dumb. You're paying 35% tax on those dollars now, when you could be making pretax contributions to a 401k. In retirement you won't be paying near 35% on 401k withdrawals. High earners should almost never be making Roth 401k contributions or converting pretax accounts to Roth accounts.

I know that you personally are committing tax fraud every year, you tell us about it so often, so maybe the marginal rate on your return is 22%. In that case maybe a Roth 401k isn't such a bad idea for you personally.



Backdoor Roth makes sense for everyone. It's money you have to pay taxes on now anyway, so you might as well get the Roth advantage from it.

I'm shocked by the contradictory "anti Roth 401K" with after tax money but while supporting the equally similar after tax backdoor Roth.

You realize you are contributing the same post tax money that's been taxed at whatever tax bracket you have whether it's backdoor Roth or regular Roth 401k.

Ask any financial advisor. If you are gonna to practice more than 15 years or more, you should absolutely do the Roth 401k/b option if you are given the opportunity. Especially if you live in non state income tax like Florida or Nevada to Tennessee etc. Since there is no state income tax deduction in those states.

Think about it. Backdoor Roth/post tax money (ok ??). Yet you are against Roth 403 b .which is the same post tax money.

Google any financial site about post tax Roth 403b/401k or pretax 401k/403b. Giving the time (15 or even 30 years in the future). You are making a tax bet what rates are in the future. It's a heavily discussed topic. It boils down to (taxes in future plus how much you spend). Plus future growth of the accounts. and your retirement spending plus where you live (some state still tax 401k distributions). Too many variables if you are exposed to future taxes and who knows what you will spend in the future. I plan on spending at least 300K a year (in today's money) which means 15 years in the future it will be 400K plus I plan on spending each year. I have an expensive lifestyle (right now). Again I don't know how much I will truly spend.

You must live in a high state income tax state like California Maryland New York to be pushing for pre tax 401k/403b because you will save 8-9% state income taxes plus federal taxes on 401k pretax contributions. I live in Florida so don't get those savings...because Florida has no state income taxes.

And no, I don't commit tax fraud. Paying 15% effective tax rate as full time 1099 is pretty average on 500K ish I've made in the past. If I made say 1.5 million, my effective tax rate would be closer to 27-28%%. Just check out what corporations tax rates are and tell me who the tax fraud is.

Let's say you have 10 million in Roth accounts by age 70. Vs 10 million in pretax by age 70. So you pay 3 million in taxes on that pretax 10 million.

Hypothetically you would have say 3 million in tax savings you could have reinvested with the 401k pre tax savings at your disposal over the years. Say you reinvested it in whatever (investment homes/taxable brokerages). You still end up having to pay taxes 23.8% of the brokerage gains or the homes if sold for a profit.

The math gets very complicated.

 

[triggermaster]

I'm shocked by the contradictory "anti Roth 401K" with after tax money but while supporting the equally similar after tax backdoor Roth.

You realize you are contributing the same post tax money that's been taxed at whatever tax bracket you have whether it's backdoor Roth or regular Roth 401k.

Ask any financial advisor. If you are gonna to practice more than 15 years or more, you should absolutely do the Roth 401k/b option if you are given the opportunity. Especially if you live in non state income tax like Florida or Nevada to Tennessee etc. Since there is no state income tax deduction in those states.

Think about it. Backdoor Roth/post tax money (ok ??). Yet you are against Roth 403 b .which is the same post tax money.

Google any financial site about post tax Roth 403b/401k or pretax 401k/403b. Giving the time (15 or even 30 years in the future). You are making a tax bet what rates are in the future. It's a heavily discussed topic. It boils down to (taxes in future plus how much you spend). Plus future growth of the accounts. and your retirement spending plus where you live (some state still tax 401k distributions). Too many variables if you are exposed to future taxes and who knows what you will spend in the future. I plan on spending at least 300K a year (in today's money) which means 15 years in the future it will be 400K plus I plan on spending each year. I have an expensive lifestyle (right now). Again I don't know how much I will truly spend.

You must live in a high state income tax state like California Maryland New York to be pushing for pre tax 401k/403b because you will save 8-9% state income taxes plus federal taxes on 401k pretax contributions. I live in Florida so don't get those savings...because Florida has no state income taxes.

And no, I don't commit tax fraud. Paying 15% effective tax rate as full time 1099 is pretty average on 500K ish I've made in the past. If I made say 1.5 million, my effective tax rate would be closer to 27-28%%. Just check out what corporations tax rates are and tell me who the tax fraud is.

Let's say you have 10 million in Roth accounts by age 70. Vs 10 million in pretax by age 70. So you pay 3 million in taxes on that pretax 10 million.

Hypothetically you would have say 3 million in tax savings you could have reinvested with the 401k pre tax savings at your disposal over the years. Say you reinvested it in whatever (investment homes/taxable brokerages). You still end up having to pay taxes 23.8% of the brokerage gains or the homes if sold for a profit.

The math gets very complicated.

How much you pay in taxes is irrelevant. How much spending money you have after taxes is what you should be aiming to maximize.

