Good point. Yes, if can’t max both and have very very bad 401k options, that’s true. But don’t forget you lower you tax bill with 18k pretax so need to take that into consideration as well
Why so complicated though? Usually, if people want to allocate money to an IRA, they fund their 401k completely, then transfer it later to an IRA. That way, you don’t have to keep track of all your contributions and make sure you don’t over fund either account.
like a core-satellite strategy…or perhaps outsource alpha
It’s not that complicated and IRA with a decent provider has better fund choices and (if Roth) more withdrawal flexibility allowing using it as ef in some cases. You can only move 401k to IRA if you leave the employer…
I backdoor roth’d last year. Felt good. If you are out of the IRA deferral it is a way to still get favorable tax treatment on that $5500.
Is a backdoor Roth IRA right for me?
The main advantage of a Roth IRA is that you pay taxes upfront, but that everything after that is tax free. This is most beneficial when you taxes are lower now than you expect in the future.
Since we don’t know what the taxes will be like when we retire it might makes sense to diversify your retirement accounts. It’s such a small amount that you can contribute anyway.
I didn’t read all the post yet, has anyone said “single family office or hacksaw” yet?
Solo 401k is they way brahs.
52?k a year contrib limit
To answer BS’s first question:
You can put in 100% of your income or $18k, whichever is less. So if you make $10k, you can only put in $10k. If you make $100k, you can put in $18k.
$18k is the max across all types of plans, unless you have self-employment income (Schedule C, Schedule F, or a K-1 showing SE income from a partnership or S-Corp).
Not true. A solo 401k is a 401k, and subject to the max of 18k. You’re thinking of a SEP-IRA, which is limited to 25% of SE income.
This is true. Employer matches are not subject to the annual limit on deferrals.
Max limit is $18k.
Excess contributions are included in income and are subject to a 10% penalty, just like an early distribution from an IRA. But you have until April 15 to correct any boo-boos you might have made in 2016.
Same principle as the difference between a Traditional and Roth IRA. Textbook theory says that if your tax bracket is high now and low later, then take the deduction now and pay tax later (Traditional). If your tax bracket is low now and high later, then pay tax now and not later (Roth).
My .02 - If you have the ability to contribute to a Roth, do it. That “increases” your after tax wealth by the amount you pay in tax.
Greenman, I used to put $5.5k in a Roth IRA AND $18k in a company sponsored 401K. Did I screw up and if so, how do I fix it?
Well for starters, you’re going to need a hacksaw.
dudeeeeeeee. sep iraaaaaa. i get butterfles everytime i hear 52k tax deductions. kinda bs, i have to make 200k on a business where im the only person. so im guessing you need like a consulting gig. have you seen people use this greenie? and wtf did they do for a living?
how do you correct over contributions?
I max the $18k by March. My company has a true-up provision to still provide the company match in subsequent quarters (when I’m no longer contributing). The only downside would be if I left my company and then couldn’t get the match at my new employer (having already maxed for the year).
^what match are they providing if you are not contributing anymore?