401k and Roth IRAs

Discussion in 'Business, Careers & Education' started by jakeyt, Mar 23, 2013.

  1. Spaceman Spliff

    Spaceman Spliff Active Member

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    I'm currently ineligible for a roth ira. I'll look into this "backdoor" thing; I've heard other people mention it but I never really understood what it was. Thanks for this!
     


  2. Ketawa

    Ketawa Senior member

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    http://www.bogleheads.org/wiki/Backdoor_Roth_IRA
     


  3. mkarim

    mkarim Senior member

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    Yes I always try to max out my 401K and, when I leave a job, roll over my 401K into a Roth IRA. Your contributions to 401K are not taxed so when you roll them over to a Roth IRA, they are taxed. Any and all earnings within a Roth IRA are not taxed. As such, you are taxed only once.

    I've also seen some expensive 401K plans. In that case I just put my 401K contributions into a money market or a bond fund mainly to just preserve the capital and, when I leave the company, roll the funds into a Roth and buy whatever I want.

    Bottom line: the higher your income bracket, the more it makes sense to max out your 401K contributions.
     
    Last edited: Nov 12, 2013


  4. gettoasty

    gettoasty Senior member

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    FWIW it is not a matter of legality in as much as the plan design and whether the provisions allow for a Roth contribution / rollover. As I understand the option is always available, but whether the sponsor and administrator think it is suitable for the plan and whether it be used.

    You should highly consider a rollover option unless your plan design is benchmarked so that you are satisfied with the fund selection (and associated fees/cost). Are you happy with the service? Some questions to consider when rolling out your 401(k) into an IRA, especially if you are considering the IAR route with a broker. The latter may open up more options.
     


  5. otc

    otc Senior member

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    The backdoor Roth was not a legal option prior to 2010. In 2010, they removed the income limit on the conversion, so anybody could contribute to an IRA and then roll it into a roth (regardless of whether or not they could have contributed directly to a roth).

    Prior to 2010, if you were over the roth income limit, you couldn't roll stuff back into a roth. Now you can do it...there is always a chance that they will change the law again in the future and you won't be able to do it again, but right now, asking people to pay taxes on the rollover is a nice little revenue stream.
     


  6. Spaceman Spliff

    Spaceman Spliff Active Member

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    am i correct in assuming that i could go through the process of rolling my 401k over into a roth ira on the internet? is there a specific company i should go to? i have no idea how to shop for something like this lol
     


  7. otc

    otc Senior member

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    Depends on what kind of services you want.

    Do you want to trade individual stocks? Just funds? ETFs?

    It's hard to go wrong with Vanguard or Fidelity. If you want a bit more freedom in what you trade, places like TD Ameritrade or Schwab offer a bunch of no-comission-fee ETFs and Mutual/Index Funds while also allowing you to trade whatever you want. It is a retirement fund so you won't be trading a lot, but sometimes it is nice to have a few more investment options.
     


  8. gettoasty

    gettoasty Senior member

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    Look into non-trade REITS
     


  9. mkarim

    mkarim Senior member

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    Any brokerage firm can do Rollovers. Those are IRS regulations, so they apply uniformly to all brokerages. Its just what firms you are comfortable dealing with.
     


  10. Ketawa

    Ketawa Senior member

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    Without knowing the particulars of your situation, you probably shouldn't roll it over to a Roth IRA. A Traditional IRA is probably better. With a Roth IRA, the rollover would be taxed now at your marginal tax rate, probably 25%+. In retirement, a vast amount of your withdrawals from a Traditional IRA would be taxed at 0%, 10%, or 15% (unless you have a pension). Even if you think tax rates will be higher in the future, the progressive structure of the tax code is unlikely to change substantially.
     


  11. zhongyanjiu

    zhongyanjiu New Member

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    good,My thought was to max it out. At the end, whatever is left, either go into a Roth, or roll it over if I leave the company.thank you
    [​IMG]
     
    Last edited: Nov 14, 2013


  12. mkarim

    mkarim Senior member

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    Keep in mind that stocks, bonds, mutual funds, etc are not the investment vehicles you can buy in Roth IRA. You can also buy real estate.
     


  13. Spaceman Spliff

    Spaceman Spliff Active Member

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    just a general question. if you still had money left over after maxing both a 401k and IRA, what would you do with that money?
     


  14. mkarim

    mkarim Senior member

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    Buy expensive SF-approved stuff that you don't want, need or can afford -:)
     


  15. otc

    otc Senior member

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    Do you have a house? I'm not very pro real estate (at least for unmarried people in their 20's buying condos and shit), but down payments are expensive and probably something you will want to save for. Ditto weddings.

    You can track and allocate your savings manually (with excel or something) but it is much easier if you set up some sub-accounts (some banks let you do this...ING Direct is one)...move a little money each pay check into each category you are saving for. The nice thing about a system like this is that it is really easy to ramp it up.
    If you set it right now to move $10 a paycheck into a down payment account, it will be much easier on your mind to adjust this in the future when you decide you are getting closer to wanting to buy something. Instead of having to start saving, all you have to do is go in and adjust your automatic savings (much easier psychologically)...change it from 10 to 50, add more again in another month or two...and you already have a little seed money in there which makes the decision even easier.
     


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