I work for a startup, was the first employee, and have a small equity stake. The company is profitable, and growing rapidly. Last year's profit sharing pushed me solidly into the 22% bracket, and this year's is expected to push me WAY into the 22% bracket. This is wholly uncharted territory for me. I anticipate that I will have about $60k more pre-tax to invest this year than last year. Gosh, that feels so surreal to type. Up to now, I've been able to optimize my way back into the 12% bracket, but that's clearly not going to happen this year. I mean, I'm thrilled to be making more money, but at the same time
not thrilled about paying a higher tax rate.
I've done some planning, and here's a description of how things stand:
--Filing MFJ, six kids (5 eligible for child tax credit in 2021)
--Just turned 40, original plan is to retire at 51 (coincident with the last child leaving the house), but on track to be FI well before then.
--I plan to max out my 401k this year
--I won't be able to deduct traditional IRA contributions ( MAGI over $125k)
--I'll be able to contribute to a Roth IRA (MAGI under $206k)
--I do not have access to an HSA
--We have no plans to fund our children's college education
--Our only debt is our mortgage
--There are no plans or desires to inflate our lifestyle--it already feels lavish.
A Mega Backdoor Roth is enticing, but I don't know that I can take advantage of it, because 1) I don't know if our retirement plan allows it (but I'll ask), and 2) it's a small company, I'm the only HCE, and I'm pretty sure a mega-backdoor Roth would trigger the nondiscrimination stuff with the IRS for my employer. (I also asked my boss if it'd be possible to take my profit sharing this year in the form of an employer contribution to the 401k, but that's a no-go for the exact reasons you'd expect.) Looking at the
investment order sticky, that covers steps 0-7.
So, my current plan is to:
--Max out the 401k
--Max out the Roth IRA
--Put the rest into a taxable account
--Eat the 22% tax (yuck!)
I consider myself to be fairly well-informed on the topic of taxes, but with a suddenly-much-higher income and with no HSA/mega backdoor roth/529, I find myself unexpectedly scrambling for ways to reduce my tax exposure. Is there anything obvious that I'm missing?