At what point do you stop contributing to employer sponsored retirement plans?

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go2run
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At what point do you stop contributing to employer sponsored retirement plans?

Post by go2run »

As we have been reviewing our current financial position and projecting out our future savings state, we are starting to question on when is the appropriate time to stop contributing to employer sponsored retirement plans. Following is our current position/situation:

Ages: Both 44
Planned Retirement Age: 55
Federal Tax Bracket: 24%
State Tax Bracket: 4.95%
Total Assets: $3.9M
Traditional Accounts (Rollover IRA/457): $1.85M
Roth Accounts (Roth/401k): $1.45M
Voluntary Additional Contribution Account (contribute pre-tax, guaranteed return of 7-7.25% annually, only taxed on interest earned): $37k
Taxable: $560k

Current Contributions:
$27,850 his Roth 401k (includes EE and employer contributions)
$19,000 her 457 (pre-tax) - (NOTE: After investigating, we found out that we can contribute to the 457 on a post-tax/Roth basis.)
+$10,500 her Voluntary Additional Contribution
$50,000 taxable
*Unable to contribute directly to Roth IRA due to income limits

Pension: My wife is vested for a pension. If she retires at 50, it will be $32,000 per year. If she retires at 55, it will be $50,600 per year.
NOTE: Retirement income will come from wife's pension, SS, and asset drawdown.

Funds available in his 401(k)
Target Date Funds (0.055%)
US Broad Market Index (0.029%)
S&P 500 Index (0.016%)
US Growth Index (0.02%) – tracks Russell 1000 Growth Index
US Value Index (0.034%) – tracks Russell 1000 Value Index
Mid Cap Index (0.029%) – tracks S&P Mid Cap 400 Index
Small Cap Index (0.045%) – tracks Russell 2000 Index
Developed Markets Index (0.066%) – tracks MSCI EAFE Index (International)
Total International Index (0.079%) – tracks MSCI ACWI ex-US Index (International)
Emerging Markets Index (0.145%) – tracks MSCI Emerging Markets Index (International)
Inflation Protected Index (0.039%) = tracks Barclays US TIPS Index
Total US Aggregate Bond Market Index (0.043%) – tracks Barclays US Aggregate Bond Index
Balanced Index Allocation (0.027%) – tracks S&P 500 (60%) and US Aggregate Bond Index (40%)
*NOTE: His 401k allows roll-overs into plan and allows in-plan Roth conversions 2x per year.

Funds available in her 457:
Fidelity US Bond Index (0.03%)
Fidelity 500 Index (0.02%)
Fidelity Mid Cap Index (0.03%)
Fidelity Small Cap Index (0.03%)
iShares MSCI EAFE International Index Fund K (0.04%)
Balanced Funds (Target Date) (0.15%)
- NOTE: There are a few others that I did not list as they are not index funds and fees range from 0.38-0.92%)
- NOTE: Her 457 plan does accept roll-over but does not allow in-plan conversions to Roth.

Our primary concern is when RMD's hit. Our current glide path is that our traditional accounts will total nearly $3M at 50 or $4M at 55. If we plan Roth conversions at that time, we'll hardly make a dent into it and will be sitting on a ticking tax time bomb when RMD's hit. We're inclined to continue contributing to his Roth 401k. For her 457, there is no company match or real benefits other than reducing current taxable income by the contribution amount.

So, does it make sense to put the brakes on future contributions and invest in taxable only?
Last edited by go2run on Mon Jun 14, 2021 7:50 am, edited 1 time in total.
Gill
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Gill »

I would never stop contributing the maximum. The benefits are too great, both to you now and for your future but of course there will be big taxes. That’s not a bad thing.
Gill
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anon_investor
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by anon_investor »

OP does your spouse have Roth 457? If not, why not do the $19.5k pretax 457 contribution then just do a $19.5 Roth conversion of Rollover IRA. That would effectively make that $19.5k pretax contribution Roth.
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Johnsson
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Johnsson »

When you've received your final paycheck. Continue with Roth until then.
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dcabler
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by dcabler »

Next year, when I retire. I plan on retiring sometime after June 1st. I've always maxed out 401K's since they became available at my first employer. And for quite a while now, I front end load my 401K contributions by having my withholdings at the max percentage allowed by my company. By March, I've contributed the max amount for the year and am done. In June I get a "true-up" deposit for the remainder of the previous year's employer match due to the way matching is calculated. Anyway, I do this primarily because my industry has had a habit of having layoffs in the second half of the year and I wanted to layoff-proof my 401K contributions.

