3 ms·

The 1st and 3rd seem like clearly bad advice, there's no reason a mega backdoor roth should replace a 401k unless your company's matching policy / investment op

The 1st and 3rd seem like clearly bad advice, there's no reason a mega backdoor roth should replace a 401k unless your company's matching policy / investment options for 401k are atrociously terrible. The 2nd: I think splurging on a wedding is a frequently valid personal choice and I wouldn't belittle someone for doing it unless they did something insanely irresponsible.

erikpukinskis 7y ago
I just have to think this through because now I’ve heard both positions! ...if you put $1,000 in the 401k and it’s matched up to to $2,000 and then it grows to $20,000 and you’re in a 25% tax bracket then you’ll pay $5,000 in taxes on the $20k, leaving you with $15k. ...in the Roth IRA you put $1,000 and it grows to $10,000. You only pay $250 in tax though, so you’re left with $9,750. But that’s far less than $15k. So, seems like if there’s a match you should take it! After the match is used up, the next $1,000 in the IRA grows to $10,000 and you pay $2,500 in taxes on that... 10x more than the Roth. So it sounds like the rule is use the Roth after the match is used up. (Although that will depend on your tax bracket both at the time of investment and up it expected bracket for retirement)
- mercutio2 7y ago
  Is it possible you’re confusing the traditional-401k vs. Roth 401k question, with a Mega-backdoor Roth? Mega-backdoor Roth does not need to be an alternative to a traditional 401k. AFTER you’ve maxed out your tax advantaged opportunities (mostly, employer 401k), if your employer offers the necessary pre-requisites (of which there are many), a mega-backdoor-Roth is a way to put another $30-40k into a tax advantaged account every year. It’s an absurdly regressive tax expenditure for the 1%, but if that’s where you’re at, I can’t blame anyone for availing themselves of it.

erikpukinskis 7y ago

I just have to think this through because now I’ve heard both positions! ...if you put $1,000 in the 401k and it’s matched up to to $2,000 and then it grows to $20,000 and you’re in a 25% tax bracket then you’ll pay $5,000 in taxes on the $20k, leaving you with $15k. ...in the Roth IRA you put $1,000 and it grows to $10,000. You only pay $250 in tax though, so you’re left with $9,750. But that’s far less than $15k. So, seems like if there’s a match you should take it! After the match is used up, the next $1,000 in the IRA grows to $10,000 and you pay $2,500 in taxes on that... 10x more than the Roth. So it sounds like the rule is use the Roth after the match is used up. (Although that will depend on your tax bracket both at the time of investment and up it expected bracket for retirement)

mercutio2 7y ago
Is it possible you’re confusing the traditional-401k vs. Roth 401k question, with a Mega-backdoor Roth? Mega-backdoor Roth does not need to be an alternative to a traditional 401k. AFTER you’ve maxed out your tax advantaged opportunities (mostly, employer 401k), if your employer offers the necessary pre-requisites (of which there are many), a mega-backdoor-Roth is a way to put another $30-40k into a tax advantaged account every year. It’s an absurdly regressive tax expenditure for the 1%, but if that’s where you’re at, I can’t blame anyone for availing themselves of it.