Tiny
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Post by Tiny on Mar 5, 2022 11:14:30 GMT -5
Pink, is your Roth part of your 401K or are you contributing to a Roth outside your 401K? It might make a difference in advice.
My question to the group: If a 401K plan has a Roth option with in it - can you convert pretax money to the Roth within your 401K? Is that even a thing? Are there any advantages to doing that?
I have a 401K plan with a Roth option - but I contribute to a Roth outside my 401K.
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teen persuasion
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Post by teen persuasion on Mar 5, 2022 11:24:33 GMT -5
Link from the IRS. Reading that IRS page, all employer plans have RMDs, period. TIRAs have RMDs, inherited accounts have RMDs (even Roth). Its only original owner Roth IRAs that have no RMDs. Regarding your post-tax investment option - that's within your 401k, and not Roth, right? Does the plan have all the options to make it a mega backdoor Roth? And you are already maxing your pre-tax and/or Roth 401k contributions, first, so any post-tax contributions are additional, right? It depends on how you do the MBR. If the rules let you roll the post-tax portion out to convert to Roth IRA, well, its now a Roth IRA. If the rules let you immediately convert the post-tax portion to Roth internally, then it's Roth 401k and stuck in the plan - you need to roll it over to Roth IRA when you leave that employer, or at least before age 72. I have 457, pretax and post tax available from my employer. The post tax 457 is called a Roth, and has a $20,500 limit. On top of that, I get my own Roth with a $6000 limit through Fidelity, or I could just get a tira instead. (I'm ignoring the extra for over 50 to simplify.) Anyway, just trying to clarify. They are both Roth. As MPL said, there's a third option beyond traditional (pre-tax) and Roth (post-tax) that share the $20,500 contribution limit. With no formal name, it's usually referred to as "post-tax", but it's not automatically Roth space, just potentially. It's more like a non deductible tIRA - the contribution won't be taxed, but any growth will be taxed on withdrawal. If the options are there to turn it into a mega backdoor Roth, it's a great bucket for additional savings after maxing the regular 401k, et al.
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teen persuasion
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Post by teen persuasion on Mar 5, 2022 11:42:59 GMT -5
Pink, is your Roth part of your 401K or are you contributing to a Roth outside your 401K? It might make a difference in advice. My question to the group: If a 401K plan has a Roth option with in it - can you convert pretax money to the Roth within your 401K? Is that even a thing? Are there any advantages to doing that? I have a 401K plan with a Roth option - but I contribute to a Roth outside my 401K. It depends on if the plan has a mechanism to convert inside the plan. Some do, some don't. I'm not sure of an advantage. If you are still working, any conversions would be taxable, so would raise your taxes. It certainly wouldn't make sense to contribute to pre-tax 401k, then convert pre-tax to Roth in the same year. Just contribute to Roth directly. If you are no longer working, roll it out to a tIRA, and convert bits to Roth IRA as desired. But having that convert internally option is essential for turning post-tax contributions into extra Roth 401k $$. Unless there's an option to roll the post-tax $ out to a Roth IRA instead. One drawback to using Roth 401k over Roth IRA that I've heard of - some employers won't let you direct your investments differently in each portion. Say you want all stock funds in Roth, and bonds + stock in traditional. Some employer's plans direct the same proportions to everything; it's all one bucket, they just view x % as traditional and 100-x % as Roth. If you keep all your Roth in IRAs instead, you can make the asset allocation exactly what you want.
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Lizard Queen
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Post by Lizard Queen on Mar 5, 2022 11:59:05 GMT -5
I have 457, pretax and post tax available from my employer. The post tax 457 is called a Roth, and has a $20,500 limit. On top of that, I get my own Roth with a $6000 limit through Fidelity, or I could just get a tira instead. (I'm ignoring the extra for over 50 to simplify.) Anyway, just trying to clarify. They are both Roth. As MPL said, there's a third option beyond traditional (pre-tax) and Roth (post-tax) that share the $20,500 contribution limit. With no formal name, it's usually referred to as "post-tax", but it's not automatically Roth space, just potentially. It's more like a non deductible tIRA - the contribution won't be taxed, but any growth will be taxed on withdrawal. If the options are there to turn it into a mega backdoor Roth, it's a great bucket for additional savings after maxing the regular 401k, et al. She said it was a TSP. www.myfederalretirement.com/how-tsp-taxed/
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Post by minnesotapaintlady on Mar 5, 2022 12:14:48 GMT -5
As MPL said, there's a third option beyond traditional (pre-tax) and Roth (post-tax) that share the $20,500 contribution limit. With no formal name, it's usually referred to as "post-tax", but it's not automatically Roth space, just potentially. It's more like a non deductible tIRA - the contribution won't be taxed, but any growth will be taxed on withdrawal. If the options are there to turn it into a mega backdoor Roth, it's a great bucket for additional savings after maxing the regular 401k, et al. She said it was a TSP. www.myfederalretirement.com/how-tsp-taxed/Pink has a TSP, teen was asking azucena about her plan and what she meant by post-tax contributions.