I also realize that at this point in my life those maxed out 401K contributions aren't substantially moving the needle on my overall wealth. But I do it anyway. :D
lakpr
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by lakpr »

Is she a New York state employee? That's the only plan I heard of where a 7% to 7.25% guaranteed rate is offered. Is the $10,500 the max that she can contribute? If the plan would allow for contributing $19,500 max, I would do that in heart beat. That's stock-market like returns without the stock market risk.

I also agree that you should never stop contributing the maximum to the retirement plans. Do it on a Roth basis, if you are afraid that contributing too much to those plans would cause your future withdrawals to be taxed at a higher marginal rate than now. But never let go of the opportunity to max them out to the extent you are able to and can afford to.

An excellent suggestion given above already about she being able to contribute to the 457 plan only on a pre-tax basis. Do that, but convert an equivalent amount in His Rollover IRA to Roth. It's the same as contributing directly to a Roth account on her paycheck. Just don't forget to have higher amount of taxes withheld from the paycheck to account for the Roth conversion.
Tingting1013
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Tingting1013 »

Gill wrote: Fri Jun 11, 2021 5:46 pm I would never stop contributing the maximum. The benefits are too great, both to you now and for your future but of course there will be big taxes. That’s not a bad thing.
Gill
Agree 100%. My wife and I contribute $155k/yr to retirement accounts and would contribute even more if we could.
VanGar+Goyle
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by VanGar+Goyle »

It depends on your current income/spending, when you retire, if you are happy with your qualified investment options, and
what you want the money for.
Federal Tax Bracket: 24%
The Federal MFJ 24% is $172,751 to $329,850, so you have 11x to 22x income saved.
If you retire at 45, that may not be enough. If you retire at 65, you may have plenty.

If you are currently charitable, then Roth or deferred is less useful. If you want to support future high income children, Roth is more useful.
Obviously the Roth locks in your current tax rates, but huge future LTCG or qualified dividends in 401(k) would be taxed at normal income rate.
Well, you pay a little bit, we're a little bit tough. | You pay very much,very much tough. | You pay a too much, we're too much a tough. | How much you pay? ... Well, then we're plenty tough. - Marx
Teddy Ruxpin
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Teddy Ruxpin »

My wife has a 401k and I have a 401k and 457. I fill all three pre-tax. I backdoor ROTHs every year. I also have a taxable account that currently gets another $15k a year plus about 80% of her bonus when she gets it.

Is that a problem? I've never saw the 401k ROTH as something I should do.
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Grt2bOutdoors »

Teddy Ruxpin wrote: Fri Jun 11, 2021 9:40 pm My wife has a 401k and I have a 401k and 457. I fill all three pre-tax. I backdoor ROTHs every year. I also have a taxable account that currently gets another $15k a year plus about 80% of her bonus when she gets it.

Is that a problem? I've never saw the 401k ROTH as something I should do.
What is your current tax bracket, ages, ballpark size of accounts?
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anon_investor
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by anon_investor »

Teddy Ruxpin wrote: Fri Jun 11, 2021 9:40 pm My wife has a 401k and I have a 401k and 457. I fill all three pre-tax. I backdoor ROTHs every year. I also have a taxable account that currently gets another $15k a year plus about 80% of her bonus when she gets it.

Is that a problem? I've never saw the 401k ROTH as something I should do.
How large is your current combined pre-tax balance and will either of you receive pension payments?

The OP's issue is the large and growing pre-tax balance AND the wife's pension. That combination [plus SS] means RMDs may push the OP's future tax bracket higher than today's, meaning Roth would have been better than pre-tax.
Teddy Ruxpin
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Teddy Ruxpin »

36 and 34.

My job will come with pension at retirement, but I'm 20 odd years away from that. I think it would be about $5k a month if I went the distance.

Current accounts:
My 401ks: $230k
My 457: $100k
My ROTH: $92k
My HSA: $20k

Her 401k: $200k
Her ROTH: $87k
Her HSA: $10k

Shared Taxable: $205k
Son's 529: $15k

As for tax bracket, salaries combined for $400k last year, but she received a $120k bonus on top of that (past years it was more like $45k). She is likely to be a partner in next two years. I drive down my taxable income a lot with my pension contribution (about 10% of salary), the 401k and 457, and HSA.

