4 ms·

I'm irritated that the Roth IRA limit is staying at $6000! That doesn't make immediate sense to me. At my income, hitting the Roth IRA maximum is much more att

I'm irritated that the Roth IRA limit is staying at $6000! That doesn't make immediate sense to me. At my income, hitting the Roth IRA maximum is much more attainable than the 401(k) maximum.

tantony 5y ago
You could use a Roth 401k to supplement that. And then rollover that into a Roth IRA if/when you change jobs.
- deleted 5y ago
  [deleted]
300bps 5y ago
Look up a "Backdoor Roth". It is specifically designed for people in this circumstance. Essentially you do a non-deductible traditional IRA contribution and then immediately convert it to a Roth IRA. There are rules regarding this so important to follow them but it's actually fairly easy to do.
- sbelskie 5y ago
  This is potentially being eliminated (under some circumstances) by the current reconciliation bill.
  - mmmpop 5y ago
    Can't let the middle-class get too uppity with things like financial security, now can we?
    - whimsicalism 5y ago
      Puh-lease. Megabackdoor Roth utilizers are $200k+/yr earners.
      - timr 5y ago
        The legislation eliminates all back-door Roth contributions, not just the mega ones.
        dlp211 5y ago
        You can contribute to a rIRA with up to $140k/yr in income when filing single, more when filing married jointly. There are also no income limits if you do not have an employee sponsored retirement plan. So yea, still doesn't hurt the middle class.
        timr 5y ago
        > So yea, still doesn't hurt the middle class. $140k in any number of US cities is solidly middle class. That's also the point where you can't contribute at all. The contribution scales to zero linearly with AGI from 125k to 140k. And we're talking about a $6,000 contribution here, which is nothing compared to the $19,500 you can put into an employer plan.
        gowld 5y ago
        You can put $29K into a backdoor employer plan, plus the $19K for the 401k, plus $9K employer match. And that's per wage earner, so double if you are dual income. (A huge implied tax on active parenthood) But anyway, if you have that much to save, after 401k and 529, you above almost all the middle class, whose total household income is below your savings.
      - mmmpop 5y ago
        Uhhh yeah, like I said, middle-class earners.
      - 88913527 5y ago
        I utilized MBR when I was closer $100k/yr. Lived the post-college lifestyle, minimal expenses.
    - ananonymoususer 5y ago
      https://youtu.be/93zDAurnw4k https://youtu.be/93zDAurnw4k
  - whimsicalism 5y ago
    Is it? I had read that it was dropped or being delayed a decade.
- SomaticPirate 5y ago
  This may go away soon with current legislative conversations.
- junar 5y ago
  My reading of the original comment is that their income is actually too low; that is, they have access to a 401(k) plan, but wouldn't be able to save $20,500 after paying for all their expenses.
junar 5y ago
If your employer offers a match in their 401(k) plan, it's generally better to contribute as much as possible, at least until you maximize the match. Keep in mind that the limits can only increase by $500 increments. $6500 / $6000 ~= 1.083, which is still a larger fraction than $20500 / $19500 ~= 1.051.
- missedthecue 5y ago
  Well that would explain it. Is there any reason they can only do it in $500 increments? That's a weirdly arbitrary rule when money is in fact deliberately designed to be divisible.
  - junar 5y ago
    The rounding is baked into the law. > I.R.C. § 219(b)(5)(C)(ii) Rounding Rules — If any amount after adjustment under clause (i) is not a multiple of $500, such amount shall be rounded to the next lower multiple of $500. https://irc.bloombergtax.com/public/uscode/doc/irc/section_219 https://irc.bloombergtax.com/public/uscode/doc/irc/section_2...
    - lotsofpulp 5y ago
      There is absolutely no reason the law was written to limit IRA to $6k while 401k is $20.5k other than to give larger employers or other employers who can afford administering 401k an advantage over smaller employers who cannot. A married couple with both working at companies offering 401k gets to save $40k+ pre tax, but a married couple with one spouse working at a local small shop not offering 401k gets to save half as much.
      - gowld 5y ago
        Why doesn't the shop have a 401k? Doesn't the owner want to save for retirement?
        lotsofpulp 5y ago

