Backdoor Roth IRA

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Rayd8tr
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Joined: Fri Aug 11, 2017 3:32 pm

Backdoor Roth IRA

Post by Rayd8tr » Fri Aug 11, 2017 5:11 pm

My wife and I are in the highest tax bracket and anticipate being in a lower bracket at retirement.

I'm thinking about rolling over my TIRA into my 401k and start making backdoor contributions into an existing Roth IRA.

The offerings in my 401k are pretty good with expense ratios ranging from 0.17-0.86.

Is it worth it to do this rollover in order to do the back door Roth?

Thanks

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Duckie
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Re: Backdoor Roth IRA

Post by Duckie » Fri Aug 11, 2017 6:55 pm

Rayd8tr wrote:Is it worth it to do this rollover in order to do the back door Roth?
Yes, especially if you choose the options with expense ratios closer to 0.17% than 0.86%.

Rayd8tr
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Joined: Fri Aug 11, 2017 3:32 pm

Re: Backdoor Roth IRA

Post by Rayd8tr » Sat Aug 12, 2017 11:03 pm

Thanks...the only Vanguard product I have available is the Vanguard Institutional Index fund. I also have the Fidelity Contrafund available.

I'm scratching my head why my 401k plan managers are recommending 20% of the asset allocation into the Harbor International Instiutional Fund. :(

The other offerings available to me are as follows:

American Funds Balanced R6
Blackrock Equity Dividend
Pimco total return instl
Morley financial stable value
Oppenheimer developing markets I
Eagle small-cap growth r6
Mass Mutual mid-cap growth equity
Diamond Hill small cap Y
Harbor Intl institutional fund
T. Rowe Price mid-cap value
T. Rowe Price real estate
Fidelity Contrafund
Vanguard Institutional Index Fund

I'm nowhere near as savy an investor as the majority on this forum.

I do have model portfolios suggested by the brokerages that manage my employer's 401k. Nonetheless, I'm curious as to what y'all think.

Thank you

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Duckie
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Re: Backdoor Roth IRA

Post by Duckie » Sun Aug 13, 2017 3:32 pm

Rayd8tr wrote:
Sat Aug 12, 2017 11:03 pm
The other offerings available to me are as follows:
What are the plan expense ratios for the options?

Rayd8tr
Posts: 11
Joined: Fri Aug 11, 2017 3:32 pm

Re: Backdoor Roth IRA

Post by Rayd8tr » Sun Aug 13, 2017 7:05 pm

Rayd8tr wrote:
Sat Aug 12, 2017 11:03 pm
Thanks...the only Vanguard product I have available is the Vanguard Institutional Index fund. I also have the Fidelity Contrafund available.

I'm scratching my head why my 401k plan managers are recommending 20% of the asset allocation into the Harbor International Instiutional Fund. :(

The other offerings available to me are as follows:

American Funds Balanced R6
Blackrock Equity Dividend
Pimco total return instl
Morley financial stable value
Oppenheimer developing markets I
Eagle small-cap growth r6
Mass Mutual mid-cap growth equity
Diamond Hill small cap Y
Harbor Intl institutional fund
T. Rowe Price mid-cap value
T. Rowe Price real estate
Fidelity Contrafund
Vanguard Institutional Index Fund

I'm nowhere near as savy an investor as the majority on this forum.

I do have model portfolios suggested by the brokerages that manage my employer's 401k. Nonetheless, I'm curious as to what y'all think.

Thank you


American Funds Balanced R6 (0.29%)
Blackrock Equity Dividend (0.72%)
Pimco total return Instl (0.47%)
Morley financial stable value (0.25%)
Oppenheimer developing markets I (0.88%)
Eagle small-cap growth r6 (0.68%)
Mass Mutual mid-cap growth equity (0.73%)
Diamond Hill small cap Y (0.90%)
Harbor Intl institutional fund (0.80%)
T. Rowe Price mid-cap value (0.80%)
T. Rowe Price real estate (0.74%)
Fidelity Contrafund (0.68%)
Vanguard Institutional Index Fund (0.04%)

The outlier of course is the VINIX with an ER of 0.04%!

I am seriously thinking about either putting my entire 401k into VINIX or doing an independently directed account option I have and choose VIFIX and put it all in that instead.

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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Backdoor Roth IRA

Post by FiveK » Sun Aug 13, 2017 8:30 pm

Rayd8tr wrote:
Sun Aug 13, 2017 7:05 pm
I am seriously thinking about either putting my entire 401k into VINIX or doing an independently directed account option I have and choose VIFIX and put it all in that instead.
I'm guessing VIFIX is a typo, but more to the point: your overall asset allocation target deserves some consideration when weighing your 401k choices.

VINIX is likely an excellent choice for that asset allocation; American Funds Balanced R6 (if the 0.29% is available in your 401k) isn't too bad if you want 57% stock/ 35% bond/ 8% cash.

Rayd8tr
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Joined: Fri Aug 11, 2017 3:32 pm

Re: Backdoor Roth IRA

Post by Rayd8tr » Mon Aug 14, 2017 7:28 pm

FiveK wrote:
Sun Aug 13, 2017 8:30 pm
Rayd8tr wrote:
Sun Aug 13, 2017 7:05 pm
I am seriously thinking about either putting my entire 401k into VINIX or doing an independently directed account option I have and choose VIFIX and put it all in that instead.
I'm guessing VIFIX is a typo, but more to the point: your overall asset allocation target deserves some consideration when weighing your 401k choices.