Appreciate the help
novemberrain
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by novemberrain »

Tingting1013 wrote: Fri Jun 11, 2021 6:51 pm Agree 100%. My wife and I contribute $155k/yr to retirement accounts and would contribute even more if we could.
How do you contribute 155 per year? I thought the max was 59 per person including matches for 401k. And 6k for IRA. So 65 per person or 130 total. Maybe add HSA too - 7k. But that still makes 137 total only
Last edited by novemberrain on Sun Jun 13, 2021 11:11 am, edited 2 times in total.
wetgear
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by wetgear »

No, I don't think that makes sense. It's just giving away money to taxes.

You should consider doing some rollovers of the non-roth IRAs to open up the back door roth IRA contributions for you and your spouse. That will get you an extra 12k/year of roth IRA space and even more after you are 50.
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ruralavalon
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by ruralavalon »

go2run wrote: Fri Jun 11, 2021 5:43 pm As we have been reviewing our current financial position and projecting out our future savings state, we are starting to question on when is the appropriate time to stop contributing to employer sponsored retirement plans. Following is our current position/situation:

Ages: Both 44
Federal Tax Bracket: 24%
Total Assets: $3.9M
Traditional Accounts (Rollover IRA/457): $1.85M
Roth Accounts (Roth/401k): $1.45M
Voluntary Additional Contribution Account (contribute pre-tax, guaranteed return of 7-7.25% annually, only taxed on interest earned): $37k
Taxable: $560k

Current Contributions:
$27,850 his Roth 401k (includes EE and employer contributions)
$19,000 her 457 (pre-tax)
+$10,500 her Voluntary Additional Contribution
$50,000 taxable
*Unable to contribute directly to Roth IRA due to income limits

Pension: My wife is vested for a pension. If she retires at 50, it will be $32,000 per year. If she retires at 55, it will be $50,600 per year.

Our primary concern is when RMD's hit. Our current glide path is that our traditional accounts will total nearly $3M at 50 or $4M at 55. If we plan Roth conversions at that time, we'll hardly make a dent into it and will be sitting on a ticking tax time bomb when RMD's hit. We're inclined to continue contributing to his Roth 401k. For her 457, there is no company match or real benefits other than reducing current taxable income by the contribution amount.

So, does it make sense to put the brakes on future contributions and invest in taxable only?
Teddy Ruxpin wrote: Sun Jun 13, 2021 9:50 am 36 and 34.

My job will come with pension at retirement, but I'm 20 odd years away from that. I think it would be about $5k a month if I went the distance.

Current accounts:
My 401ks: $230k
My 457: $100k
My ROTH: $92k
My HSA: $20k

Her 401k: $200k
Her ROTH: $87k
Her HSA: $10k

Shared Taxable: $205k
Son's 529: $15k

As for tax bracket, salaries combined for $400k last year, but she received a $120k bonus on top of that (past years it was more like $45k). She is likely to be a partner in next two years. I drive down my taxable income a lot with my pension contribution (about 10% of salary), the 401k and 457, and HSA.

Appreciate the help
In general stop contributions to employer plans when your employment ends. Don't skip the tax benefits.

You said "Federal Tax Bracket: 24%",what is a your tax bracket for state income taxes?

I see that you will be eligible for a pension in 20 years, and that your wife is already vested for her pension. Is that in addition to Social Security benefits? I see that you currently have about $1,850k traditional tax-deferred accounts.

About when do you expect to retire?

Roth contributions to his employer's 401k plan are probably a good idea.

Does her 457b plan permit Roth contributions? Is that a governmental 457b plan?

What funds are offered in each of the employer plans? Please give fund names, tickers and expense ratios.

Does any employer plan permit non-Roth after-tax contributions? If so does that plan permit either (a) in-service distribution, or (b) in-plan Roth rollover? TFB blog post (12/14/2014) "The Elusive Mega Backdoor Roth", link.