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Lizard Queen
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Post by Lizard Queen on Mar 5, 2022 12:31:36 GMT -5
Pink has a TSP, teen was asking azucena about her plan and what she meant by post-tax contributions. Oooh! Got it.
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teen persuasion
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Post by teen persuasion on Mar 5, 2022 12:43:05 GMT -5
As MPL said, there's a third option beyond traditional (pre-tax) and Roth (post-tax) that share the $20,500 contribution limit. With no formal name, it's usually referred to as "post-tax", but it's not automatically Roth space, just potentially. It's more like a non deductible tIRA - the contribution won't be taxed, but any growth will be taxed on withdrawal. If the options are there to turn it into a mega backdoor Roth, it's a great bucket for additional savings after maxing the regular 401k, et al. She said it was a TSP. www.myfederalretirement.com/how-tsp-taxed/Right, Pink has a TSP. But I was responding to azucena's question about a post-tax option her employer just began offering. It's really confusing, because they keep adding new options, but don't give them names to distinguish them. First there was 401k, it was all pre-tax. Then Roth option (yay, a name!) that's post-tax. But what to call the other option? Traditional is what I use, pre-tax is another choice. There's also the matching portion employers contribute. That's also pre-tax. Its also outside the $20.5k employee contribution limit. Most people don't go into the weeds, but there's another limit for all contributions, including that employer match, that's much higher at $61k (plus catchup amounts). So the newest option is to contribute into the space leftover after the usual contribution limits + employer match are filled. It can't be pre-tax, because you've already exhausted that portion. It can't be Roth, same reason. So it goes in post-tax, grows tax free as long as it stays in, and when it comes out it's like a non deductible tIRA: you track and prorate the nontaxable contribution vs the taxable growth. Ok, that's icky. Oh, but wait! If you convert it nearly immediately to Roth 401k, it costs nothing extra (it's already post-tax) and now growth will be tax free on withdrawal. Much better. Bonus is the extra space to get more Roth for very high income earners. But what do you call this new option? It needs its own name. It's not Roth on its own. Bogleheads call it mega backdoor Roth after it's converted (to distinguish it from the backdoor Roth IRA maneuver based on the same principle: if over the IRA income limit to contribute to Roth IRA, contribute to a non deductible IRA and immediately convert to Roth IRA). But that's the whole process, not just the post-tax contributions. ETA: I see discussion moved on while I was being long winded. I'll leave the long explanation if it helps others.
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haapai
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Post by haapai on Mar 5, 2022 14:01:46 GMT -5
I avoid even considering the Roth 401(k) that my employer offers because their traditional 401(k) has some nasty fees associated with it and they are hard to nail down. I'm not really sure whether the Roth 401(k) option actually has the same gotchas, but I kinda assume that they are there.
Seeing as how I cannot convert the Roth 401(k) into a Roth IRA until I have separated from my employer, these fees could really bite me. A younger and more mobile employee, especially one who expects to have a significantly higher marginal tax rate in retirement than they currently have, or one who plans to convert the Roth 401(k) into a Roth IRA and then into the down payment on a house, could easily handle the fees (and the compounding of the fees) for five to ten years and come out ahead, but the math does not work that way for me.
What Tiny said in post # 28 is worth reading a few more times. A lot of the financial advice that's doled out there is aimed at either high or low earners and not too useful for those who are neither very high or very low, or have uneven earning and saving records. I really recommend getting beyond this high/low distinction and really drilling into the details. There are some very good moves available to those who know and understand the rules.
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MN-Investor
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Post by MN-Investor on Mar 5, 2022 14:25:22 GMT -5
I would also vote for maxing the Roth. It wasn't an option for me till well into my career- I made too much to do contributions on my own (or for DH, who was retired) so I had to wait till my employer offered it. I'd gone for the "max out your 401(k) first because you're likely to be in a lower tax bracket when you retire" advice and now I'm not so sure that was a good idea. Some years (it depends on the investment results) my AGI is higher than it was in my working years. That triggers "stealth taxes"- I pay taxes on 85% of my SS and higher Medicare B and prescription plan premiums. Given all the payments the gubmint has made due to COVID I expect tax rates to keep climbing. And I haven't even started on RMDs since I'm 69. That's gonna be a bloodbath. I'm also 69 yrs old and agree 100% with athena. Late in his career, when a Roth 401(k) became available, DH contributed to that, and we had been contributing to Roth IRAs when possible. But we discussed the fact that, if it had been possible, we would have put everything into Roth accounts from the beginning. We saved a significant amount of money in conventional retirement accounts and those will be taxed at ordinary income rates when RMDs start. Since my sweetie passed away 4 years ago, I'm in a single taxpayer bracket and taxes are going to kill me. And, as athena points out, there are "stealth taxes" which are going to just make that worse. My sweetie and I discussed the high taxes that our conventional retirement savings would cause and, as he said, "these are first world problems." Yeah. It's still frustrating. Oh well.