VINIX is likely an excellent choice for that asset allocation; American Funds Balanced R6 (if the 0.29% is available in your 401k) isn't too bad if you want 57% stock/ 35% bond/ 8% cash.
Yes VFIFX (target date retirement fund 2050). Thanks for the clarification.

Thanks for your input. I was provided some model portfolios based upon risk tolerance. The 10 year historical rate of return of the aggressive, moderately aggressive, moderate, moderately conservative and conservative were: 6.7%, 6.5%, 6.3%, 5.9% and 5.4% respectively.

I'm contemplating an independently directed account option with my 401k and putting 100% into either VFIFX or Life Strategy Growth Fund.

I consider myself a novice and appreciate any input you guys have.

Thanks

Bacchus01
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Re: Backdoor Roth IRA

Post by Bacchus01 » Mon Aug 14, 2017 7:31 pm

I think the institutional index fund is about the best fund you can get. I'd move my IRA into the 401k for that alone. The backdoor Roth is just a bonus.

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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Backdoor Roth IRA

Post by FiveK » Mon Aug 14, 2017 7:39 pm

Rayd8tr wrote:
Mon Aug 14, 2017 7:28 pm
I'm contemplating an independently directed account option with my 401k and putting 100% into either VFIFX or Life Strategy Growth Fund.

I consider myself a novice and appreciate any input you guys have.
Those are fine choices even for someone well past novice stage, and are very reasonable for you.

When your balance grows and if you want to be more hands-on in, say, 10 years or so, then for the slightly lower cost you might want to go with individual funds instead of a "fund of funds". Or not.

Rayd8tr
Posts: 11
Joined: Fri Aug 11, 2017 3:32 pm

Re: Backdoor Roth IRA

Post by Rayd8tr » Mon Aug 14, 2017 7:44 pm

Bacchus01 wrote:
Mon Aug 14, 2017 7:31 pm
I think the institutional index fund is about the best fund you can get. I'd move my IRA into the 401k for that alone. The backdoor Roth is just a bonus.
Thanks for your input. The historical returns have BEN good and the expense ratio cannot be beat. Is it advisable to invest in an index fund in a retirement account?

Rayd8tr
Posts: 11
Joined: Fri Aug 11, 2017 3:32 pm

Re: Backdoor Roth IRA

Post by Rayd8tr » Mon Aug 14, 2017 8:15 pm

FiveK wrote:
Mon Aug 14, 2017 7:39 pm
Rayd8tr wrote:
Mon Aug 14, 2017 7:28 pm
I'm contemplating an independently directed account option with my 401k and putting 100% into either VFIFX or Life Strategy Growth Fund.

I consider myself a novice and appreciate any input you guys have.
Those are fine choices even for someone well past novice stage, and are very reasonable for you.

When your balance grows and if you want to be more hands-on in, say, 10 years or so, then for the slightly lower cost you might want to go with individual funds instead of a "fund of funds". Or not.
Thank you.

My wife and I are also trying to figure out the best option for a taxable account after maxing out 401ks and back door Roth IRAs. We are trying to decide between the automation, daily rebalancing and tax lost harvesting benefits of Betterment vs the lower overall cost and investment options of Vanguard.

It seems the overall expense ratios of Vanguard and the recommended portfolio of Betterment are comparable. Betterment claims the TLH benefit will potentially pay for their management fee of 0.25%.

After extensive searching on this forum it's obvious there is a bias for Vanguard for good reason. Almost every single financial and lay person I've spoken to has recommended them.

Both offer financial planners for advise. Vanguard charges 0.3% when your account exceeds 500k and Betterment for 0.4% when your account exceeds 100k.

In the end, Betterment may be a good option for novices like myself who don't want to or don't have the confidence yet to more directly manage their account.

Vanguard does not rebalancing automatically or daily but on a quarterly or annual basis as I've been told. They also offer TLH on a client by client basis.

My sense is you can't go wrong either way.

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FiveK
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Re: Backdoor Roth IRA

Post by FiveK » Mon Aug 14, 2017 8:21 pm

Rayd8tr wrote:
Mon Aug 14, 2017 8:15 pm
My wife and I are also trying to figure out the best option for a taxable account....
Seems you have a fine appreciation of the pros and cons - good luck!

Bacchus01
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Joined: Mon Dec 24, 2012 9:35 pm

Re: Backdoor Roth IRA

Post by Bacchus01 » Wed Aug 16, 2017 7:07 pm

Rayd8tr wrote:
Mon Aug 14, 2017 7:44 pm
Bacchus01 wrote:
Mon Aug 14, 2017 7:31 pm
I think the institutional index fund is about the best fund you can get. I'd move my IRA into the 401k for that alone. The backdoor Roth is just a bonus.
Thanks for your input. The historical returns have BEN good and the expense ratio cannot be beat. Is it advisable to invest in an index fund in a retirement account?
If it matches your investment plan, then yes. All of my retirement accounts have some time of Institutional index, Total market or S&P type fund. Lowest expense ratio and long term horizon.

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