Author Topic: Now eligible for mega back door and have some questions!  (Read 1055 times)

poko

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Now eligible for mega back door and have some questions!
« on: December 12, 2017, 06:28:06 PM »
We're getting a new 401k provider at work and from what I can tell in talking with the rep who visited last week, we will be eligible to do mega backdoor contributions!

I've searched back through the forums about them and learned a ton, but still have a few questions. Some of these might be questions to my payroll/plan provider but thought I'd ask here as well.
 
1) I see most people can specify a specific after-tax contribution percentage within their plans to go into the after-tax portion from their paychecks. Do any of y'all know if it's possible to just put in a lump sum contribution outside of a payroll deduction? I'm sitting on some cash right now and that would be simpler to dump in at once (especially to then do the conversion to Roth immediately).

2) Will the new tax plan affect the mega back door? I guess this probably should have been my first question, lol.

3) I saw some threads around here disparaging the Roth, should I not take advantage of this? Seems silly not to? Is that anti-Roth sentiment for folks who can write off a traditional IRA contribution on their taxes? (I can't, my income is too high). That said, I should be able to do both the mega back door and still keep contributing to my taxable account as well.

4) Should I still put money in there if my goal is to stop working in a couple years (before age 35)? I guess this might not be a very specific question without knowing my entire financial picture.   

Thanks for any insights!

ixtap

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Re: Now eligible for mega back door and have some questions!
« Reply #1 on: December 12, 2017, 06:53:28 PM »
1) It has to come from your payroll, so just figure out the percentage to contribute, then change back to zero when you are done. For some reason, most systems seem to be percentage omit.

2) Who knows what surprises they have in store? Frankly, this seems like it would be a less controversial change, but I guess since it doesn't affect current taxes, they don't care?

3) Most anti Roth sentiment is in the Roth vs traditional debate. Was there something you saw about Roth vs taxable?

4) If you immediately roll over your contributions, they will be accessible from your Roth IRA in 5 years. Can you make it through the next five years without this money? Our plan is to keep contributing as long as we can. If we think we might be coming up short, we might not contribute the last year. That seems highly unlikely right now.

poko

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Re: Now eligible for mega back door and have some questions!
« Reply #2 on: December 12, 2017, 09:35:47 PM »
Awesome, thanks for the replies! Super helpful.

1) Yeah, I guess the new system only allows for setting 75% contribution rate. I'll talk with payroll about getting bonus and stock payout to funnel into that as well.

3) I read a lot of threads over the last few days so it's kind of all blurred together now. I think it may have been some old threads where people were confused about doing this strategy vs just investing in a taxable account.

4) Cool. I should be able to make it 5 years from my taxable accounts right now, and given a year or two more of dumping $$ in there, for sure. I also have a pretty in-demand skill set that I actually enjoy doing sometimes, so it's pretty likely I'll be doing some short term contracts after retiring if I get bored (unlikely) or feel short on funds (more likely if I want to fund some "extra" home renovations).

Thanks!

seattlecyclone

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Re: Now eligible for mega back door and have some questions!
« Reply #3 on: December 12, 2017, 09:50:50 PM »
1) I see most people can specify a specific after-tax contribution percentage within their plans to go into the after-tax portion from their paychecks. Do any of y'all know if it's possible to just put in a lump sum contribution outside of a payroll deduction? I'm sitting on some cash right now and that would be simpler to dump in at once (especially to then do the conversion to Roth immediately).

It has to come from payroll. No contributions from outside funds. The next best thing is to put the maximum in the 401(k) and live off your savings for a bit; that has basically the same net effect as a direct transfer.

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2) Will the new tax plan affect the mega back door? I guess this probably should have been my first question, lol.

I haven't heard of changes to backdoor Roth plans in either the House or Senate versions of the bill. Doesn't mean they aren't there or won't be added, just that I haven't heard of any.

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3) I saw some threads around here disparaging the Roth, should I not take advantage of this? Seems silly not to? Is that anti-Roth sentiment for folks who can write off a traditional IRA contribution on their taxes? (I can't, my income is too high). That said, I should be able to do both the mega back door and still keep contributing to my taxable account as well.

For people with high savings rates, it's generally better to prefer pre-tax traditional contributions over Roth contributions when you have that choice. For the $18k of regular 401(k) contributions, Roth is probably going to turn out worse than traditional. Beyond that, when your choice is between taxable and Roth, Roth is usually the best.

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4) Should I still put money in there if my goal is to stop working in a couple years (before age 35)? I guess this might not be a very specific question without knowing my entire financial picture.   

Yes! Your mega backdoor contributions can be withdrawn essentially tax-free at any time once you retire. Meanwhile the growth will exist in that tax shelter until you're at "normal" retirement age and can withdraw it tax-free.