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My wife and I have been maxing out our 401ks for years, but its only been the last 1-2 years where we've been able to save more than this. Our incomes are high, so just the 401k maxing won't be enough.
In the past couple years, we've beefed up our emergency fund to a very comfortable level and held onto company RSUs that have vested. We will continue to do so.
Our goal is to be able to retire a little early should we want to do so (maybe late 50s - 60). We're currently in our early 40s.
This past years taxes have been painful (thanks Trump!) and unfortunately, we don't have any other tax shelters to leverage.
We make too much to receive any tax benefit from investing in a traditional IRA. We were thinking of using our additional funds to invest in dividend paying stocks or mutual funds, with the understanding that the dividends will work against us for tax purposes, but its still better than just keeping it in our checking account with zero interest.
Would it make more sense for us to place these in a backdoor Roth IRA? It seems that would allow us to avoid paying taxes on future dividends?
it makes a lot of sense for you to use the back door to fund a Roth IRA. You just need to make sure you have no money in a traditional, SEP, or SIMPLE IRA (or you'll owe pro-rata taxes on the Roth conversion). If you have money in any of those accounts, first roll it into your current 401k. Only then should you do the backdoor Roth.
And remember, if you contribute before tax day you can make a backdoor Roth contribution for 2018 as well as 2019!
(Honestly, I wish Congress would just get rid of the income limits on Roth IRA contributions and let anyone contribute to them. Having to do it via the back door method is just silly.)
Yes the back door Roth is the way to go.
You can also invest in non dividend stocks if you want to avoid the income tax.
I though the idea was to increases taxes on thoses that make a lot of money.
You should see if your 401k plan allows after tax non Roth contributions and if it does it’s pretty powerful especially if they also let you roll the monies out in service. I put 15k+ into my plan after tax non Roth and rolled it out immediately into my Roth IRA last year and then also backdoored the Roth for over 20k into the Roth for the year
it makes a lot of sense for you to use the back door to fund a Roth IRA. You just need to make sure you have no money in a traditional, SEP, or SIMPLE IRA (or you'll owe pro-rata taxes on the Roth conversion). If you have money in any of those accounts, first roll it into your current 401k. Only then should you do the backdoor Roth.
And remember, if you contribute before tax day you can make a backdoor Roth contribution for 2018 as well as 2019!
(Honestly, I wish Congress would just get rid of the income limits on Roth IRA contributions and let anyone contribute to them. Having to do it via the back door method is just silly.)
I have a ton of money in rollover IRAs (former company 401ks) where I'd prefer to keep as they have better investment options and lower fees than the 401k with my current employer.
You should see if your 401k plan allows after tax non Roth contributions and if it does it’s pretty powerful especially if they also let you roll the monies out in service. I put 15k+ into my plan after tax non Roth and rolled it out immediately into my Roth IRA last year and then also backdoored the Roth for over 20k into the Roth for the year
Mine does, but I do need the tax shelter that the traditional 401k allows for, given my high household income. Looking for something on top of this.
Mine does, but I do need the tax shelter that the traditional 401k allows for, given my high household income. Looking for something on top of this.
So you can contribute 19k this year pretax, then add what your employer match is. Subtract that number from 56,000.00 and that is how much you can put into the after tax non Roth in additional to doing the back door roth. If you got a 5k match you could sock away another 32,000 if you wanted
I have a ton of money in rollover IRAs (former company 401ks) where I'd prefer to keep as they have better investment options and lower fees than the 401k with my current employer.
Do rollover IRAs count towards the pro rata?
Yes they count. You may be down to your wife only doing the backdoor.
My wife is in the same situation. Sounds like this may not be the best option for us.
So if you/her are not considered highly compensated by your employers you should utilize the after tax non Roth idea especially if your plan will allow you to roll the monies out
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