Your invested assets: taxable vs TIRA/401k vs Roths

[rodi]

We skew far too much to the tax deferred side of things.

No Roths - this will be the first year we start converting since DH is retiring and our income is dropping.
About 15% in taxable accounts.
About 25% in an inherited IRA subject to RMDs
The remainder in TIRAs or 401ks.

Oops - I just realized I left out the 529's... those would be tax free, right? So add in 8% in tax free... But I tend to exclude the 529's from my net worth calculation since the money is allocated to non-retirement goals.

[youbet]

Quote:

Originally Posted by TallTim +1 to this. For many still working income and/or AMT tax treatment make most IRA and Roth options unavailable.

Is there an upper income limit on doing non-deductible TIRA contributions followed by a back-door Roth conversion?

I thought that was available regardless of income.

[Shawn]

54% - Taxable (approximate cost basis 70%; 6% of total portfolio in muni's)
29% - Tax Deferred (401k, 401a, 403b, 457b, UC Capital Accumulation Provision)
17% - Roth (almost all backdoor, mostly with in-service conversions of after-tax 401k contributions)

I started an HSA last year. I am not sure how it should be classified (if at all), although it is only a fraction of a percent so it does not really matter.

[someguy]

Quote:

Originally Posted by youbet Is there an upper income limit on doing non-deductible TIRA contributions followed by a back-door Roth conversion? I thought that was available regardless of income.

I don't think there is, but why would a high earned income person who LBTM want to do that? You'd be paying FIT at your high marginal rate now in order to avoid paying FIT on a lower marginal rate* later.

* I realize no one has a crystal ball, but if you are making $500K now but live on $100K, it's hard to imagine that in 20/30/whatever years the tax rate on $100K will be more than 40% (current marginal rate on 500K+).

[someguy]

Quote:

Originally Posted by TallTim +1 to this. For many still working income and/or AMT tax treatment make most IRA and Roth options unavailable. 401k has a (relatively) low contribution limit in percentage terms for high earners ... so taxable is the easy other choice. Only other thing I have seen that is viable is a deferred compensation program - which not all companies have. We had one at my corp for the SR Execs, but ended up dropping it in view of the costs of the program and the very low participation rates.

Depending on your situation, another option is to see if you can get some of (what I assume is) your W2 income to be 1099 instead. Then you set up an i401(k) and contribute as much as $50K tax deferred (total -- including any 401k via W2 deductions). Or $100K if your spouse contributes substantially to the 1099 income/business.

[neihn]

78% tax deferred
20% roth
2% taxable

[target2019]

82% tax-deferred
11% roth
07% taxable - very little cost basis

[Animorph]

Quote:

Originally Posted by someguy I don't think there is, but why would a high earned income person who LBTM want to do that? You'd be paying FIT at your high marginal rate now in order to avoid paying FIT on a lower marginal rate* later. * I realize no one has a crystal ball, but if you are making $500K now but live on $100K, it's hard to imagine that in 20/30/whatever years the tax rate on $100K will be more than 40% (current marginal rate on 500K+).

High income types can run out of tax deductible contribution possibilities really quickly. They've paid the FIT already. The backdoor Roth contribution takes a little bit from the taxable account and puts it into the Roth with no other taxes due.

[tmm99]

taxable: 29%
deferred: 67%
Roth: 4%

[dvalley]

21% taxable (cash, brokerage)
75% tax deffered (401k + T-IRA)
4% tax free (ROTH IRA)

age: 38
target retirement age: 48 (giving myself 10years)

[Gatordoc50]

70 tax/ 30 tax deferred/ 0 tax free. Next year, I am planning to evaluate Roth conversions.

[Lurking]

Thanks for this -- your question spurred some extra calculations and I'm better off than I expected! In my (overly conservative) spreadsheet, everything in the 401k is assumed to be taxable, so my knee-jerk response was that I would be 49% taxable/49% tax-deferred/~2% Roth IRA. Apparently the Roth 401k contributions I was making for several years made more of a dent than I expected (yay market growth!) because after actually looking up what the tax free portion of the 401k was, I'm closer to 50% taxable/37% tax deferred/13% tax free.