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Post by minnesotapaintlady on Mar 5, 2022 16:31:57 GMT -5
A lot of the Roth/Traditional decision is guessing, as nobody can be certain what their tax situation will be like in retirement so you're probably going to want some of both to hedge your bets, you are going to want pre-tax money to fill the standard deduction and the lower brackets anyhow. Kind of crazy to pay taxes on Roth money only to use it to fill the standard deduction which would have been tax free anyhow. I also don't like the "rules of thumb" that say if you're in a low tax bracket to go all Roth, you really need to evaluate your own situation. I'm in the 10% bracket, but due to the way the tax credits work it would be crazy for me to go Roth in my 401K, instead I that tax savings I get going all traditional in my 401K into a Roth IRA. I'm very heavy traditional...like 85% of my retirement savings, but for me this will be fine. I'm single, won't have a pension or other income, and SS will be tiny so I'm going to want to be withdrawing the RMD anyhow just to live. I'm not concerned about leaving an inheritance and the RMDs won't make you broke. If it's more than you need you don't have to spend it. A million dollars would require a 36K RMD at 72. Yeah, it keeps going up, but if at 86 I'm paying high taxes due to a 130K RMD I'll call it a win in my book. I agree with the part I bolded. Bracket is the wrong yardstick - it should be marginal tax rate instead. I've been railing at Bogleheads that keep using the lazy tax bracket rule of thumb instead, because for them (high income, so already phased out of everything extra), marginal = bracket. I have to walk them thru how I am in the 10% bracket, have a negative tax rate, but have a marginal rate approaching 50%. They just hear "low income" and assume Roth all the way. Nope, I can save MUCH more total by going all pre-tax with employer plans, get big refundable credits, put those in Roth IRAs. Then, later, after kid credits have evaporated, we will be in a higher bracket but lower marginal rate, and have years to Roth convert before SS, and no pension pre-filling the lowest brackets. I've tried explaining my reasoning on Boglehead's too, but yeah...with the income levels on that board they're not getting that basically at the really low AGIs everything gets turned upside down. I'm also probably close to 50% marginal. I've never completely worked it out, but I know for sure it's at least 42%. There is just no way I will be over that in retirement unless things get REALLY insane, and if they do...well, at least I have maximized my savings. I wouldn't have been able to save nearly as much going all Roth.
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mamasita99
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Post by mamasita99 on Mar 5, 2022 17:07:56 GMT -5
I would also vote for maxing the Roth. It wasn't an option for me till well into my career- I made too much to do contributions on my own (or for DH, who was retired) so I had to wait till my employer offered it. I'd gone for the "max out your 401(k) first because you're likely to be in a lower tax bracket when you retire" advice and now I'm not so sure that was a good idea. Some years (it depends on the investment results) my AGI is higher than it was in my working years. That triggers "stealth taxes"- I pay taxes on 85% of my SS and higher Medicare B and prescription plan premiums. Given all the payments the gubmint has made due to COVID I expect tax rates to keep climbing. And I haven't even started on RMDs since I'm 69. That's gonna be a bloodbath. I'm also 69 yrs old and agree 100% with athena. Late in his career, when a Roth 401(k) became available, DH contributed to that, and we had been contributing to Roth IRAs when possible. But we discussed the fact that, if it had been possible, we would have put everything into Roth accounts from the beginning. We saved a significant amount of money in conventional retirement accounts and those will be taxed at ordinary income rates when RMDs start. Since my sweetie passed away 4 years ago, I'm in a single taxpayer bracket and taxes are going to kill me. And, as athena points out, there are "stealth taxes" which are going to just make that worse. My sweetie and I discussed the high taxes that our conventional retirement savings would cause and, as he said, "these are first world problems." Yeah. It's still frustrating. Oh well.
I’ve been contributing pre-tax dollars to a 403b (or 457, honestly I can’t remember which). From what I’m reading here, I can convert some of these things contributions to a Roth IRA?
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Deleted
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Post by Deleted on Mar 5, 2022 18:12:42 GMT -5
It seems like the consensus is that I should put my new savings in a Roth. I’m ok with that. My plan was to put it in the Roth option in my TSP, but it sounds like there are reasons I might be better off opening a Roth IRA somewhere else? I don’t even know exactly what that is, or where to open one. But if y’all say I need to learn about them, I will.