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

If your employer plans offer good funds with low expense ratios, then its a good idea to rollover the traditional IRAs into those employer plans.
Last edited by ruralavalon on Sun Jun 13, 2021 11:13 am, edited 5 times in total.
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NewMoneyMustBeSmart
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by NewMoneyMustBeSmart »

go2run wrote: Fri Jun 11, 2021 5:43 pm Current Contributions:
$27,850 his Roth 401k (includes EE and employer contributions)
$19,000 her 457 (pre-tax)
+$10,500 her Voluntary Additional Contribution
$50,000 taxable
*Unable to contribute directly to Roth IRA due to income limits
Does it make sense to do a backdoor Roth in addition?
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Yarlonkol12
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Yarlonkol12 »

I would personally always max it out, in addition to the tax benefits there are also legal benefits. 401k provides the best possible asset protection from judgements and creditors, lookup ERISA
HomeStretch
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by HomeStretch »

If you believe you have “enough” saved in tax deferred accounts, make Roth contributions where possible to employer plans. Roth accounts grow tax free, Taxable accounts do not. To increase your Roth space, roll over pretax balances in your/spouse’s traditional IRAs to your employer plans (if allowed and plans have good low-cost fund choices) in order to do annual backdoor Roths.

More information is needed to determine if you have “enough” saved in tax deferred accounts.
- when do you plan to retire?
- what are your projected annual expenses in retirement (including income tax, healthcare and lumpy expenses such as car purchase or major home repair)?
- what is your projected annual retirement income? Will your projected annual retirement income cover your retirement expenses? If no, how many years of net living expenses do you have saved in your retirement portfolio?
- if you are a NY resident, consider editing your original post to include your marginal state and local, if any. tax rates.
JBTX
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by JBTX »

Would it make sense to do Roth conversions right now and next few years to the top of 24% bracket?
neowiser
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by neowiser »

You don't mention your estate plan/heirs. The SECURE Act changed how we look at our retirement accounts as part of an estate plan. Our heirs will now need to take the full distribution of the balances in our retirement accounts within 10 years of our passing. We (early 60s) stopped contributing to the tax deferred accounts and now do mega backdoor Roth conversions each month from the taxable 401a provided by our employer. The decision was based, in part, on a belief that tax rates will increase in the next 2 decades, making the prospect of pension + social security + RMD more of a time bomb that it is using today's rates.
Tingting1013
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Tingting1013 »

novemberrain wrote: Sun Jun 13, 2021 10:30 am
Tingting1013 wrote: Fri Jun 11, 2021 6:51 pm Agree 100%. My wife and I contribute $155k/yr to retirement accounts and would contribute even more if we could.
How do you contribute 155 per year? I thought the max was 59 per person including matches for 401k. And 6k for IRA. So 65 per person or 130 total. Maybe add HSA too - 7k. But that still makes 137 total only
I count EE bonds as tax advantaged
sc9182
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by sc9182 »

Tingting1013 wrote: Sun Jun 13, 2021 3:01 pm
novemberrain wrote: Sun Jun 13, 2021 10:30 am
Tingting1013 wrote: Fri Jun 11, 2021 6:51 pm Agree 100%. My wife and I contribute $155k/yr to retirement accounts and would contribute even more if we could.
How do you contribute 155 per year? I thought the max was 59 per person including matches for 401k. And 6k for IRA. So 65 per person or 130 total. Maybe add HSA too - 7k. But that still makes 137 total only
I count EE bonds as tax advantaged
Lol ..
May be add double catch-up contributions, you be knocking on the $155k/year :-)
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ruralavalon
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by ruralavalon »

go2run, we can't be very much help to you unless you provide more information by answering the questions we have asked of you.

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
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Topic Author
go2run
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by go2run »

anon_investor wrote: Fri Jun 11, 2021 5:51 pm OP does your spouse have Roth 457? If not, why not do the $19.5k pretax 457 contribution then just do a $19.5 Roth conversion of Rollover IRA. That would effectively make that $19.5k pretax contribution Roth.
Thanks for asking about this. I've been searching through the online portal for plan documents. When I go to contributions, I see that we can contribute on an after tax (Roth) basis and it looks as if the max contribution is $19.5k. I can not find anything where we can do in-plan conversions within that account.

