Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 04-29-2016, 02:49 PM   #21
Recycles dryer sheets
 
Join Date: Nov 2013
Posts: 358
Quote:
Originally Posted by 523HRR View Post
DW and I always made after-tax contributions to our 401Ks once we hit the pre-tax limit. Leaving these contributions in the 401K would subject future earnings/growth to ordinary income tax rates. So after ER, we did the mega backdoor Roth conversion, rolling these after-tax contributions to Roth IRAs. Future earnings/growth on these balances will now be tax-free forever, with no RMDs. If this was "not the best option", what would be the best option?

Best option IMO. Do rollovers to a Roth IRA of the after tax portion immediately after posting to your account makes both earnings and contributions tax free whereas if done in retirement only the contribution is tax free.
__________________

__________________
NgineER is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-30-2016, 11:03 PM   #22
Recycles dryer sheets
 
Join Date: Jan 2013
Posts: 69
One advantage of going Roth is that it increases the amount of money you can put into tax-protected space.

Even though the nominal limit of $53K applies, because your Roth money is after-tax, it represents a larger portion of your income. This skews the equation toward Roth a little if your goal is to save more for retirement, and you don't have cash flow issues today.

Of course relative tax rates are likely to still be the overriding concern.

Scenario 1 - Tax-deferred - 25% tax bracket now and at retirement:

Invest $100 pre-tax now, 10 years growth at 7% turns this into $196.7, pay 25% - leaves you with $147.5.

Scenario 2 - Roth - 25% tax bracket now and at retirement:
Invest $100 after tax now, 10 years growth at 7% turns this into $196.7, which is tax free.

Scenario 2 is ahead because the $100 after-tax actually represents $133.3 pre-tax. If you're bumping into the limits of your tax-advantaged space, investing after tax increases your effective limit.
__________________

__________________
ulrichw is offline   Reply With Quote
Old 05-01-2016, 08:22 AM   #23
Recycles dryer sheets
 
Join Date: Jun 2012
Posts: 489
Good point. Although in your example below, in scenario 1 you would need to add the extra $33.3 to a tax-efficient post-tax account and calculate its final value (including taxes along the way on any divs/etc).

Quote:
Originally Posted by ulrichw View Post
One advantage of going Roth is that it increases the amount of money you can put into tax-protected space.

Of course relative tax rates are likely to still be the overriding concern.

Scenario 1 - Tax-deferred - 25% tax bracket now and at retirement:

Invest $100 pre-tax now, 10 years growth at 7% turns this into $196.7, pay 25% - leaves you with $147.5.

Scenario 2 - Roth - 25% tax bracket now and at retirement:
Invest $100 after tax now, 10 years growth at 7% turns this into $196.7, which is tax free.

Scenario 2 is ahead because the $100 after-tax actually represents $133.3 pre-tax. If you're bumping into the limits of your tax-advantaged space, investing after tax increases your effective limit.
__________________

__________________
someguy is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Can I do both Backdoor Roth IRA and Mega Backdoor Roth IRA? growerVon FIRE and Money 8 07-30-2015 02:04 AM
Noticed more people holding signs "need work or food" rayinpenn Other topics 3 05-03-2015 03:51 PM
Best Option for Children's Savings cscott711 Other topics 12 01-01-2012 03:20 PM
Why ER May Not Be Your Best Option Onward Other topics 31 02-15-2011 11:08 PM
Suggestion: Detailed data for 95% rule option and Bernicke option. Sam FIRECalc support 2 03-25-2007 08:16 AM

 

 
All times are GMT -6. The time now is 10:52 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.