Imma seriously have to print this thread to make sure I don’t lose any of the information you all have shared. So I can refer back to it, to point me in the right direction while I try to figure this shit out. My strategy when I don’t know exactly what to do, is stick the money somewhere while it’s on my mind, and figure it out later. I know that I need to sit down and really deal with this and I can’t keep putting it off like I always have, if I’m serious about retiring asap. I’ve run out of time to be playing around.
In my last thread about my retirement, a couple of posters crunched numbers and said I needed at least $300k in my retirement account, given the info I posted. I understood that was with some ifs ands and buts, but I felt like that number was doable, so I kinda got stuck on it as bare minimum.
The easiest way to get there is through my TSP. Now that I have that straight in my mind as a goal, I’m wondering about whether it matters that at least some of that be after tax money contributed and how much. Or if I need a bunch of money outside of that, that I’ve already paid taxes on, and how much money should that be?! Which is why I started this thread.
I sincerely appreciate all of you for giving me advice and giving me information. I’m not dumb and I can normally do rough calculations in my head if they concern money, even though I don’t really like math…… but for some reason my brain does not want to deal with facts and numbers concerning me retiring. I honestly don’t know what that’s about, and it’s starting to worry me.
Another reason to print it, for after I get over whatever my problem is, and make real plans.
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teen persuasion
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Post by teen persuasion on Mar 5, 2022 23:11:23 GMT -5
Biggest advantages to contributing to a separate Roth IRA: it's extra space (if you are already filling up your TSP), it's under your control (if your employer plan has crappy high expense ratio funds only - but TSP is usually desirable, not crappy), it's outside of your employer plan (you can tap your Roth IRA if you really need to), you can invest it any way you like.
First question: are you even eligible to contribute to a Roth IRA? Is your MAGI under $129k if you are single, or under $204k MFJ?
Are you already filling up your TSP, including catchup contributions if you are 50+?.
If you have $ available to invest right now, you can open a Roth IRA at Fidelity, Schwab, or Vanguard (no banks!) for 2021 if you do it before the tax deadline in April. You can contribute again for 2022 anytime in 2022 or up to the April tax deadline 2023.
If you want to add more Roth TSP contributions, those can only be done going forward for current year thru payroll deductions. That's both a pro (taken out before you spend it, set it and forget it automation) and a con (can't add a lump sum windfall you might get, can't add after 12/31).
ETA: just remembered another good reason to get a Roth IRA opened ASAP for 2021 - there's a 5 year clock. You want to open an IRA well ahead of retirement, so that the 5 year clock has run its course before you might want to withdraw anything beyond contributions (those are always available). But the clock isn't really 5 years to the day, it's calendar years based on when the first contributions were for. So if you open it soon and fund it, for calendar year 2021, the 5 year clock is up after 2025!
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justme
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Post by justme on Mar 5, 2022 23:32:48 GMT -5
I have 457, pretax and post tax available from my employer. The post tax 457 is called a Roth, and has a $20,500 limit. On top of that, I get my own Roth with a $6000 limit through Fidelity, or I could just get a tira instead. (I'm ignoring the extra for over 50 to simplify.) Anyway, just trying to clarify. They are both Roth. Some plans have post-tax options that aren't Roth though and they have much higher limits. 58K I believe. Ugh I fell into that trap. Luckily I only have like $300 (or whatever it's grown to in the last two years) before I realized it. I gotta figure out what the fuck to do with it when I leave my current job. They charge $50/ year for their 401k once you have more than $5k so I will not be keeping it there. Bastards because I might be wanting to do the backdoor roth down the line, but I guess I'll figure it out then.