I dug in deeper on my Roth 401k account, and the maximum contributions (including my own and employer) is limited to the lesser of $58,000 or 100% of eligible pay. Looks like I have an opportunity to direct more here for sure.
Topic Author
go2run
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by go2run »

lakpr wrote: Fri Jun 11, 2021 6:38 pm Is she a New York state employee? That's the only plan I heard of where a 7% to 7.25% guaranteed rate is offered. Is the $10,500 the max that she can contribute? If the plan would allow for contributing $19,500 max, I would do that in heart beat. That's stock-market like returns without the stock market risk.

I also agree that you should never stop contributing the maximum to the retirement plans. Do it on a Roth basis, if you are afraid that contributing too much to those plans would cause your future withdrawals to be taxed at a higher marginal rate than now. But never let go of the opportunity to max them out to the extent you are able to and can afford to.

An excellent suggestion given above already about she being able to contribute to the 457 plan only on a pre-tax basis. Do that, but convert an equivalent amount in His Rollover IRA to Roth. It's the same as contributing directly to a Roth account on her paycheck. Just don't forget to have higher amount of taxes withheld from the paycheck to account for the Roth conversion.
We are in IL. The Voluntary Additional Contribution (VAC) account is part of her pension plan, not the 457 account. Yes, we are contributing the maximum allowed to the VAC.

I don't intend stopping contributions to my employer Roth 401k, especially with the match and additional annual contribution we get. In my prior reply I did find out I can contribute up to $58k in that account, so that is something I'm going to ratchet up in contributions.
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go2run
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by go2run »

anon_investor wrote: Sat Jun 12, 2021 6:18 am
Teddy Ruxpin wrote: Fri Jun 11, 2021 9:40 pm My wife has a 401k and I have a 401k and 457. I fill all three pre-tax. I backdoor ROTHs every year. I also have a taxable account that currently gets another $15k a year plus about 80% of her bonus when she gets it.

Is that a problem? I've never saw the 401k ROTH as something I should do.
How large is your current combined pre-tax balance and will either of you receive pension payments?

The OP's issue is the large and growing pre-tax balance AND the wife's pension. That combination [plus SS] means RMDs may push the OP's future tax bracket higher than today's, meaning Roth would have been better than pre-tax.
Yes, that is the crux of my dilemma...we currently have $1.85M in our pre-tax accounts which are concerning when it comes to RMD time in about 28 years.
Escapevelocity
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Escapevelocity »

I don’t understand the fascination with avoiding the so called ticking tax bomb. If the taxes are high that means your income is also incredibly high so be happy an just focus on what you’re keeping instead of the tax.
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Dottie57 »

Gill wrote: Fri Jun 11, 2021 5:46 pm I would never stop contributing the maximum. The benefits are too great, both to you now and for your future but of course there will be big taxes. That’s not a bad thing.
Gill
+1
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go2run
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by go2run »

NewMoneyMustBeSmart wrote: Sun Jun 13, 2021 10:50 am
go2run wrote: Fri Jun 11, 2021 5:43 pm Current Contributions:
$27,850 his Roth 401k (includes EE and employer contributions)
$19,000 her 457 (pre-tax)
+$10,500 her Voluntary Additional Contribution
$50,000 taxable
*Unable to contribute directly to Roth IRA due to income limits
Does it make sense to do a backdoor Roth in addition?
For our case with $1.3M sitting in one rollover IRA account and $300k in the other, doing backdoor Roth conversions does not make sense unless we can roll these amounts into our employer sponsored retirement plans. I have checked and have confirmed that I can roll my rollover IRA ($1.3M) into my employer plan. That will clear the way there. The other thing is that I can do up to 2 in plan Roth conversions each year in my 401k. That certainly is helpful and I think the way to go.
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anon_investor
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by anon_investor »

go2run wrote: Sun Jun 13, 2021 3:52 pm
NewMoneyMustBeSmart wrote: Sun Jun 13, 2021 10:50 am
go2run wrote: Fri Jun 11, 2021 5:43 pm Current Contributions:
$27,850 his Roth 401k (includes EE and employer contributions)
$19,000 her 457 (pre-tax)
+$10,500 her Voluntary Additional Contribution
$50,000 taxable
*Unable to contribute directly to Roth IRA due to income limits
Does it make sense to do a backdoor Roth in addition?
For our case with $1.3M sitting in one rollover IRA account and $300k in the other, doing backdoor Roth conversions does not make sense unless we can roll these amounts into our employer sponsored retirement plans. I have checked and have confirmed that I can roll my rollover IRA ($1.3M) into my employer plan. That will clear the way there. The other thing is that I can do up to 2 in plan Roth conversions each year in my 401k. That certainly is helpful and I think the way to go.
Backdoor Roth!!! :sharebeer
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anon_investor
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by anon_investor »

