After maxing 401k/IRA/HSA... what's next?

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After maxing 401k/IRA/HSA... what's next?

Postby markenx » Tue Jul 02, 2013 2:37 am

Howdy, I've been thinking about this one lately since my company is now offering after-tax 401k conversions to roth 401k for up to $20k.

I'm maxing 401k, ROTH IRA and HSA. What other things should I look at before going for the "backdoor" ROTH 401k? Any risks in putting too much in ROTH 401k? As I see it, I already paid the taxes... so why not. 401k has LifePath 2050 for 0.10% and PIMCO bond for 0.27%, which I feel are good/alright.

Little bit about me -
No kids, not married. 28% tax
My taxable is already about 60% of my assets, so even if I were to buy a home (don't plan to in the next 5 years) I could do the down payment, I believe. No need for a new car or anything major other than fun stuff which I pay with the remainder of the paychecks anyway.

Thanks! :o :D
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Re: After maxing 401k/IRA/HSA... what's next?

Postby WHL » Tue Jul 02, 2013 7:36 am

markenx wrote:Howdy, I've been thinking about this one lately since my company is now offering after-tax 401k conversions to roth 401k for up to $20k.

I'm maxing 401k, ROTH IRA and HSA. What other things should I look at before going for the "backdoor" ROTH 401k? Any risks in putting too much in ROTH 401k? As I see it, I already paid the taxes... so why not. 401k has LifePath 2050 for 0.10% and PIMCO bond for 0.27%, which I feel are good/alright.


Not sure if I'm missing something or if you're using the terminology wrong, but your after-tax 401k contributions should be rolled into a Roth IRA, not a Roth 401k.

If you have the option for post-tax 401k contributions, that's what I would do.
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Re: After maxing 401k/IRA/HSA... what's next?

Postby livesoft » Tue Jul 02, 2013 9:38 am

I would invest tax-efficiently in a taxable account. The reason I do this is so that my 401(k) withdrawals will be taxed at 0% when I convert them to a Roth IRA. So they were 0% taxed going into the 401(k) and 0% taxed when they come out of the 401(k). Contrast that to what the OP is saying: 28% taxed going into the Roth IRA or Roth 401(k) and 0% taxed coming out. I think 0% and 0% is better than 28% and 0%.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: After maxing 401k/IRA/HSA... what's next?

Postby BigOilTexan » Tue Jul 02, 2013 12:49 pm

livesoft wrote:The reason I do this is so that my 401(k) withdrawals will be taxed at 0% when I convert them to a Roth IRA. So they were 0% taxed going into the 401(k) and 0% taxed when they come out of the 401(k).


I'm not sure I understand what you're saying.

Lets say 25% tax bracket now, 10% at retirement.

It seems like there are 3 options:

1) Contribution -> 0% tax -> 401(k) pre-tax -> distribution at retirement -> 10% tax
2) Contribution -> 25% tax -> 401(k) post-tax -> Roth IRA conversion -> distribution at retirement -> 0% tax
3) Contribution -> 25% tax -> taxable -> short/long term capital gains tax.

How do you get 0% in and 0% out?
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Re: After maxing 401k/IRA/HSA... what's next?

Postby markenx » Tue Jul 02, 2013 1:03 pm

WHL wrote:
markenx wrote:Howdy, I've been thinking about this one lately since my company is now offering after-tax 401k conversions to roth 401k for up to $20k.

I'm maxing 401k, ROTH IRA and HSA. What other things should I look at before going for the "backdoor" ROTH 401k? Any risks in putting too much in ROTH 401k? As I see it, I already paid the taxes... so why not. 401k has LifePath 2050 for 0.10% and PIMCO bond for 0.27%, which I feel are good/alright.


Not sure if I'm missing something or if you're using the terminology wrong, but your after-tax 401k contributions should be rolled into a Roth IRA, not a Roth 401k.

If you have the option for post-tax 401k contributions, that's what I would do.



It's posible I am missing something too - but my understanding of the change in my company's 401k was that we could do an "in-plan conversion" to ROTH 401k with after-tax 401k contributions (no subject to the 17.5k limit in 2013).
Is after-tax o ROTH IRA always allowed? I will need to read more before I act.
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Re: After maxing 401k/IRA/HSA... what's next?

Postby harikaried » Tue Jul 02, 2013 1:26 pm

BigOilTexan wrote:Lets say 25% tax bracket now, 10% at retirement.
1) Contribution -> 0% tax -> 401(k) pre-tax -> distribution at retirement -> 10% tax
How do you get 0% in and 0% out?
You get adjustments, deductions, exemptions, credits that can reduce the effect of the 10% marginal rate at retirement.
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Re: After maxing 401k/IRA/HSA... what's next?

Postby letsgobobby » Tue Jul 02, 2013 2:15 pm

If your choices are taxable vs after-tax 401k which can then be immediately rolled over into a Roth IRA, the latter is a better option, assuming the investment options are not hideous.
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Re: After maxing 401k/IRA/HSA... what's next?

Postby Default User BR » Wed Jul 03, 2013 1:47 pm

I definitely think you should pursue the after-tax contributions rather than taxable investing. The question becomes whether that should be in-plan conversion or rollover to a Roth IRA.

One factor to consider is whether the plan allows in-service rollovers of after-tax amounts, or just in-plan conversion. Another is the available investment options, you only mentioned a few. 401(k)s often provide better protection from judgments, but Roth IRAs are easier to access for emergency or strategic use.


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