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tskeeter
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Post by tskeeter on Mar 6, 2022 0:42:57 GMT -5
A lot of the Roth/Traditional decision is guessing, as nobody can be certain what their tax situation will be like in retirement so you're probably going to want some of both to hedge your bets, you are going to want pre-tax money to fill the standard deduction and the lower brackets anyhow. Kind of crazy to pay taxes on Roth money only to use it to fill the standard deduction which would have been tax free anyhow. I also don't like the "rules of thumb" that say if you're in a low tax bracket to go all Roth, you really need to evaluate your own situation. I'm in the 10% bracket, but due to the way the tax credits work it would be crazy for me to go Roth in my 401K, instead I that tax savings I get going all traditional in my 401K into a Roth IRA. I'm very heavy traditional...like 85% of my retirement savings, but for me this will be fine. I'm single, won't have a pension or other income, and SS will be tiny so I'm going to want to be withdrawing the RMD anyhow just to live. I'm not concerned about leaving an inheritance and the RMDs won't make you broke. If it's more than you need you don't have to spend it. A million dollars would require a 36K RMD at 72. Yeah, it keeps going up, but if at 86 I'm paying high taxes due to a 130K RMD I'll call it a win in my book. I agree with the part I bolded. Bracket is the wrong yardstick - it should be marginal tax rate instead. I've been railing at Bogleheads that keep using the lazy tax bracket rule of thumb instead, because for them (high income, so already phased out of everything extra), marginal = bracket. I have to walk them thru how I am in the 10% bracket, have a negative tax rate, but have a marginal rate approaching 50%. They just hear "low income" and assume Roth all the way. Nope, I can save MUCH more total by going all pre-tax with employer plans, get big refundable credits, put those in Roth IRAs. Then, later, after kid credits have evaporated, we will be in a higher bracket but lower marginal rate, and have years to Roth convert before SS, and no pension pre-filling the lowest brackets. A caution regarding your belief that you “have years to Roth convert”. One of the 2021 tax proposals to make sure the wealthy pay their fair share of income taxes was to eliminate Roth conversions. That provision got negotiated away in getting legislation to the President’s desk. This time. I suspect that it is only a matter of a few years until you won’t be able to do a Roth conversions. Another consideration when delaying a Roth conversions is that the Trump area tax rate reductions are, if I remember correctly, scheduled to expire in 2026. Delay a Roth conversion more than just a few years and you’ll have to pay a higher tax rate on the conversion, if you can do the conversion at all.
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Post by minnesotapaintlady on Mar 6, 2022 6:58:40 GMT -5
I agree with the part I bolded. Bracket is the wrong yardstick - it should be marginal tax rate instead. I've been railing at Bogleheads that keep using the lazy tax bracket rule of thumb instead, because for them (high income, so already phased out of everything extra), marginal = bracket. I have to walk them thru how I am in the 10% bracket, have a negative tax rate, but have a marginal rate approaching 50%. They just hear "low income" and assume Roth all the way. Nope, I can save MUCH more total by going all pre-tax with employer plans, get big refundable credits, put those in Roth IRAs. Then, later, after kid credits have evaporated, we will be in a higher bracket but lower marginal rate, and have years to Roth convert before SS, and no pension pre-filling the lowest brackets. A caution regarding your belief that you “have years to Roth convert”. One of the 2021 tax proposals to make sure the wealthy pay their fair share of income taxes was to eliminate Roth conversions. That provision got negotiated away in getting legislation to the President’s desk. This time. I suspect that it is only a matter of a few years until you won’t be able to do a Roth conversions. Another consideration when delaying a Roth conversions is that the Trump area tax rate reductions are, if I remember correctly, scheduled to expire in 2026. Delay a Roth conversion more than just a few years and you’ll have to pay a higher tax rate on the conversion, if you can do the conversion at all. Even when the tax rates revert they will be nowhere near what I'd pay to contribute or convert to Roth now even with a 22K AGI.
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azucena
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Post by azucena on Mar 6, 2022 10:05:54 GMT -5
Pink - not sure if you've seen me post elsewhere that I paid $600 for investment advice from ameriprise - this included a pre-meeting where we had to prepare all of our financial info and goals (this was free and a chance to see if it would be a good fit), a full meeting where we discussed our risk tolerance and they gave us investment advice on which funds to use, and a 6 month follow up meeting for them to check our progress on shifting the funds and see if we have any follow up questions/concerns.
I chose the specific advisor based on colleague recommendations. I was very upfront about not wanting to move any of our money into ameriprise and wanting a fee only advisor.
It was something I'd been meaning to do for a long time, and I feel so much better about having a well developed plan in place. Turns out we are on track for retiring at 60 (currently 43) as we have been shocking away $$ including maxing out my 401k. The biggest suggestion from them was to prove out that we have more money we could be saving as evidenced by what I'm pushing into savings each month. And we are short on post-tax investments, I think these are IRAs, that we can access while we are in limbo ages 60 to 65. My company flipped to Fidelity for 401k and added a post-tax option that I started putting $350/check into based on their guidance. They also confirmed that we shouldn't beef up DHs retirement beyond the match because his plan fees are much higher. They also commented our on 100k in savings not earning anything and how I should start thinking about if we really need to sit on that much. The timing of the ibond thread was perfect as I've now passed 20k into them. Waiting for our mtg next week to hear their reaction but I'm inclined to pass 20k more this year. Next step would be to keep beefing up the post-tax deposits and consider some of it usable for college expenses that will hit in 4.5 yrs.
We bump up against income limits for Roth, but "sneak" in the couple grand that's allowable each yr. The backdoor options are something I need to understand more. Our cpa is a good friend so I need to just have him over for dinner and pick his brain post-tax season.
