Keep reading and you’ll figure it out. What do you think? In the intro to your post, you mention the Bogleheads wiki post about this issue (namely that dollars contributed to a tax deferred account now are contributed at a person’s current marginal tax rate, but are withdrawn at that person’s average tax rate, making a case that it is optimal to contribute dollars to a non-Roth account while in higher tax brackets). So the end effect is still the same – no taxes are paid on qualified distributions. His Roth IRA: $5,500 As a result, if you make a nondeductible contribution to a traditional IRA, you can immediately convert the money to a Roth IRA. – The question that puzzles me the most is what to do if I have the ability to max my retirement accounts and do back door roth and then should I make more Roth contributions because effectively i m putting more dollars into retirement while doing roth and likely will not be using all the money for my retirement. Contribution Limits. The HR department typically administers that paperwork. Traditional and Roth IRA contribution limit will stay the same at $6,000 in 2021 as in 2020. So does this mean that once you start building traditional accounts that you don’t wish to convert to Roth accounts, you can no longer grow you Roth accounts with additional contribution? It is a good general rule that in your peak earnings years you should favor tax-deferred accounts. Also, I can't find a straight answer on this – can I contribute to a Roth IRA through USAA, the Roth TSP, and a traditional IRA through USAA (or another firm)? 1) You should max out a Roth IRA. If he contributes $17.5K to a Roth 401K, then he can’t contribute to a traditional 401K (pre-tax). A great way to lower your taxable income is to make tax-deferred account contributions. I saw the entry detailing yours, I know some places (like my work) have Targeted funds based on your age, but don’t know if Vanguard has this or what not…. Great website indeed.. Basically, because they save so much, they'll accumulate so much wealth that they'll actually be in a higher bracket in retirement than even most of their peak earnings years. It’s aimed at docs, but it applies to most high income professionals and many low income folks as well. I thought he meant to say his tax-protected space is $81K in addition to $28.5 Roth. The whole blog is great. Can I contribute 17.5k to both? But if you cannot max out both plans, you might want to concentrate on the Roth IRA, since it provides tax-free income when you retire. It sounds like you’re going to put some pension money (pre-tax) into a traditional IRA. Know this- that you’re choosing between better and best, and nobody can tell you which is which in your situation. Finishing surgical sub training, spouse an attending-Tax bracket this year 33%, next year 39.6%, state 6%. It would also be nice to see the contribution limits on there, but it’s your chart so keep it simple if you prefer! If you put it into a pre-tax account, and it triples, then when you pull it out you’ll have $30K, and you’ll pay $7500 in tax, leaving $22,500. Most can’t. I’d rather see a way to calculate what percentage of income I need to save to reach the max contribution by the end of the year and not miss out on employer matching funds. Technically it is marginal to marginal, but it’s marginal to marginal for every dollar. Ahhh. Financial advisors tell me it’s very unusual to see someone with even that high of a ratio. A good rule of thumb for serious retirement investors is 10% to 15% of pretax income. I am a pediatrician just out of residency and making decent money. The main reason is that Roth IRAs (although interestingly, not Roth 401(k)s) don't have Required Minimum Distributions (RMDs) starting at age 72. As people are retiring later and later, I’m not sure which will be higher. You can request they withhold some money, but you don’t want to do that. I’m not sure what you would like to see updated. Although I’m a new attorney, and not a doctor, I’ve found that almost all of what you write is applicable to me, and professionals in general. My original thought was-no brainer, T401k for the federal AND state tax break, but if I am planning on rolling this 401K into a TIRA in the future and then slowly convert to ROTH when able, I may be loosing my ability to do Backdoor Conversions in the future with the pro-rata rule, correct? It’s not looking rosy for the high income earners in retirement and probably for estate taxes as well. Individual retirement account: ... extra to a traditional IRA or a Roth IRA, which have different rules about when they are taxed. This is one reason Katie and I are doing Roth contributions in our 401(k)s these days. Just bought your book on Amazon and really looking forward to reading it. For a really deep dive into this, I’d recommend James Lange’s Retire Secure. I don’t have any existing retirement funds in any IRA so does the pro-rata still affect me? An heir is not required to take Roth distributions. Sorry your 401(k) sucks, but the choices on the Roth side are probably exactly the same. For 403b ROTH, do I open through the Human Resource Department at my program? Or paying tax at 28% now, when you could have pulled it out in 30 years at 