2 part thread. Part 1, is there anybody out there who would make a case NOT to use a mega-backdoor roth? This is assuming that you've maxed your normal 401k and normal Roth IRA.
Can somebody explain it to me as if I were a 10 year old? I did read multiple articles before making this thread. Here's my very basic understanding of it and some questions:
- 1 - It's done through your employer, sort of like your 401k but instead it's after-tax money
2- Once it's contributed, you can transfer it to a traditional IRA. If #1 is right, my employer uses some other non-Vanguard brokerage firm.. could I set it up, contribute my after tax money to it, and then transfer it to my normal/personal Vanguard account under a TIRA? - from what I think I'm reading, your employer has to allow "non hardship withdrawals" which basically means you can transfer it to your TIRA... but does that mean I can move it from THEIR brokerage firm to my personal which is at Vanguard?
3 - What is the tax paperwork/additional effort like? I usually file myself to save money. I just finally learned how to comfortably do the backdoor Roth without a headache, simply fund (with after tax money), transfer to Roth, and then file an 8606. How difficult is the paperwork on this mega backdoor,
could I do it easily with TurboTax?
4 - Since you fund it with after tax money, I'm assuming it's the gains that aren't taxed when you withdraw? - Edit, ignore this, my question 11 below answers that.. I think.
5 - You can only do this once you've totally maxed your personal limit on your 401k through employer, right?
6 - Can most all major employers support this mega-backdoor thing? I'm guessing I just call HR and ask if they know about it? - according to articles I'm reading now, I just require an employer that allows after-tax 401k contributions and it sounds fairly common. I'd bet mine does we're not too small.
7 - Can I do a normal backdoor roth in addition to this mega-backdoor roth?
8 - At risk of asking too vague/dumb of a question, how big is the impact of doing this/how good is it for your financial life?
9 - This is a big one. It's December, I'll be making about $25k this month, if this really makes a big impact I'm tempted to squeeze it into December assuming it follows a calendar tax year but also worried about making my tax season too complicated and stressing me out. I may be overthinking it but should I squeeze in my December income to one of these? Or maybe like my personal IRA accounts it can be done up until April-ish?
10 - Sounds like if you max out your 18k pre-tax contribution and your employer matched (for example) $6k, you'd have about $29k left that you could contribute after tax.
11 - Another big question, one article I'm reading basically says that if you left the after-tax contribution in your 401k, it gets taxed as normal income which is higher and worse than the long term gains tax I could have if I invested it normally. However, the value of this is the ability to move it (using the non-hardship withdrawal) to your traditional IRA and gains in your traditional IRA aren't taxed, right? That's the value?
12 - If my question above #11 is correct, then it's basically not worth it unless your employer lets you transfer out of it with that non-hardship withdrawal right?
Quick background cliff notes of me:
I'm a single normal employee in the US.
income above Roth IRA limits
I max my backdoor roth and 401k. Outside of that I just fund my normal taxable accounts with a lazy 3 fund portfolio.
Probably 20 years+ until retirement age for me.
Thanks in advance to you guys, I love this forum and recommend people here all the time. Incredibly smart and helpful group of people you are. I'll pass it on.