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Post by minnesotapaintlady on Mar 6, 2022 10:13:07 GMT -5
We bump up against income limits for Roth, but "sneak" in the couple grand that's allowable each yr. The backdoor options are something I need to understand more. Our cpa is a good friend so I need to just have him over for dinner and pick his brain post-tax season. Do you already have traditional IRAs? If not, the backdoor Roth approach is very easy and would allow you to put the full amount in. It's essentially just contributing to a Traditional IRA and immediately converting it to a Roth.
If you already have money in traditional it's messy though.
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Value Buy
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Post by Value Buy on Mar 6, 2022 10:30:58 GMT -5
I always struggled over whether to have a Roth IRA and never started one. Neither did my wife. It was a mistake not to have one. Major reason for not doing it was we wanted to lower our federal and state tax bills while working. Now that we are retired, we are pulling the rmd's, but also have to pull more money out to pay our federal and state income taxes. I see we should have done the Roth well before retiring. Part of our problem is dividend income. We have about $12,800 a year in dividends which are still in dividend reinvestment programs and have to pay income taxes on all of it, creating a higher tax bill requiring a little more money from the IRA'S We are stopping about half the drip programs this year and going to use that money to partially pay the income taxes. That should stop some of the quarterly withdrawls we pull from our IRA'S for taxes by $2,000 a year and lowering our annual income.
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Post by Deleted on Mar 6, 2022 12:05:47 GMT -5
Biggest advantages to contributing to a separate Roth IRA: it's extra space (if you are already filling up your TSP), it's under your control (if your employer plan has crappy high expense ratio funds only - but TSP is usually desirable, not crappy), it's outside of your employer plan (you can tap your Roth IRA if you really need to), you can invest it any way you like. First question: are you even eligible to contribute to a Roth IRA? Is your MAGI under $129k if you are single, or under $204k MFJ? Are you already filling up your TSP, including catchup contributions if you are 50+?. If you have $ available to invest right now, you can open a Roth IRA at Fidelity, Schwab, or Vanguard (no banks!) for 2021 if you do it before the tax deadline in April. You can contribute again for 2022 anytime in 2022 or up to the April tax deadline 2023. If you want to add more Roth TSP contributions, those can only be done going forward for current year thru payroll deductions. That's both a pro (taken out before you spend it, set it and forget it automation) and a con (can't add a lump sum windfall you might get, can't add after 12/31). ETA: just remembered another good reason to get a Roth IRA opened ASAP for 2021 - there's a 5 year clock. You want to open an IRA well ahead of retirement, so that the 5 year clock has run its course before you might want to withdraw anything beyond contributions (those are always available). But the clock isn't really 5 years to the day, it's calendar years based on when the first contributions were for. So if you open it soon and fund it, for calendar year 2021, the 5 year clock is up after 2025! Yes I am eligible to contribute to a Roth IRA. No I’m not at max contributions in my TSP, including catch up contributions. I was thinking about buying some I Bonds this month after reading the thread about them. Is that a bad idea? You have been very helpful with all the information you’ve shared and the explanations. I really appreciate it!
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Deleted
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Post by Deleted on Mar 6, 2022 12:16:45 GMT -5
Pink - not sure if you've seen me post elsewhere that I paid $600 for investment advice from ameriprise - this included a pre-meeting where we had to prepare all of our financial info and goals (this was free and a chance to see if it would be a good fit), a full meeting where we discussed our risk tolerance and they gave us investment advice on which funds to use, and a 6 month follow up meeting for them to check our progress on shifting the funds and see if we have any follow up questions/concerns. I chose the specific advisor based on colleague recommendations. I was very upfront about not wanting to move any of our money into ameriprise and wanting a fee only advisor. It was something I'd been meaning to do for a long time, and I feel so much better about having a well developed plan in place. Turns out we are on track for retiring at 60 (currently 43) as we have been shocking away $$ including maxing out my 401k. The biggest suggestion from them was to prove out that we have more money we could be saving as evidenced by what I'm pushing into savings each month. And we are short on post-tax investments, I think these are IRAs, that we can access while we are in limbo ages 60 to 65. My company flipped to Fidelity for 401k and added a post-tax option that I started putting $350/check into based on their guidance. They also confirmed that we shouldn't beef up DHs retirement beyond the match because his plan fees are much higher. They also commented our on 100k in savings not earning anything and how I should start thinking about if we really need to sit on that much. The timing of the ibond thread was perfect as I've now passed 20k into them. Waiting for our mtg next week to hear their reaction but I'm inclined to pass 20k more this year. Next step would be to keep beefing up the post-tax deposits and consider some of it usable for college expenses that will hit in 4.5 yrs. We bump up against income limits for Roth, but "sneak" in the couple grand that's allowable each yr. The backdoor options are something I need to understand more. Our cpa is a good friend so I need to just have him over for dinner and pick his brain post-tax season. I’ve missed you talking about this before. Thank you for explaining what they did and how much it costs. I will have to keep this in mind as an option.
