What do you think the limit is?
$6,000 if you’re under 50 and $7,000 if you’re 50 or over.
What do you think it is? (Since I’m assuming that you disagree.)
37,500
Hmmm, during the 2008 financial crisis I sat on the other side of a cubicle wall from the 401(k) helpline so I can say with certainty that that employer definitely did not allow in-service withdrawals. I heard the spiel at least 30 times a day, every day. It was only slightly less annoying than “Corporate Accounts Payable, Nina speaking! Just a moment!” (Which I should cross-post in the 90s nostalgia thread.)
And my next employer didn’t allow after-tax contributions.
So I think by the time I was maxing out my 401k, I didn’t have that option.
Really the only difference between that and plain old after-tax contributions is the taxation of the earnings. But that is definitely something.
I doubt too many employers have both in-service withdrawals for non-hardship and after-tax contributions, but obviously a few do, so I could see it coming in handy for a few people.
I don’t think that’s likely to happen directly, as it would be seen as too big a betrayal. But it happen indirectly, for example with the government:
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Allowing the Roth account to affect your eligibility for means-tested benefits
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Imputing the Roth as income for purposes of income-dependent pricing
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Having the Roth affect the taxability of other sources of income
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Decreasing income taxes across-the-board and largely replacing them with Value Added Tax and/or environmental impact fees
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I heard there was some kind of backdoor Roth thing, is that easy to do and/or worth it?
It’s relatively simple. If you do not have any traditional IRAs, it doesn’t even cost you anything.
The reason to do a backdoor Roth is if your income is above the allowable limits for a normal Roth contribution. If it is, you contribute to a traditional IRA, and then immediately (within days, to avoid interest, and thus earnings issues) convert it to Roth.
If you do have a traditional IRA already, then the conversion is subject to pro rata rules, which means you will be responsible for the taxes on the pre-tax portion that is coming from your traditional account. Pro rata is across all IRA accounts, it is not “oh, I don’t have a traditional IRA with this servicer”.
There are likely links upthread, I haven’t gone back to look.
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I’ll just add to Celalta’s post that if you have a Traditional pre-tax IRA and want to backdoor Roth… transfer your pre-tax balance to your employer’s 401k. They’ll almost certainly let you.
THEN you can do a back door Roth with no concerns about the pro-rata rule.
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My liquid assets are:
45% traditional 401k / rollover IRA
35% Roth
13% cash/taxable
7% HSA/defer/equity
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Jealous of that Roth percent. I need to grow mine more.
12.6% cash
24.5% taxable brokerage
55.0% Roth
7.8% Traditional
(FSA money not considered)
(Also this exercise led me to roll over an old employer 401k that was annoying me, feels nice to remove that.)
19% Roth
37% Traditional
44% Cash/Taxable
Cash/Taxable will continue to outpace Roth/Traditional since there is no annual limit as to what I can stuff in there
I have $0.07 in an account at Vanguard. Interest on money in the default fund they put deposits in before I got around to transferring it into the fund that I wanted.
But you can’t transact less than $10. I need to call them to find out how to get rid of the $0.07.
I’d gift it to Vanguard if it meant that it didn’t show up on my account list.
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Hahahaha.
You can call and they’re extremely helpful. But very annoying for that amount. Please call and let us know how they respond. Maybe you can get a check mailed for $0.07.
Just checking my understanding is correct, from people smarter than me.
I’m currently going 100% Roth but I might be selling a lot of taxable equities not too far in the future ($100k+ counts as a lot for me). I understand that the capital gains (on 1+ years held equities) will be considered taxable income, so it will definitely bump us up past our next marginal tax bracket which would lose us several thousand.
So I’m planning, for the year I intend to do that, to switch to 100% Traditional which won’t get us under the marginal cutoff but will at least reduce the higher tax. I might even sell over 2-3 years and keep a major portion under the cutoff.
Does all that make sense?
it is my understanding that long term capital gains are taxable but it won’t bump you up a tax bracket
it can however bump you above the 200k/250k (individual/joint) limit and you will be subject to an additional 3.8% Medicare tax
so I would still switch from Roth to Traditional
Your strategy could make sense. But I’m going to nitpick something that most likely does affect you.
The long term capital gains won’t affect the rate at which your ordinary income is taxed. It’s the other way around. The ordinary income affects the rate at which the capital gains are taxed.
However, for a typical actuary it probably won’t make any difference as most of us will pay 15% on our long term gains no matter what.
The 2020 long term capital gains 15% bracket is for total income between:
Single: $40,001 - $441,450
MFJ: $80,001 - $496,600
HOH: $53,601 - $469,050
MFS: $40,001 - $248,300
Below that long-term gains are not taxed at all and above that they are taxed at 20%.
But most actuaries are probably in that humongous range.
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Yes, this is a good point. Even though it probably won’t affect your marginal tax rate, it could push you out of various credits / deductions that are AGI-based, could affect your state income tax rate (if you have a state income tax that is AGI-based), and could push you into Additional Medicare and/or Net Investment tax territory.
can u transfer $10 in then transfer $10.07 out?
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