Author Topic: prioritize mega backdoor Roth if it's likely to go away?  (Read 1066 times)

datu925

  • 5 O'Clock Shadow
  • *
  • Posts: 17
prioritize mega backdoor Roth if it's likely to go away?
« on: December 22, 2017, 03:24:19 PM »
At my current job, I am fortunate enough to have a mega backdoor Roth opportunity that I am taking advantage of. However, I'd say there is a 70-80% chance that I will leave this job sometime during 2018. My question is about whether to prioritize the mega backdoor Roth or 401K given that.

The recommended investment order in this forum is 401K first, but I'm thinking that I should actually prioritize the mega backdoor Roth first while I know I've got it, since the next job, whatever it is, will almost certainly have a 401K program and is unlikely to have a mega backdoor Roth opportunity. To add to that, my current 401K program is not great, since the company match only vests after 3 years and if my prediction is correct, I'm not going to make it that long.

The two bad scenarios I can think of if I prioritize the backdoor are:

1) I'll stay at the company the whole year and will have made the mistake of contributing to the backdoor first when I could have put that money in a tax-sheltered account. This doesn't seem that bad, since I'll still be able to switch to the 401K later in the year and max it out anyway
2) I'll leave, but leave for a company without a 401K program at all, so then I'll have invested in an after-tax program instead of a pre-tax one. This just seems so unlikely though - I work in tech in Chicago, and every company I've ever looked at has some kind of 401K contribution benefit

Given the unlikeliness/not-that-bad-ness of these scenarios, I'm inclined to start my contributions with the backdoor. Is there anything I'm missing here? Do you agree with my assessment?

alexpkeaton

  • Stubble
  • **
  • Posts: 157
  • Age: 40
  • Location: NYC
Re: prioritize mega backdoor Roth if it's likely to go away?
« Reply #1 on: December 22, 2017, 08:55:09 PM »
Seems pretty reasonable to me, though do you have an idea when in 2018 you might leave? If it's towards the end of the year, you might not have time to max out a 401k anyway. At my wife's last job she started with a few months before the end of the year, but her plan capped her contributions at 25% of her salary, so she wasn't quite able to max it in such a short amount of time.

terran

  • Handlebar Stache
  • *****
  • Posts: 2491
Re: prioritize mega backdoor Roth if it's likely to go away?
« Reply #2 on: December 22, 2017, 09:34:29 PM »
Are you sure you can select what type of contribution you make? Some plans fill after tax only after your $18.5k limit is reached.

datu925

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: prioritize mega backdoor Roth if it's likely to go away?
« Reply #3 on: December 23, 2017, 11:49:44 AM »
Good questions.

Are you sure you can select what type of contribution you make? Some plans fill after tax only after your $18.5k limit is reached.

Yes, the plan allows you to choose traditional 401K, Roth 401K, or after-tax at any given time (provided you haven't exceeded the legal limits).

Seems pretty reasonable to me, though do you have an idea when in 2018 you might leave? If it's towards the end of the year, you might not have time to max out a 401k anyway. At my wife's last job she started with a few months before the end of the year, but her plan capped her contributions at 25% of her salary, so she wasn't quite able to max it in such a short amount of time.

Given what you're saying, I'll have to switch over to the 401K at my current company earlier to ensure I have time to max it out. Right now I'm capped at 50% of salary, but you make a good point that there might be no guarantee of that in whatever new job I accept. A 25% cap would be pretty tough. So maybe I'll start with the after-tax account, but contribute to the 401K periodically to ensure that I'm not setting myself up for a situation where I need a high cap in order to max it out.