go2run wrote: Sun Jun 13, 2021 3:40 pm
anon_investor wrote: Fri Jun 11, 2021 5:51 pm OP does your spouse have Roth 457? If not, why not do the $19.5k pretax 457 contribution then just do a $19.5 Roth conversion of Rollover IRA. That would effectively make that $19.5k pretax contribution Roth.
Thanks for asking about this. I've been searching through the online portal for plan documents. When I go to contributions, I see that we can contribute on an after tax (Roth) basis and it looks as if the max contribution is $19.5k. I can not find anything where we can do in-plan conversions within that account.

I dug in deeper on my Roth 401k account, and the maximum contributions (including my own and employer) is limited to the lesser of $58,000 or 100% of eligible pay. Looks like I have an opportunity to direct more here for sure.
So can you do "after-tax" contributions (non-Roth) then convert in-plan to Roth or in-service rollovers to Roth IRA? That is the special sauce needed for the "mega backdoor Roth". That is how you get to contribute more than $19.5k into your 401k annually.
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Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Tingting1013 »

sc9182 wrote: Sun Jun 13, 2021 3:05 pm
Tingting1013 wrote: Sun Jun 13, 2021 3:01 pm
novemberrain wrote: Sun Jun 13, 2021 10:30 am
Tingting1013 wrote: Fri Jun 11, 2021 6:51 pm Agree 100%. My wife and I contribute $155k/yr to retirement accounts and would contribute even more if we could.
How do you contribute 155 per year? I thought the max was 59 per person including matches for 401k. And 6k for IRA. So 65 per person or 130 total. Maybe add HSA too - 7k. But that still makes 137 total only
I count EE bonds as tax advantaged
Lol ..
May be add double catch-up contributions, you be knocking on the $155k/year :-)
By the time I am eligible for catch up contributions I should be in decumulation mode
Topic Author
go2run
Posts: 125
Joined: Wed Mar 08, 2017 1:34 pm

Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by go2run »

ruralavalon wrote: Sun Jun 13, 2021 10:44 am
In general stop contributions to employer plans when your employment ends. Don't skip the tax benefits.

You said "Federal Tax Bracket: 24%",what is a your tax bracket for state income taxes? DONE

I see that you will be eligible for a pension in 20 years, and that your wife is already vested for her pension. Is that in addition to Social Security benefits? I see that you currently have about $1,850k traditional tax-deferred accounts.

About when do you expect to retire?

Roth contributions to his employer's 401k plan are probably a good idea.

Does her 457b plan permit Roth contributions? Is that a governmental 457b plan?

What funds are offered in each of the employer plans? Please give fund names, tickers and expense ratios.

Does any employer plan permit non-Roth after-tax contributions? If so does that plan permit either (a) in-service distribution, or (b) in-plan Roth rollover? TFB blog post (12/14/2014) "The Elusive Mega Backdoor Roth", link.

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

If your employer plans offer good funds with low expense ratios, then its a good idea to rollover the traditional IRAs into those employer plans.
Hi ruralavalon. Thank you for your additional questions. I have edited the original post with answers to these questions as requested.
Ramjet
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Joined: Thu Feb 06, 2020 11:45 am
Location: Ohio

Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by Ramjet »

Many around here seem to stop or cut retirement contributions to cashflow their kids college expenses
VT & HFEA
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ruralavalon
Posts: 21725
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: At what point do you stop contributing to employer sponsored retirement plans?