$100,000 in a 401k that doubles 3 times in 25 years is worth $800,000. If taxed at 25% that gives $600,000 spendable cash.

$100,000 in 401k converted to Roth at 25% tax bracket is $75,000. If it doubles 3 times in 25 years it’ll be worth … 🥁 … $600,000.

The taxes paid are higher in the first option, but the spendable cash after taxes is the same. The variable that makes a conversion worthwhile or not is which is larger- your marginal rate now or your effective tax rate in 25 years.

For almost all of us, the effective tax rate in retirement will be lower so the spendable cash after taxes will be greater if our money is left in a 401k.

 

[aneftp]

How much you pay in taxes is irrelevant. How much spending money you have after taxes is what you should be aiming to maximize.

$100,000 in a 401k that doubles 3 times in 25 years is worth $800,000. If taxed at 25% that gives $600,000 spendable cash.

$100,000 in 401k converted to Roth at 25% tax bracket is $75,000. If it doubles 3 times in 25 years it’ll be worth … 🥁 … $600,000.

The taxes paid are higher in the first option, but the spendable cash after taxes is the same. The variable that makes a conversion worthwhile or not is which is larger- your marginal rate now or your effective tax rate in 25 years?

For almost all of us, the effective tax rate in retirement will be lower so the spendable cash after taxes will be greater if our money is left in a 401k.

The variable is state income taxes

Many of you aren’t commenting on that

If I lived in higher state income tax state that would swing decision.

 

[triggermaster]

The variable is state income taxes

Many of you aren’t commenting on that

If I lived in higher state income tax state that would swing decision.

You are assuming that (your state income tax rate in retirement minus your state income tax rate now) will be greater than (your marginal tax bracket now minus your effective federal tax rate in retirement).

It’s not that that can’t possibly be true for anyone. It’s just not true for the vast majority of people. If low income or tax fraud puts you in a low enough tax bracket 🚩, it’s much more likely that a Roth will work in your favor, as long as you can avoid an audit by the IRS.

 

[pgg]

I'm shocked by the contradictory "anti Roth 401K" with after tax money but while supporting the equally similar after tax backdoor Roth.

You realize you are contributing the same post tax money that's been taxed at whatever tax bracket you have whether it's backdoor Roth or regular Roth 401k.

Jesus Christ on a cracker, how do you not understand this?

The basic choices are:
- Roth 401k or ... traditional 401k. You can't do both, so pick one. The Roth is taxed now at your marginal rate. The traditional is taxed at the time of withdrawal at a rate that will assuredly be less than a 35%+ marginal rate now. You have a CHOICE to put pre- or post- tax dollars in one of these retirement accounts.

- Backdoor Roth IRA or ... traditional nondeductable IRA. You don't have a choice to put pre-tax dollars in this account. Since IRA contributions MUST be post-tax for people at our income level, you might as well get the benefit of the Roth via a traditional nondeductible contribution and immediate ("backdoor") conversion to Roth..

Ask any financial advisor. If you are gonna to practice more than 15 years or more, you should absolutely do the Roth 401k/b option if you are given the opportunity. Especially if you live in non state income tax like Florida or Nevada to Tennessee etc. Since there is no state income tax deduction in those states.

Think about it. Backdoor Roth/post tax money (ok ??). Yet you are against Roth 403 b .which is the same post tax money.

It's only the same post-tax money if you're dumb enough to contribute to a post-tax Roth 401k instead of a pre-tax traditional 401k.

You do have a choice to contribute to a traditional, deductible, pre-tax 401k. You do not have a choice to contribute to a traditional, deductible, pre-tax IRA.

Google any financial site about post tax Roth 403b/401k or pretax 401k/403b. Giving the time (15 or even 30 years in the future). You are making a tax bet what rates are in the future.

Obviously the government could tax retirement accounts at 90% or something, but everyone knows that's not going to happen.

There's something to be said for tax diversification in a portfolio, but a Roth 401k just costs too much for high earners. The premium you're paying to hedge that miniscule future tax risk is extremely high.

Financial sites are largely advising ordinary people who are not earning $500K+ per year. Their marginal rate might be 18% or 22% ... for them, it might be reasonable to choose the Roth 401k. Probably not though. A Roth 401k makes sense for very, very few people.

Roth conversions make sense under very limited circumstances - most commonly, when a person has a year in which they make far less than they usually do. If you take a sabbatical for a year and don't work at all, that'd be great time to convert a few hundred $K to Roth.

And no, I don't commit tax fraud. Paying 15% effective tax rate as full time 1099 is pretty average on 500K ish I've made in the past. If I made say 1.5 million, my effective tax rate would be closer to 27-28%%. Just check out what corporations tax rates are and tell me who the tax fraud is.

You've presented this defense before: that because corrupt politicians pass tax laws that greatly favor corporations over people, especially high wage-earning people, that this immoral state of affairs justifies your (obviously illegal) maneuvers to lower your tax rate to what you think is fair.

Dude. C'mon. We're not that stupid. And neither is the IRS.

Let's say you have 10 million in Roth accounts by age 70. Vs 10 million in pretax by age 70. So you pay 3 million in taxes on that pretax 10 million.