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Deleted
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Post by Deleted on Mar 6, 2022 12:32:56 GMT -5
I always struggled over whether to have a Roth IRA and never started one. Neither did my wife. It was a mistake not to have one. Major reason for not ddoing it was we wanted to lower our federal and state tax bills while working. Now that we are retired, we are pulling the rmd's, but also have to pull more money out to pay our federal and state income taxes. I see we should have done the Roth well before retiring. Part of our problem is dividend income. We have about $12,800 a year in dividends which are still in dividend reinvestment programs and have to pay income taxes on all of it, creating a higher tax bill requiring a little more money from the IRA'S We are stopping about half the drip programs this year and going to use that money to partially pay the income taxes. That should stop some of the quarterly withdrawls we pull from our IRA'S for taxes by $2,000 a year and lowering our annual income. Thank you for explaining why it was a mistake for you. Personal experiences that you all have shared helped me understand why it matters. I am convinced now that I need to bulk up my after tax savings. I wish I’d done it before now, but I’m not going to beat myself up about it. I still have a little time to do what I can to fix it. So, my tentative plan for now is to put an extra 5% in the TSP Roth for now. I want to get that money tucked away somewhere asap, while it’s on my mind and before I get use to having it. Sit down and figure out how much in I Bonds i can safely buy this month. It won’t be anywhere near the 10k limit, but 2 or 3k is better than none, right? Figure out whether I should keep contributing to the TSP Roth or open a Roth IRA and the details. I think a prior poster said something about me being stuck with whatever I decide to contribute to the TSP Roth for a year. I don’t think that’s true. As far as I know, we can change our contributions and where we send it to, at any time.
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Lizard Queen
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Post by Lizard Queen on Mar 6, 2022 13:40:40 GMT -5
I think the easiest way to proceed is to go through your TSP for now. You should look at what you currently have, and try to figure out what your overall asset allocation is. Simply put, riskier vs safer. Stocks are considered riskier, but can make you more money. Bonds are considered safer but make you less money. Some people are all about 100% stock. Most people are between 20-50% bonds. Many say to increase to more bonds as you get closer to retirement. My current preference is 20%, but that all depends on your risk tolerance. What are you comfortable with?
Anyway, sorry to get in the weeds here. This is why I brought all that up: so international stuff is considered extra risky, and ibonds extra safe. Once you've figured out your current allocation-- riskier vs safer, do you feel that you need to boost the safer side more? Then go with the ibond. (Ibonds are paying well right now, but who knows long-term. But at least you won't lose that money.) Otherwise, do you feel like you need boost the % of risk? Then go with a stock fund. I'd skip international stuff for now, while you're still figuring things out.
ETA: I forgot about your pension. That could be considered safer as well. Do they tell you what the present value of it is? If so, include that in your equation.
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Knee Deep in Water Chloe
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Post by Knee Deep in Water Chloe on Mar 6, 2022 13:47:54 GMT -5
I haven't read this thread at all because my time is tied up in finals week. I'm just here to reject your apology in your subject line. Money discussions are the original reason all of us are here!
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tcu2003
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Post by tcu2003 on Mar 6, 2022 13:49:50 GMT -5
We bump up against income limits for Roth, but "sneak" in the couple grand that's allowable each yr. The backdoor options are something I need to understand more. Our cpa is a good friend so I need to just have him over for dinner and pick his brain post-tax season. Do you already have traditional IRAs? If not, the backdoor Roth approach is very easy and would allow you to put the full amount in. It's essentially just contributing to a Traditional IRA and immediately converting it to a Roth.
If you already have money in traditional it's messy though.
This. Thanks to this board, I finally started them for DH and I a few years ago. I did ours through Vanguard, and it’s easy (as long as the loophole doesn’t get closed, and then it won’t be an option). I fund each tIRA to the max allowed, and then as soon as the funds clear, roll them over to our Roth IRAs. There’s no tax implications because the money isn’t in the tIRA accounts long enough to cause any issues. This is doable for us because DH has worked at the same employer since graduating from college, and I’m only at my second employer, and didn’t roll over my old 401k account.
