New high income job - what about IRAs, etc

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ps56k
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New high income job - what about IRAs, etc

Post by ps56k » Fri Oct 25, 2019 7:01 pm

Our son is ... finishing his PhD, and will be starting a high paying research job in the spring 2020, and also getting married.

I had setup a Vanguard Roth IRA for him several years ago - but after next year, his MFJ income will probably be above the line.
So, guessing a contribution to a Traditional IRA and then a Back Door into the Roth IRA would be the path to follow.

Any other speed bumps for a new grad PhD - with no debt - but now has a double high income to deal with...
Last edited by ps56k on Fri Oct 25, 2019 11:48 pm, edited 1 time in total.

Afty
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Re: New high income job - wat about IRAs, etc

Post by Afty » Fri Oct 25, 2019 7:15 pm

My wife and I went through exactly this transition almost a decade ago. For us the biggest surprise was how little our lifestyle changed despite our income having increased multiple times over. Our savings rate certainly went up though.

He should certainly do the backdoor Roth. If he has any pre-tax accounts, he may want to convert them to Roth before starting his real job. Any capital gains, he may want to take as well.

HomeStretch
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Re: New high income job - wat about IRAs, etc

Post by HomeStretch » Fri Oct 25, 2019 7:50 pm

Once son/future spouse have an adequate emergency fund, save for short-term goals < 5 years (like a house), and max their 401k deferrals and Roth IRAs (direct or backdoor Roth), they should prioritize after-tax contributions to employer plans before making Taxable account contributions.

They should ask if employer plans allow after-tax contributions and, if so, if the plan allows in-plan Roth rollovers or mega backdoor to a Roth IRA.

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ps56k
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Re: New high income job - wat about IRAs, etc

Post by ps56k » Wed Nov 06, 2019 8:01 pm

Afty wrote:
Fri Oct 25, 2019 7:15 pm
He should certainly do the backdoor Roth. If he has any pre-tax accounts, he may want to convert them to Roth before starting his real job. Any capital gains, he may want to take as well.
I had only setup the Vanguard Roth IRA account.
Guess we will have to wait and see next year - and setup a T-IRA account...
SO... does it still make sense to setup the T-IRA, and contrib the max, and THEN roll it into the Roth IRA ?

Lastly - do you contrib the max to the T-IRA, and then what....
each year rollover that entire contrib amount, basically leaving the T-IRA empty - again - until next year ?
Last edited by ps56k on Thu Nov 07, 2019 2:47 pm, edited 1 time in total.

flyninjasquirrel
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Re: New high income job - what about IRAs, etc

Post by flyninjasquirrel » Thu Nov 07, 2019 2:39 pm

Make sure they are aware of the tax implications of going to a high combined income. Depending on the income they may need to have W2's adjusted to hold at the higher single rate with no allowances or sometimes it's easier to withhold a certain % of each paycheck to make sure on pace to have adequate amount withheld.

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ps56k
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Re: New high income job - what about IRAs, etc

Post by ps56k » Thu Nov 14, 2019 1:10 pm

BTW - what happens if he contribs the max to his Vanguard Roth IRA at the beginning of the year as usual,
but then, due to his new job AND next year having MFJ dual income to handle,
they go over the Roth IRA income threshold of around $200k -

What then - with respect to the Roth IRA contribution from the beginning of the year ?

Lastly - any general KISS suggestions for his Vanguard IRA funds -
currently only has Vanguard Target Date 2055 fund -
Last edited by ps56k on Thu Nov 14, 2019 7:18 pm, edited 1 time in total.

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zaboomafoozarg
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Re: New high income job - what about IRAs, etc

Post by zaboomafoozarg » Thu Nov 14, 2019 7:16 pm

Mega Backdoor Roth IRA

If his 401k allows it, this can effectively take his Roth IRA limit from $0 to ~$35k.

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Watty
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Re: New high income job - what about IRAs, etc

Post by Watty » Thu Nov 14, 2019 7:44 pm

ps56k wrote:
Fri Oct 25, 2019 7:01 pm
Any other speed bumps for a new grad PhD - with no debt - but now has a double high income to deal with...
Not learning the basics of investing and personal finance.

People often start out posts with something like, "I wish I had learned about investing earlier."

You might point him to the getting started wiki.
https://www.bogleheads.org/wiki/Getting_started

or some of the Boglehead books.

https://www.amazon.com/s?k=Bogleheads&t ... ads.org-20

or some of the other recommended books

https://www.bogleheads.org/wiki/Books:_ ... nd_reviews

And encourage him to post here himself when he has questions.

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ps56k
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Re: New high income job - what about IRAs, etc

Post by ps56k » Sat Nov 16, 2019 4:08 pm

Just adding this info for how to fix - contributing too much to your Roth IRA -
https://www.investopedia.com/articles/r ... 042804.asp

Excess IRA Contributions

If you contributed to a Roth when you made too much to qualify—
or if you contributed more than you’re allowed to either IRA—
you’ve made an excess contribution.
That contribution is subject to a 6% tax penalty.

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