[FIREd]

Quote:

Originally Posted by Lurking Thanks for this -- your question spurred some extra calculations and I'm better off than I expected! In my (overly conservative) spreadsheet, everything in the 401k is assumed to be taxable, so my knee-jerk response was that I would be 49% taxable/49% tax-deferred/~2% Roth IRA. Apparently the Roth 401k contributions I was making for several years made more of a dent than I expected (yay market growth!) because after actually looking up what the tax free portion of the 401k was, I'm closer to 50% taxable/37% tax deferred/13% tax free.

I am thinking that DW should stop contributing to her 401K and start contributing to a Roth 401K instead. We are in a high tax bracket, so experts would probably weigh against it, yet I think it would give us more flexibility for managing our taxable income down the road.

[someguy]

Quote:

Originally Posted by Animorph High income types can run out of tax deductible contribution possibilities really quickly. They've paid the FIT already. The backdoor Roth contribution takes a little bit from the taxable account and puts it into the Roth with no other taxes due.

Yes, but doesn't that assume the person has no other tax-deferred IRAs? It seems most of the folks we're talking about are likely to have substantial IRAs (from 401k rollovers), which means the relatively small $5-$6K that could be converted is going to be largely subject to FIT at the marginal level. Even without, you're talking about a contribution of 1% of a $500K income.

[someguy]

Quote:

Originally Posted by FIREd I am thinking that DW should stop contributing to her 401K and start contributing to a Roth 401K instead. We are in a high tax bracket, so experts would probably weigh against it, yet I think it would give us more flexibility for managing our taxable income down the road.

Keep in mind some of the benefits of Roth IRAs don't apply to Roth 401(k)s. The biggie is that Roth IRAs don't have RMDs while Roth 401(k)s do.

[Animorph]

Quote:

Originally Posted by Lurking Thanks for this -- your question spurred some extra calculations and I'm better off than I expected! In my (overly conservative) spreadsheet, everything in the 401k is assumed to be taxable, so my knee-jerk response was that I would be 49% taxable/49% tax-deferred/~2% Roth IRA. Apparently the Roth 401k contributions I was making for several years made more of a dent than I expected (yay market growth!) because after actually looking up what the tax free portion of the 401k was, I'm closer to 50% taxable/37% tax deferred/13% tax free.

I had DW contribute to her Roth 401k for a short time. That account is not tracked separately on her 401k website. All I get is a total $ amount if I read the actual statement. I really have no idea what it's invested in. The 401k account as a whole is doing well, and I know all the investments add up to the correct total. However, the Roth value doesn't seem to grow much. Kind of suspicious that it's getting all the Stable Value shares and not mirroring the full 401k AA. I wish it would surprise me.

[FIREd]

Quote:

Originally Posted by someguy Keep in mind some of the benefits of Roth IRAs don't apply to Roth 401(k)s. The biggie is that Roth IRAs don't have RMDs while Roth 401(k)s do.

Since you can rollover a Roth 401K into a roth IRA, is it really a problem?

[TallTim]

I may be mis-reading, but that's not always outcome determinative. Agree, many high earners have rollover IRA balances that are substantial - but they are still limited in making contributions to those accts by the same rules -- which was I think Animorph's point.

Similarly, conversions can in some cases be limited and in any case are taxed at marginal rates now ... so why would a high earner convert an existing IRA or Rollover IRA into a Roth while still earning $$ (say, for example person makes $500K and has a $500k IRA balance between Rollover and regular) ... In the year of conversion, FIT at 40% on the $500 PLUS FIT on the portion rolled over at marginal rates vs. doing the same when there is no earned $500k income -- isn't the rollover cheaper after retirement in absolute dollars?

[Animorph]

Quote:

Originally Posted by someguy Yes, but doesn't that assume the person has no other tax-deferred IRAs? It seems most of the folks we're talking about are likely to have substantial IRAs (from 401k rollovers), which means the relatively small $5-$6K that could be converted is going to be largely subject to FIT at the marginal level. Even without, you're talking about a contribution of 1% of a $500K income.

We don't come close to $500k income, but we have been over the Roth contribution income limit for a long time. I have a deductible IRA from a 401k rollover, but DW is still all 401k, so the backdoor Roth contribution works for her with no tax impact. And yeah, it's not as much as we'd like to contribute, but it's still $5.5k that's no longer taxed.

[Brett_Cameron]

all is tax deferred or tax exempt.