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Deleted
Joined: Apr 19, 2024 21:11:22 GMT -5
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Post by Deleted on Mar 6, 2022 15:04:59 GMT -5
I think the easiest way to proceed is to go through your TSP for now. You should look at what you currently have, and try to figure out what your overall asset allocation is. Simply put, riskier vs safer. Stocks are considered riskier, but can make you more money. Bonds are considered safer but make you less money. Some people are all about 100% stock. Most people are between 20-50% bonds. Many say to increase to more bonds as you get closer to retirement. My current preference is 20%, but that all depends on your risk tolerance. What are you comfortable with? Anyway, sorry to get in the weeds here. This is why I brought all that up: so international stuff is considered extra risky, and ibonds extra safe. Once you've figured out your current allocation-- riskier vs safer, do you feel that you need to boost the safer side more? Then go with the ibond. (Ibonds are paying well right now, but who knows long-term. But at least you won't lose that money.) Otherwise, do you feel like you need boost the % of risk? Then go with a stock fund. I'd skip international stuff for now, while you're still figuring things out. ETA: I forgot about your pension. That could be considered safer as well. Do they tell you what the present value of it is? If so, include that in your equation. Almost all of my TSP money is invested in what I think is called the Common Stock Index option. I have less than $20k in the “safe” fund. I’m usually risk adverse, but overall, the C Fund has performed well over the years, so I can tolerate the risk there for a while longer. At some point, I’m sure it will become more important to me to preserve whatever I do have, but I’m not there yet. I also didn’t think I will be very comfortable with too much risk as I increase after tax savings, at least not right now. Idk what you mean by the present value of my pension, but I do know what the formula is, to get a ballpark estimate of what that income would be. Basically, if I meet all the requirements for full retirement, it will be about 30% of my salary. If I retire in my late 50’s, I can also get a SS “Supplement” until I’m 62yo. Idk how they calculate that, some retirees have said it was around $1k/month for them, but idk what their salaries were before they retired, compared to mine. If nothing changes about my situation and expenses between now and then, except inflation, I think I can live off my pension and the supplement (IF it’s around $1k/month) if I need to. That’s actually not much less than what I live on now. My house will be paid off before I retire, taxes and insurance are around $3k/year. I would have to do something different when the supplement ends at 62yo. I just want to make sure I can take care of myself after I retire, and at least be comfortable. This thread has made it clear that it’s best to have a mix of options to pull money from, in addition to my traditional savings in my TSP. I’m on it. Thank you for all of your help and advice. And no apology necessary for getting in the weeds lol. You are helping me! I have a lot to think about and figure out.
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Lizard Queen
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Post by Lizard Queen on Mar 6, 2022 15:38:14 GMT -5
That's really good, pink. I think your C fund choice is really good to balance your pension out. Sounds like no matter what you choose to invest in, you'll do fine.
Oh, almost forgot the present value. You know how, if you win the lottery, you get your money over 20 or 30 years, but you can opt for the lump-sum option? That's the present value. It's based on an assumption of being able to earn a certain interest rate on that lump sum, and taking the money out just like you'd receive with the annual option over those 20/30 years. Anyway, there are some steps to calculate it, but I thought your pension plan might tell you that number somewhere.
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Deleted
Joined: Apr 19, 2024 21:11:22 GMT -5
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Post by Deleted on Mar 6, 2022 16:26:28 GMT -5
That's really good, pink. I think your C fund choice is really good to balance your pension out. Sounds like no matter what you choose to invest in, you'll do fine. Oh, almost forgot the present value. You know how, if you win the lottery, you get your money over 20 or 30 years, but you can opt for the lump-sum option? That's the present value. It's based on an assumption of being able to earn a certain interest rate on that lump sum, and taking the money out just like you'd receive with the annual option over those 20/30 years. Anyway, there are some steps to calculate it, but I thought your pension plan might tell you that number somewhere. Thank you for the encouragement. That number might very well be somewhere, I don’t know. I’ll have to do some research.
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Lizard Queen
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Joined: Jan 17, 2011 22:19:13 GMT -5
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Post by Lizard Queen on Mar 6, 2022 16:32:50 GMT -5
That's really good, pink. I think your C fund choice is really good to balance your pension out. Sounds like no matter what you choose to invest in, you'll do fine. Oh, almost forgot the present value. You know how, if you win the lottery, you get your money over 20 or 30 years, but you can opt for the lump-sum option? That's the present value. It's based on an assumption of being able to earn a certain interest rate on that lump sum, and taking the money out just like you'd receive with the annual option over those 20/30 years. Anyway, there are some steps to calculate it, but I thought your pension plan might tell you that number somewhere. Thank you for the encouragement. That number might very well be somewhere, I don’t know. I’ll have to do some research. It's not that important. It just helps you to convert from comparing apples to oranges to both things being apples.
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geenamercile
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Post by geenamercile on Mar 6, 2022 17:55:00 GMT -5
Pink does your pension plan have a handbook with it and what other benefits does it offer. It isn't much but mine also gives a healthcare benefit which right now is set at $4 X years of service per month to help cover the medicare plans, life insurance based on your last year salary (after 3 years it is 25% of your last salary for the rest of your life). We also have a finical planner company that comes in once a year where you do 1 on 1 meetings with them and they go over everything including the 403Bs, IRAs and all of that stuff with you. You might want to look into what planning services your pension plan has.
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