2023 401(k) and IRA Maximum Contributions - Anybody here doing this?

[Bigdawg]

My biggest regret is that I did not know enough to do backdoor Roth conversions. I should have done it, given that I was paying tax on some or all of those contributions in some years anyway. As it is, I now have a smaller Roth than I could have and I have a basis in my tIRA, which makes it a pain when calculating taxes on conversions and distributions

I have done a few years of backdoor ROTH's but, I can't wrap my head around the savings. If I contibute to a TIRA this year (after tax) and then back door ROTH, what do I gain? I've already paid 24% (or effective less than 20%) on that money. The % I would save would be 24%-will always be in 24% unless rates rise. Instead, I just go taxable with that potential TIRA $. I plan to do massive ROTH conversions once DW stops working. We have about 700K to convert. Right now we are sitting at $120k taxable, $60k ROTH and about $700k pre tax (401k's, TSP, etc...). My plan is covert all of the $700k to ROTH because statistically I will dirt nap 10-15 years before DW. She will have over $100k/yr passive and will need the stash to be ROTH otherwise her tax hit will be massive.

 

[Gumby]

I have done a few years of backdoor ROTH's but, I can't wrap my head around the savings. If I contibute to a TIRA this year (after tax) and then back door ROTH, what do I gain? I've already paid 24% (or effective less than 20%) on that money. The % I would save would be 24%-will always be in 24% unless rates rise. Instead, I just go taxable with that potential TIRA $. I plan to do massive ROTH conversions once DW stops working. We have about 700K to convert. Right now we are sitting at $120k taxable, $60k ROTH and about $700k pre tax (401k's, TSP, etc...). My plan is covert all of the $700k to ROTH because statistically I will dirt nap 10-15 years before DW. She will have over $100k/yr passive and will need the stash to be ROTH otherwise her tax hit will be massive.

The benefit to the back door Roth is that, even though you've paid taxes on the non-deductible tIRA contribution as you would on a straight Roth contribution, any further growth on the money contributed and converted occurs in a Roth, where it is never taxed, versus leaving it to grow in the tIRA where the tax is only deferred, so when you take out the earnings later (say, after you retire), they are taxed. It is also a way to make Roth contributions even when you are above the income limit for doing so (AGI > $228k for MFJ in 2023). A larger Roth is good because you can draw on it when you need in retirement without running into things like IRMAA.