Author Topic: Standard & Mega Backdoor Roth IRA vs. After-Tax Brokerage  (Read 1705 times)

rational_dblthinker

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Standard & Mega Backdoor Roth IRA vs. After-Tax Brokerage
« on: December 23, 2018, 06:37:32 PM »
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« Last Edit: June 19, 2020, 11:50:15 PM by rational_dblthinker »

MDM

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Re: Standard & Mega Backdoor Roth IRA vs. After-Tax Brokerage
« Reply #1 on: December 24, 2018, 12:03:59 AM »
I know people here and at Bogleheads will talk about always maxing tax-advantaged accounts, especially when I already currently have a reasonable $125k after-tax brokerage balance.  That said, I'd rather see my after-tax brokerage balance grow to a very large # in my 30s and 40s.  Being able to add $50k/year vs. $15k/year (if I were to route the other $35k into the Roth IRA via standard and mega backdoors) seems preferable.
Why does it seem preferable to you?

MustacheAndaHalf

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Re: Standard & Mega Backdoor Roth IRA vs. After-Tax Brokerage
« Reply #2 on: January 05, 2019, 08:19:07 AM »
Alright, I'll bite.

Do you plan to wait until retirement to buy a house?  Probably not - so don't put the down payment in a retirement account.  Think of those as separate goals, with separate time frames.  And because you want to buy a house sooner than a retirement account normally allows, I'd agree with putting money in taxable.

If you're flexible on the timing, you can invest more aggressively.  You could have a high percentage of stocks, and then switch to cash when you're within 3-6 months of buying a home.  The aggressive part is this: if the stock market corrects 6-12 months before you want to buy, you instead wait for next year - the flexibility.  If you're buying a house in a specific year, with no flexibility, then you need cash accounts and CDs to make sure the money is all there.

jacoavluha

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Re: Standard & Mega Backdoor Roth IRA vs. After-Tax Brokerage
« Reply #3 on: January 05, 2019, 08:22:31 AM »
You mention college. What about 529 plans? Any tax deduction in your state?
I assume you're married? If so then backdoor Roth is $12k per year. That's $23k now if you didn't make 2018 contributions.
Make sure you have an emergency fund, and necessary insurance.
I'd plan to pay cash for cars.
Regarding future house down payment. Do you already own a home? Will you have equity when time comes to buy future home?

jacoavluha

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Re: Standard & Mega Backdoor Roth IRA vs. After-Tax Brokerage
« Reply #4 on: January 05, 2019, 10:13:50 AM »
Well there's no right answer. Me, I'd definitely do backdoor Roth. Then probably split the rest taxable vs after tax to 401k. Of course you need to verify that your 401k allows for in plan Roth rollover or in service withdrawal to Roth IRA. You've probably already done so.