Post by ruralavalon »

go2run wrote: Fri Jun 11, 2021 5:43 pm As we have been reviewing our current financial position and projecting out our future savings state, we are starting to question on when is the appropriate time to stop contributing to employer sponsored retirement plans. Following is our current position/situation:

Ages: Both 44
Planned Retirement Age: 55
Federal Tax Bracket: 24%
State Tax Bracket: 4.95%
Total Assets: $3.9M
Traditional Accounts (Rollover IRA/457): $1.85M
Roth Accounts (Roth/401k): $1.45M
Is the rollover IRA his account, her account, or do both have rollover IRAs?

go2run wrote: Fri Jun 11, 2021 5:43 pmVoluntary Additional Contribution Account (contribute pre-tax, guaranteed return of 7-7.25% annually, only taxed on interest earned): $37k
Taxable: $560k

Current Contributions:
$27,850 his Roth 401k (includes EE and employer contributions)
$19,000 her 457 (pre-tax) - (NOTE: After investigating, we found out that we can contribute to the 457 on a post-tax/Roth basis.)
+$10,500 her Voluntary Additional Contribution
$50,000 taxable
*Unable to contribute directly to Roth IRA due to income limits

Pension: My wife is vested for a pension. If she retires at 50, it will be $32,000 per year. If she retires at 55, it will be $50,600 per year.
NOTE: Retirement income will come from wife's pension, SS, and asset drawdown.

Funds available in his 401(k)
Target Date Funds (0.055%)
US Broad Market Index (0.029%)
S&P 500 Index (0.016%)
US Growth Index (0.02%) – tracks Russell 1000 Growth Index
US Value Index (0.034%) – tracks Russell 1000 Value Index
Mid Cap Index (0.029%) – tracks S&P Mid Cap 400 Index
Small Cap Index (0.045%) – tracks Russell 2000 Index
Developed Markets Index (0.066%) – tracks MSCI EAFE Index (International)
Total International Index (0.079%) – tracks MSCI ACWI ex-US Index (International)
Emerging Markets Index (0.145%) – tracks MSCI Emerging Markets Index (International)
Inflation Protected Index (0.039%) = tracks Barclays US TIPS Index
Total US Aggregate Bond Market Index (0.043%) – tracks Barclays US Aggregate Bond Index
Balanced Index Allocation (0.027%) – tracks S&P 500 (60%) and US Aggregate Bond Index (40%)
*NOTE: His 401k allows roll-overs into plan and allows in-plan Roth conversions 2x per year.
His employer's 401k plan offers good funds with low expense ratios. If the rollover IRA is his then he can roll that over into his 401k account, just to simplify and have one less account to keep track of and manage.

This also enables backdoor Roth IRA contributions.

Continue the Roth 401k contributions.

In addition make after-tax non-Roth contributions to his employer's 401k plan, and then do in-plan Roth conversions.

go2run wrote: Fri Jun 11, 2021 5:43 pmFunds available in her 457:
Fidelity US Bond Index (0.03%)
Fidelity 500 Index (0.02%)
Fidelity Mid Cap Index (0.03%)
Fidelity Small Cap Index (0.03%)
iShares MSCI EAFE International Index Fund K (0.04%)
Balanced Funds (Target Date) (0.15%)
- NOTE: There are a few others that I did not list as they are not index funds and fees range from 0.38-0.92%)
- NOTE: Her 457 plan does accept roll-over but does not allow in-plan conversions to Roth.
Her employer's 457b plan offers good funds with low expense ratios. If the rollover IRA is hers then she can roll that over into her 457b account, just to simplify and have one less account to keep track of and manage.

This also enables backdoor Roth IRA contributions.

go2run wrote: Fri Jun 11, 2021 5:43 pmOur primary concern is when RMD's hit. Our current glide path is that our traditional accounts will total nearly $3M at 50 or $4M at 55. If we plan Roth conversions at that time, we'll hardly make a dent into it and will be sitting on a ticking tax time bomb when RMD's hit. We're inclined to continue contributing to his Roth 401k. For her 457, there is no company match or real benefits other than reducing current taxable income by the contribution amount.
You said "Federal Tax Bracket: 24%, State Tax Bracket: 4.95%" the total marginal tax rate is 28.95%.

In my opinion opinion the higher priority is non-Roth after-tax contributions to his employer's 401k plan followed by in-plan Roth conversions.

If there is more money available to contribute to investing in addition to the after-tax non-Roth contributions to his employer's 401k plan, then contribute to her employer's 457b plan for the tax deduction.

go2run wrote: Fri Jun 11, 2021 5:43 pmSo, does it make sense to put the brakes on future contributions and invest in taxable only?
No. Reduce contributions to the taxable account and add after-tax non-Roth contributions to his employer's 401k plan, and then do in-plan Roth conversions. Continue traditional tax-deductible contributions to her employer's 457b plan. Do backdoor Roth IRAs. Then consider contributions to the taxable account.
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