I'm irritated that the Roth IRA limit is staying at $6000! That doesn't make immediate sense to me. At my income, hitting the Roth IRA maximum is much more attainable than the 401(k) maximum.

tantony 5y ago

You could use a Roth 401k to supplement that. And then rollover that into a Roth IRA if/when you change jobs.

deleted 5y ago
[deleted]

300bps 5y ago

Look up a "Backdoor Roth". It is specifically designed for people in this circumstance. Essentially you do a non-deductible traditional IRA contribution and then immediately convert it to a Roth IRA. There are rules regarding this so important to follow them but it's actually fairly easy to do.

sbelskie 5y ago
This is potentially being eliminated (under some circumstances) by the current reconciliation bill.
- mmmpop 5y ago
  Can't let the middle-class get too uppity with things like financial security, now can we?
  - whimsicalism 5y ago
    Puh-lease. Megabackdoor Roth utilizers are $200k+/yr earners.
    - timr 5y ago
      The legislation eliminates all back-door Roth contributions, not just the mega ones.
      - dlp211 5y ago
        You can contribute to a rIRA with up to $140k/yr in income when filing single, more when filing married jointly. There are also no income limits if you do not have an employee sponsored retirement plan. So yea, still doesn't hurt the middle class.
        timr 5y ago
        > So yea, still doesn't hurt the middle class. $140k in any number of US cities is solidly middle class. That's also the point where you can't contribute at all. The contribution scales to zero linearly with AGI from 125k to 140k. And we're talking about a $6,000 contribution here, which is nothing compared to the $19,500 you can put into an employer plan.
        gowld 5y ago
        You can put $29K into a backdoor employer plan, plus the $19K for the 401k, plus $9K employer match. And that's per wage earner, so double if you are dual income. (A huge implied tax on active parenthood) But anyway, if you have that much to save, after 401k and 529, you above almost all the middle class, whose total household income is below your savings.
    - mmmpop 5y ago
      Uhhh yeah, like I said, middle-class earners.
    - 88913527 5y ago
      I utilized MBR when I was closer $100k/yr. Lived the post-college lifestyle, minimal expenses.
  - ananonymoususer 5y ago
    https://youtu.be/93zDAurnw4k https://youtu.be/93zDAurnw4k
- whimsicalism 5y ago
  Is it? I had read that it was dropped or being delayed a decade.
SomaticPirate 5y ago
This may go away soon with current legislative conversations.
junar 5y ago
My reading of the original comment is that their income is actually too low; that is, they have access to a 401(k) plan, but wouldn't be able to save $20,500 after paying for all their expenses.

junar 5y ago

If your employer offers a match in their 401(k) plan, it's generally better to contribute as much as possible, at least until you maximize the match. Keep in mind that the limits can only increase by $500 increments. $6500 / $6000 ~= 1.083, which is still a larger fraction than $20500 / $19500 ~= 1.051.

missedthecue 5y ago
Well that would explain it. Is there any reason they can only do it in $500 increments? That's a weirdly arbitrary rule when money is in fact deliberately designed to be divisible.
- junar 5y ago
  The rounding is baked into the law. > I.R.C. § 219(b)(5)(C)(ii) Rounding Rules — If any amount after adjustment under clause (i) is not a multiple of $500, such amount shall be rounded to the next lower multiple of $500. https://irc.bloombergtax.com/public/uscode/doc/irc/section_219 https://irc.bloombergtax.com/public/uscode/doc/irc/section_2...
  - lotsofpulp 5y ago
    There is absolutely no reason the law was written to limit IRA to $6k while 401k is $20.5k other than to give larger employers or other employers who can afford administering 401k an advantage over smaller employers who cannot. A married couple with both working at companies offering 401k gets to save $40k+ pre tax, but a married couple with one spouse working at a local small shop not offering 401k gets to save half as much.
    - gowld 5y ago
      Why doesn't the shop have a 401k? Doesn't the owner want to save for retirement?
      - lotsofpulp 5y ago