Official Investing Thread

this is where I find myself lost, so if I just wanted it under Schwab I’d open a traditional 401k there and roll it into that? I called in and they recommended the Roth account.

 

I believe I might have the option for a Roth 401K in the next few months at work.

How does this work exactly, do I just select that option and all my contributions will be considered a Roth while the match is traditional? Or is this something where I can do a % of my contribution as Roth and % as traditional?

Also does my Roth 401K contribution count towards the limit for my Roth IRA, those are separate correct?

I googled some of this but the results were terrible.

 

One caveat I'm interested in here, though, is if there is a balance in my traditional IRA (from a 401k rollover lets say) and I go ahead and convert that into a Roth IRA (and subsequently pay taxes owed on that amount), am I ok to start participating in a backdoor Roth from that point forward?

 

All of this depends on your company’s plan but typically you can divide your contributions among Roth and traditional 401k until you hit your max. Neither has an effect on your Roth IRA since, as you mentioned, that’s entirely separate from your 401k

 

I’m not sure what you mean by open a traditional 401k with Schwab. If it’s you opening the account it’s likely an IRA you’re thinking of (401k’s are typically done through employers and rolled over to another employer 401k when you change jobs). If you don’t want to roll over to another employer you can either leave it in that previous employer’s 401k account (you still own it) or you can roll it into an IRA (which was your initial question I believe). If you are rolling into an IRA and it’s a traditional 401k, you’ll first need to pay taxes before you can convert that traditional IRA into a Roth

 

Makes sense, I figured that’d be the case and assume once this gets going I can log on to whatever and adjust accordingly. Not sure what I’ll do, but kind of want to do a mix of the traditional and Roth and hope for the best in 30 years lol

 

Is it an option to roll the IRA into the new employer’s 401k?

Like this:
old employer’s 401k --> traditional IRA --> new employer’s 401k

 

If the plan allows it.

 

Your company match will be in a traditional account

 

I started doing roth 401k then decided the hell with that I’m going back to the combo of traditional 401k and roth IRA.

 

It’s looking like March 14th was a good day to max out the Roth.

 

This is why I’m glad I asked! I’d rather not foot the tax bill now so I’ll just leave it as is.

 

This is what I have now (minus the max part) and have considered just keeping it that way, just seems like everyone gets excited about a Roth 401K so figured I should look into the change.

 

I got excited about the Roth 401k and did it for a while and then switched back. So now from my total 401k balance, about 70% is in the traditional, 30% in the Roth. I'm just going to leave it as-is and not let it bug me and just focus on the overall savings. But going forward yeah traditional 401k and Roth IRA is what I'm doing.

Traditional 401k is nice to help me lower my taxable income. I guess that's the idea, traditional 401k to lower taxable income now, then the Roth IRA to lessen the amount of tax after retirement - so hitting it from both ends.

(this is not advice I have no idea what I'm doing)

 

Everyone's situations and goals are different but it's generally a good idea to have taxable and non-taxable buckets to draw from in retirement.

 

I’m Team Roth 401k 100% then Roth IRA and wife is Team Traditional 401k 100% then Roth IRA.
We’ll figure out which account is the best to draw from one day

 

can you explain that like i’m 5?
if I expect my income to be a lot lower around retirement age, why would it be better to have all roth accounts lined up?

 

He’s old so that’s probably right for him. I would say most of us are not quite to our peak earning years yet though so I think the Roth option could still make sense for a few more years.

 

That plus who knows what happens to the tax base over the next few decades. Past few years make rates seem relatively untouchable for majority of the country but base could expand or contract (but unlikely around the middle). This also aligns with major tax overhaul every ~30 years (although 2017 wasn’t “major” by any means).

*changes to tax base could change Roth/traditional analysis

 

This has been my basic train of thought. More than likely my income after retirement will be lower than it is in the present (plus factor in some of my income will be tax free then). Some people have acted like I’m nuts for thinking this.

Since I have the Roth IRA, I’ll at least have some tax free income just in case. Also I guess some could like the idea of just not even needing to bother with taxes and maybe they think it gives them a better idea of how much money they have/will have for retirement.

 

Not that I'd advise doing it, just pointing it out. There's also the added benefit of Roth IRAs where you are allowed to withdraw contributions (principle, not gains) you made anytime, tax and penalty free.

 

I did Roth 401k 100% for years, but switched back to 100% traditional. So now I'm like 60/40 Roth vs traditional in total funds. Now I fill up traditonal 401k, 2 Roth IRAs, and dump extra into the MDB Roth 401k.