15%. There are some exceptions though. Taking advantage off all the different retirement plans to which you have access can help you save money for retirement and maximize your income tax benefits. If … If you don’t have enough money to max out contributions to both accounts, experts recommend maxing out the Roth 401(k) first to receive the benefit of a full employer match. If we counted unfunded liabilities those numbers would be multiplied by a factor of 10. Going forward, based on my understanding it would be easier to open individual 401k and max it out for 2019, open a traditional IRA max it out for 2019 and do backdoor roth conversion. The Roth IRA, of course. Perhaps the most common way state tax laws affect the decision is when you plan to retire in a different state than the one you spent your working years in. They may just inflate it all away instead of raising taxes. Good luck investing. Sorry for the rambling post. Q2. Then the next chunk is at 10%. I would open it when you are ready to invest the money. One of the best arguments against pre-paying your taxes by making Roth 401(k) contributions is that you don't know what the future holds. If so, is this loss worth still going with Traditional? I’m aiming for about 33% Traditional / 66% Roth. If you can't keep the same dollar-for-dollar … Ignore my snark. Roth IRAs also don’t have Required Minimum Distributions (RMDs), which exist in all 401k plans, including the Roth 401k. Many people don’t have a Roth option in their 401K at all. What if your stay-at-home spouse opened a 1099 contractor business earning 17.5k per year? About the Roth 401k though: Do you treat both spouse’s portfolio as one when filing jointly? 2) Contribute to a SEP IRA. Yes, you open a 403(b), including a 403(b) by filling out paperwork when you are hired. The only pitfall to this conversion strategy is that you cannot choose what money in your traditional IRA you convert. I’m active duty military (1 year out of fellowship), currently deployed through the end of the year and taking advantage of my tax-free status by making the maximum Roth TSP contributions this year to $18K. To help you with your search for the best Roth IRA account, we compared more than 30 financial companies to find out which ones offer the best Roth IRA accounts in terms of investment options, investment help, and fees involved. Most importantly, remember that your contributions are made at your MARGINAL tax rate (i.e. 3) Was there a blog entry where you went over how to choose what funds to invest in, in your Roth? I am in first year out of fellowship. They might be quick questions to ask, but not necessarily answer. My question is, how should I prioritize my contributions going forward for the optimal tax strategy? For PGY1, what index fund do you recommend to start for the IRA ROTH? Until April 15, 2014, you can make 2013 contributions if you’d like. Comment below! With 36k tax-deferred between RSP and 457 and another 11k backdoor Roth IRA, does it make sense to do the Roth 403(b) to have a more equal allocation between taxed and tax-deferred retirement accounts knowing that the tax-deferred savings won’t be invested now? Extremely hard to read! The contributions for Roth IRAs and 401(k) plans are not cumulative, which means that you can max out both plans as long as you qualify to contribute to each. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. However, I clicked on your link to the Bogle wiki, and it looks like they’re still making the comparison of marginal rates today to marginal rates in the future, and not average tax rates in the future…am I missing something? James- Can you break down your $81k of tax protected space per year? What you’re trying to avoid doing is deferring money at 28% now, and paying 33% on it when you pull the money out. So what do you think? Keep Me Signed In What does "Remember Me" do? This should total 56,000 401k+ 6,000 roth IRA, which I assume is decent for first full year out of residency. Although if your heirs don't make much money, it's possible that they may have a lower tax rate than you, and the overall tax rate paid by the family will be lower if the heirs pay the taxes. Your blog has been super helpful. Here is a list of reasonable ones: 3) An asset allocation tends to be very personal. Also, remember that any Roth conversions done during the college years will also increase your expected family contribution. The heirs do have RMDs and there is no step-up in basis as it is all already tax free. The more of it you have, the higher the rate at which those 401(k) withdrawals will be taxed. I also read the other articles that you linked from this one, but I still can’t seem to figure out what to do given my financial situation. If you are limited to a $19,500 contribution to your 401(k), then making the 401(k) tax-deferred and also maxing out backdoor Roth IRAs should provide you the tax diversification that you're looking for. Then my bracket is still a nice boost & personal finance for Doctors accounts this year 20 minutes.! Usaa for your IRAs hard, and although i am a fan, a 401k and a option... You leave residency ) starting in 2016 we will be maxing out your and... 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