Hypothetically you would have say 3 million in tax savings you could have reinvested with the 401k pre tax savings at your disposal over the years. Say you reinvested it in whatever (investment homes/taxable brokerages). You still end up having to pay taxes 23.8% of the brokerage gains or the homes if sold for a profit.

A) There ain't no "hypothetically" about it. That's the whole point of pre-tax contributions to retirement accounts.

B) You're aware that 23.8% is less than the 35%+ rate you'd be paying on the Roth conversion now, right?

The math gets very complicated.

Not really. I'm tired of explaining it to you. You post the most outlandish ridiculous tax advice, yet don't understand the most basic difference between trad/Roth 401(k) vs nondeductable-trad/backdoor-Roth IRA: choice. It's baffling. I'm starting to think maybe you really do believe what you're doing is legal because your understanding of tax law and math is so poor.

Do what you want I guess, and try to stay off the IRS radar. Your post history explicitly and repeatedly illustrates willful tax fraud and your only defense is that the unfair tax code favors corporations and they get a really good deal, so you don't feel guilty about cheating on your taxes because you deserve what they get too.

 

[aneftp]

Jesus Christ on a cracker, how do you not understand this?

The basic choices are:
- Roth 401k or ... traditional 401k. You can't do both, so pick one. The Roth is taxed now at your marginal rate. The traditional is taxed at the time of withdrawal at a rate that will assuredly be less than a 35%+ marginal rate now. You have a CHOICE to put pre- or post- tax dollars in one of these retirement accounts.

- Backdoor Roth IRA or ... traditional nondeductable IRA. You don't have a choice to put pre-tax dollars in this account. Since IRA contributions MUST be post-tax for people at our income level, you might as well get the benefit of the Roth via a traditional nondeductible contribution and immediate ("backdoor") conversion to Roth..



It's only the same post-tax money if you're dumb enough to contribute to a post-tax Roth 401k instead of a pre-tax traditional 401k.

You do have a choice to contribute to a traditional, deductible, pre-tax 401k. You do not have a choice to contribute to a traditional, deductible, pre-tax IRA.



Obviously the government could tax retirement accounts at 90% or something, but everyone knows that's not going to happen.

There's something to be said for tax diversification in a portfolio, but a Roth 401k just costs too much for high earners. The premium you're paying to hedge that miniscule future tax risk is extremely high.

Financial sites are largely advising ordinary people who are not earning $500K+ per year. Their marginal rate might be 18% or 22% ... for them, it might be reasonable to choose the Roth 401k. Probably not though. A Roth 401k makes sense for very, very few people.

Roth conversions make sense under very limited circumstances - most commonly, when a person has a year in which they make far less than they usually do. If you take a sabbatical for a year and don't work at all, that'd be great time to convert a few hundred $K to Roth.



You've presented this defense before: that because corrupt politicians pass tax laws that greatly favor corporations over people, especially high wage-earning people, that this immoral state of affairs justifies your (obviously illegal) maneuvers to lower your tax rate to what you think is fair.

Dude. C'mon. We're not that stupid. And neither is the IRS.



A) There ain't no "hypothetically" about it. That's the whole point of pre-tax contributions to retirement accounts.

B) You're aware that 23.8% is less than the 35%+ rate you'd be paying on the Roth conversion now, right?



Not really. I'm tired of explaining it to you. You post the most outlandish ridiculous tax advice, yet don't understand the most basic difference between trad/Roth 401(k) vs nondeductable-trad/backdoor-Roth IRA: choice. It's baffling. I'm starting to think maybe you really do believe what you're doing is legal because your understanding of tax law and math is so poor.

Do what you want I guess, and try to stay off the IRS radar. Your post history explicitly and repeatedly illustrates willful tax fraud and your only defense is that the unfair tax code favors corporations and they get a really good deal, so you don't feel guilty about cheating on your taxes because you deserve what they get too.

And what state are you in? That’s the money ball.

If you are in New York City with it’s 11% state/city income tax or California with its 9.25/11.25/13.25% state income tax. Than taking the pretax 401k is better choice since it’s an immediate savings

I get no savings in Florida.

My understanding of the tax code is tremendous and I correct my own accountants and others accountants as well.

 

[linkin06]

what if it's roth 401k vs brokerage, assuming you already maxed 401k. then doesn't it make sense to do the roth401k, avoiding capital gains tax?

 

[kidthor]

what if it's roth 401k vs brokerage, assuming you already maxed 401k. then doesn't it make sense to do the roth401k, avoiding capital gains tax?

I don't see why one wouldn't do at least some Roth 401K if that's an option... No capital gains tax as you noted.

My personal strategy is a mix of Roth plus pretax 401K with pretax 457 (employer won't let me Roth that one) plus Roth IRA plus brokerage for what's left over. Sadly I'm W2 with a wildly pathetic 401K match, otherwise if I were in private practice or had much side hustle I'd max out the employer 401K side. Admittedly I'm not that most sophisticated retirement optimizer, so I'm very curious what others do and recommend.