 

How did you go about finding out if your company offered this option? I've called my company's 401k provider multiple times trying to explain what I'm wanting to do with MBD but they act like they have no idea what I'm talking about. I've read a bit on it, and it seems only a small percentage of companies even offer this option.

 

I just started maxing trad 401k to lower household income and then max Roth IRA for both spouses after taxes. Think it’s a solid strategy.

 

They just started offering it a couple years ago. Before there was just an after tax option. Look for language in your plan like "Roth-in plan conversion". I ended up calling Fidelity to make sure it was the same thing.

 

But, just to be clear, even before the Roth in-plan conversion, you were still able to go above the typical max 401k contribution up to whatever the total contribution limits are (think its like 58,000 or something like that)? Was there a specific term they used for that option (even if its not Roth)?

 

Anybody seeing anything interesting on the macro front? Or any unique perspectives on the economy?

For the first time in two years I have had some doubt creep into my mind about not just a “dip” in the market but full on recession across the economy. We’ve gone 15 years almost basically straight up except for like 75 days in 2020 (followed by a rocket ship), and there are plenty of dynamics in the market today - inflation, interest rates, yield curve inversion, supply chain issues being almost permanent at this point, geopolitical tension that could be the tipping point.

In the last 30-45 days in my industry - commercial real estate - bid sheets for Industrial buildings and portfolios have gone from 12-15 with 10 of the best names in the business on every one to 5 on the sheet and maybe only one or two of the top names. Pretty concerning trend shift in a very rapid period of time.

ETA: For example Blackstone and KKR have both disappeared as buyers in the last 30 days after being prolific over the last 18 months. Oh and they are also bringing a ton to market for sale.

Just thinking out loud. Curious if anybody else is seeing anything or has read anything on the topic they found insightful.

 

I don't know how can one can look at capitalism in 2022 and not be fearful a little that one spark can set a lot on fire

 

I think your gut feeling is valid, starting a hiking cycle late in the economic cycle usually doesn’t work out too well.

I think the Fed was originally fine to let inflation fade with year over year comps getting tougher in 2022 but the Ukraine conflict has recharged inflation fears. I think the equity market is underselling how hawkish Powell truly is, but it’s anyones guess how far he gets in this rate cycle before something breaks.

As for your commercial real estate example rates have rapidly accelerated in a short time, so in a way I’m not surprised buyers have disappeared.

I’ve taken to raising a bit more cash off this recent rally.

Tldr 2020/2021 was a time to be greedy, 2022 is a time to be more conservative in my opinion.

 

Before you could go up to that limit with after tax money but not Roth. So gains would have been taxed like traditional when taken out. Then they let you immediately convert that to Roth within the 401k. We can't roll it over to an IRA like some plans.

 

Right, I guess I'm a bit confused then. Can any and all plans go up to that max (53k) limit with after tax money? The 401k provider acted like that wasnt an option with my employer's plan when I called but maybe they just weren't understanding what I was asking. I am currently maxing out a traditional 401k and I'm pretty sure they will stop taking money out of my paycheck toward the end of the year once I hit that 19.5k threshold (for 2021 at least)

 

Not sure if that's a requirement of plans or just an option. The max is a combination of 401k contributions, matching, and after tax contributions.

 

It is not a requirement. My 401k plan specifically prohibits them unfortunately.

 

Any idea what sort of terms I should be using when asking if it's even available? I'd be happy with a solid "no" at this point, as all I've gotten so far is confused responses.

 

I would start with asking whether they offer in-plan conversions from Traditional to Roth (I'm pretty sure this should be a yes for almost any company offering a Roth plan). Then once they confirm that, ask if you can make after-tax contributions to the traditional 401k plan.

If I remember, tomorrow I'll look at the actual specific language in my company's plan to see how they term it. It's buried in some 50+ page PDF as just a quick one or two liner.

 

This is how mine describes it: You can contribute up to your total contribution limit of $61,000 for 2022 with after-tax dollars. Secondly, consider a Roth In-Plan Conversion to convert after-tax dollars to Roth and take advantage of additional tax savings.

The RSP offers Roth in-plan conversions which allows you to convert your current eligible non-Roth balances (pre-tax, after-tax, and employer contributions) to Roth. The taxable amount converted to Roth is included in gross income at the time of the conversion. Thereafter, distributions/withdrawals of the converted Roth money are tax-free once certain conditions are met.

 

Thats awesome. I dont understand why all companies dont offer this

 

Cool, thanks. My company does offer a Roth option, so I'm hoping its just a miscommunication on my part and they will let me take advantage of the after-tax part as well.

 

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This got me.