But we did make provisions that if something changed and we wanted to add another asset class, we could make those changes. Okay. Don't contribute directly to the Roth IRA. Because the second one isn’t really an IRA, it’s a 401(k) with a weird name. And so, we did. Now there is no dictionary definition of super-saver, but the idea behind it is if you are going to be well into the top tax bracket in retirement, you may want to rethink the traditional tax-deferred advice and instead make tax-free (Roth) contributions and maybe even do some Roth conversions, even at the top tax rate. The White Coat Investor, LLC files taxes as an S Corp. How much salary does she need to be paid in order to be able to contribute $56K to a 401(k) as employee tax-deferred and employee after-tax contributions? And it was just out of a savings account. See SoFi for more information. Mega Backdoor Roth; Articles & Resources; WCI-2. For years we've had the WCI 401(k) at Vanguard. The contribution to the traditional IRA and the conversion to the Roth IRA. Of course, you don't come out ahead financially doing that. Surprisingly sophisticated question, actually. And you're usually looking at paying something like mid four figures for a good financial plan and good advice each year. I just wish I’d done more Roth conversions when I left or that the Roth TSP had been available back then. Getting it to apply to me is unlikely unless I get lucky and/or start working harder, but you never know! But this is the sort of thing that, if you do it really quickly, a lot of times they will let you adjust that stuff. Dr. Jim Dahle: Well, it's certainly worked. Do you have any advice for me on advising her what to do? Your heirs will really appreciate that. All of a sudden you bail out and sell at the bottom. If you want to hedge your bets and put 5% of your portfolio into oil or gold or Bitcoin or something like that, it's not crazy to do, right? Just a mess. So how do you assess something like that and determine whether it is too speculative or whether it really deserves to be in your written investment plan or not? How much did she need to be paid in order to contribute $56K to a 401(k) as employee tax-deferred and employer tax-deferred contributions? However, with audio there are more laws, and that is where these one-party consent states and two-party consent states come in. You can do that. There are laws that keep you from getting recorded in places where you should expect privacy without consent, like public bathrooms. What you're left with in the end is just like you contributed directly to a Roth IRA. Dr. Jim Dahle: So, there are all kinds of things that you can do with that hundred thousand dollars, it's almost surely tax-free to you. Dr. Jim Dahle: Ignoring actual ER in the funds: Not every time. So she took a big pay cut and I got a big raise. I am now only doing Roth, due to the Section 199. I thought inherited IRAs from spouses are not subject to the new 10 year rule. Dr. Jim Dahle: Look for asset classes that are real investments. So, at some point crowdsourced real estate, for example, came into being. There are a few steps to the backdoor Roth IRA, but before we get into those, let's talk about why we talk about the backdoor Roth IRA around here. Well, $56K plus enough to cover her payroll taxes.”. So that we'll know how to figure these out in other circumstances, when presented to us in the future? Dr. Jim Dahle: This is White Coat Investor podcast number 194 – The backdoor Roth IRA made easy. It's really two things. It is important to realize it's not just one thing. Dr. Jim Dahle: One is to just convert it all to a Roth IRA. How much income tax do you assign to that money? And so, a lot of times they'll let you do that, but it's really up to them. They don't have to let you do it, but it's not up to IRS rulings. So, if you want to check that out, be sure to watch this on YouTube, rather than just listening to it on the podcast. Dr. Jim Dahle: Surely, I can out invest that.” The math would agree with you that if you take on a reasonable amount of extra risk, maybe you're likely to beat that return. We'll just move that over from the 403(b) to the DCP or from the 403(b) to the 457 and the 457 to the 403(b), because it's just numbers they're changing in payroll and it's just an internal number. Nevertheless adding years of service or additional employment tax pay-out (salary) has little additional benefit and you’re getting beyond the FIRE objective if you work that long, so I still say that any savings on employment tax by reducing salary is advantageous. What does it take to get a constitutional amendment? So why did I get the raise instead of her? Dr. Jim Dahle: I'm also impressed that you know all about your retirement account options and that honestly, it sounds like you have pretty good retirement account options. So, how do you fix it? So, it's a great account to inherit. The conversion would be part of a 2-step process, often referred to as a "backdoor" strategy. Recipient is responsible for any federal, state or local taxes associated with receiving the bonus offer. And we talk about numbers you need to know. Why does the overall cap not apply in this situation? I’m a super saver, but haven’t found nearly as good a strategy as this! Step 3: Report the transaction with IRS Form 8606. In this guide, we’ll be talking about how to open a Vanguard Roth IRA account if you’re below the single filer or married filer income limits mentioned above. “What? A backdoor Roth IRA is who you make too much money and still want to contribute to a Roth IRA, through the back doo. What percentage of your portfolio do you reserve for "play money"? In most states, it receives significant asset protection from your creditors in a bankruptcy situation. Especially for things like finding the break-even point. Here are the take-home points: What do you think? Plus, they just lowered rates for physicians and dentists still in residency. Or you can put it in an investment account. Then the next day, move that money from the traditional IRA to a Roth IRA. Sundar: This process (after-tax contributions + instant Roth conversion) is known as a Mega-Backdoor Roth IRA. Maybe I can talk them into sponsoring a podcast or something down the road. And so, you have to follow all those rules. I have been harassed about it and I felt violated. That means I can invest it in anything I want (except Fidelity 0% ER index funds apparently). So, how do you fix it? iQ401k is a White Coat Investor recommended retirement plan services provider. I’m guessing it will be the latter, which is why you didn’t qualify your statement. First contributed directly to the Roth IRA. Dr. Jim Dahle: Neither the 403(b) or the 457(b) have Roth options. In This Show:Podcast #194 Show Notes: The Backdoor Roth IRA Made EasySponsorNew Book and New T-ShirtQuote of the DayThe Backdoor Roth IRA Made EasyHistory of Backdoor RothsDoing a Backdoor Roth IRAFixing ErrorsRecommended Reading:Reader and Listener Q&AsAdding Asset Classes to Your Investment PlanRecommended Reading:Tax Implications for Inherited MoneyRecommended Reading:Helping Parents with Financial AdviceBehavioral and Math Components to Personal FinanceLegal Issues with Being Recorded at WorkRecharacterizing Contributions to Retirement AccountsEndingFull Transcription. It allows you to circumvent the Roth income restrictions and contribute to the retirement vehicle even if you’re earning more than $135,000 a year. 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