CAn I buy a 529 for kids that aren’t born yet? My daughters are out of school and they got $ from Gpa and Gma for college. Would that would be another somewhat tax advantage setup?
Someone jump in if I’m mistaken on a detail, but my understanding is done right it’s literally just a Roth IRA with extra steps. (Last year will have been my first year doing it, so I could have a surprise?)
Earn income. Pay tax on income. Put money in Trad IRA. Convert. You have a Roth IRA. Do not claim a tax deduction for the Trad IRA contribution, because you converted it.
Withdraw your gains tax-free.
You’d most likely rather have a tax-deductible Trad IRA if your income is high enough for the backdoor, but it’s not tax-deductible anymore. Roth IRA is the next best option.
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Yes. We are putting $100/month into a 529 for a kid who doesn’t exist.
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Yes, 529’s are transferable between immediate family members.
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Done. No more $900/month auto-withdrawal, mostly interest. Should be able to add an additional $10K or so to the 401K in 2025.
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OK, now that we are through the holidays, and I’m not writing big home improvement checks, things are looking good. I’m going to turn up my brokerage deposits from $2.5k/mo to $3k/mo and see how that feels, I just took the extra $2k I have in checking and deposited that. We are having the house painted late spring but I’ll save the rest of my bonus, I think I may actually save north of $60k in brokerage.
Given that I’m ~5 years from retiring, no reason to do a backdoor roth, right? Better to wait five years, let my income plummet, and convert then?
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Why not do the backdoor IRA?
Imagine you are earning an additional $7,000. Options:
- As income is earned, it’s taxed. Put in brokerage. Gains are taxed.
- Put it in a Traditional 401k before taxes. The Traditional 401k prevents the income from being taxed, but gains are taxed.
- Put it in a Traditional IRA after taxes. I assume at your income you can’t do a Roth and the Traditional IRA does not allow you to claim a reduction on your taxable income, and gains are taxed.
- Put it in a Traditional IRA, then backdoor it to Roth. You were already taxed, now gains are tax-free.
Edit: Wait, do you have a lot of existing Trad IRA to muck up the process? I don’t know a lot about the pro rata rule.
Yeah, it would be number four. I do have a few hundred k in a trad IRA. I don’t know why I cannot keep all the tax stuff straight, it’s not THAT complicated. Maybe it’s just that I do not enjoy thinking about it at all.
I should probably find a guy and pay someone for professional advice.
I think in order to do a backdoor Roth IRA then, you have two choices:
- Convert the entire IRA to Roth (probably not a good choice)
- Back-convert your Trad IRA into your employer’s Trad 401k (employer-specific whether allowed, I’m not sure how common)
From my layman’s understanding, because of the large Trad balance you might be effectively locked out of a bit of tax advantage.
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I’m stuck with the same issue, large enough trad IRA that it doesnt seem like I could eat the taxes on it and come out ahead in the long run.
In that situation I would not make new IRA contributions. Boost the Roth 401k if available to the maximum that you can handle and if you want to put more in the Roth do as much conversion as your budget will handle.
If you have a gap between your retirement and turning on Social Security, you can pack a lot of conversions at low tax rates in that income gap.
Once you’re retired don’t be shy about dipping into the TRAD IRA to fund your life as long as you’re not going over your target tax or IRMA bracket.
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That was my thinking. Plus if you’re living on brokerage dollars, converting will boost your income so you can get ACA subsidies. Assuming those continue to exist.
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So far, this is going very well. I’ve moved my twice-a-month automated savings up to $1,500. I’ve managed to save an additional $1k on top of that in Jan/Feb. So I’ve got $36k of automated savings, the bulk of the gap will get made up by my bonus, I’m spending $14k of that on getting the house painted but will save the bulk of the rest, might splurge on something in the $1k range. I’m expecting bonuses to be a little light this year due to some poor performance in Medicare Advantage.
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However if you have an AGI of $30K to $79K for a family of 2 I think you will pay 0.0% up to 8.5% in tax towards the cost of health insurance. If you were hoping to fill the 12%/15% bracket it could end up feeling like 20.5%/23.5%. Or very possibly your $$ is in the stratosphere and those tax rates look juicy.
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Completed #3 today. Paid more than target.
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The (gifted) article below got me to thinking about how much folks involve their spouse in their financial planning. My wife was also an actuary and she knew what I was making when we were both working but she wasn’t interested in knowing after she left paid employment in her early 30s.
And I have been doing all the tax returns and investment decisions for both of us for the past 20+ years despite trying to get her more involved. Is this similar for others here?
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I don’t think my wife knows. If she asked, I’d tell her that it’s all in the 401K, in passive investment vehicles, and I don’t do a thing with them. Just starting now to have money I should save instead of telling her about it, though I could simply put more in the 401K.
I learned long time ago that I am not smarter than the market, nor am I dumb enough to trust my future in someone who claims to be smarter than the market. Course 220 / Course 6 taught me that, eventually.
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My SO and I keep separate finances, but we talk about things somewhat regularly. We both get bonuses and raises around this time, so now is one of them.
We know approximately how much each other makes, and how much we have saved. She maxes out her 401k and puts money into college funds, and probably spends the rest of her paycheck. I take care of all the big expenses, but I make a lot more.
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We have separate accounts for everything but i manage it all. Manage where the money goes and bills an investing and everything. The one thing i wont do is look at her credit card statement details. She wouldnt care but i like to give her some little bit of privacy in our lives. Its on auto pay and ill check totals every now and then to make sure everything is good.
I have all her financial account info/passwords. She trusts that i am doing everything i can to manage our money well, and so she is completely checked out of that aspect of our lives which lets her focus on ither things.
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I handle everything and get occasional questions but no serious questions. I’m the primary earner of the household at the moment (occasionally have been the sole earner, but not recently). If I did get questions from my partner, I would be happy to explain, but I’m not trying actively to explain because it’s not their area of interest and they’d probably forget details the day later. We have combined finances but some stuff are under individual names for convenience. I check credit cards, but mostly for the occasional fraud (we had 2 incidents), so I won’t go further than just checking with them that something isn’t fraud if I don’t recognize it, and we usually discuss large purchases before making them.
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