Where to Invest Money Right Now?

[Dantheman]

^Backdoor Roth IRA is a way to get money into a Roth IRA for people who have income too high for a regular Roth IRA and often for people who have income high enough to not benefit from tax advantages of a traditional IRA.

You have to put money into a traditional IRA, then roll it over into a Roth IRA. The issue is that the the traditional IRA needs to be a zero balance before and after the rollover or it complicates things from a tax standpoint.

TLDR- a backdoor Roth IRA is a way to get $6k per year into a Roth IRA if your income is otherwise too high for a regular Roth IRA.

I utilize a backdoor Roth IRA, so instead of rolling old 401Ks into an IRA or rolling them into my employer's 401k, I created a self directed 401k and rolled into that. It was pretty easy to set up.


I really wish my employer allowed mega backdoor Roth conversions out of the 401k. That's my personal finance white whale. It is a huge benefit if you are already maxing 401k, IRA and HSA contributions and then continuing to invest in a taxable brokerage account.

Got it, thanks. I don't make enough for any of that to be a concern.

[jm2e]

Anyone investing now? Or everyone nervously waiting?


Sent from my iPhone using TGR Forums

[Hott Butt Mud]

I pretty much sold off everything in my "Fuck You Money" brokerage account to cash. Did it about the right time a couple of months ago. I've basically been waiting.

Only thing I've bought is a little more of the stocks that I didn't sell just to lower my cost basis on them.

I'm thinking that by August/September the market is going to really start rallying again. This is purely based off of the Nancy Pelosi options she bought back in December that expire mid-September 2022.

[Marshall Tucker]

the traditional IRA needs to be a zero balance before and after the rollover or it complicates things from a tax standpoint.

How so?

[NBABUCKS1]

Anyone investing now? Or everyone nervously waiting?


Sent from my iPhone using TGR Forums

i do the boglehead thing and am throwing a chunk in on monday. s and p 500 / international fund / and 15% into bonds.

can't time the market they say

[Mazderati]

How so?

Pro-rata rule is the first thing that comes to mind.

[ötzi]

But of course, the pro-rata rule.

[m2711c]

[Mazderati]

But of course, the pro-rata rule.

Heh. Marshall knows he is a money man. IRA related.

https://www08.wellsfargomedia.com/as...-rata-rule.pdf

[Kevo]

Yes, the pro rata rule.

You are allowed to contribute $6k per year to an IRA or Roth IRA. If you make enough money, you don't qualify for a Roth IRA and you also get no tax break from contributions to a regular IRA.

To get around this, you have toto first put money in an IRA and then roll it over into a Roth account.

So, you want to do $6k per year into your IRA, then roll it over into a Roth IRA.

If you end with a 0 balance in your IRA, then the IRS allows all of the money new money in the Roth IRA to grow tax free forever. If you roll over $6k out of a $60k balance IRA, the IRS says only 10% of the money that you put into the Roth IRA qualifies for "Roth" tax free growth.

Anyone wishing to get around the pro rata rule that has an existing IRA can roll the balance of the IRA first to a 401k (either employer sponsored or individual), then go through the backdoor process as stated above.

I have a self directed 401k I'm addition to my employer 401k for this reason- it allowed me to roll an IRA balance out of my IRA so that I had a clean slate for a backdoor roth.

The self directed 401k also allows me to contribute income from consulting that I do one the side into the self directed 401k as an employer contribution (I'm my own employer in this situation), above and beyond the employee maximum contribution that I'm limited to in my full time employer's plan.

Important to note that anyone can have a self directed 401k with or without side income though.

And yes, JM2E- I'm investing automatically, twice a month both inside and outside retirement accounts even though I have every expectation that the market could go lower.

[Marshall Tucker]

Mazarati I have no doubt that ou're smarter than me, but maybe you can enlighten me here - who has basis in an IRA or a 401k?

The whole point of an IRA is that you don't have basis in it.

[Cono Este]

Timberland.


Sent from my iPhone using TGR Forums

[Marshall Tucker]

Timberland.

Want to buy some?

[John_B]

Anyone have advice regarding rolling a 401k over from a previous job? I didn't work there long prior to quitting so I believe I've only got about 4k in the plan. I already have been maxing out my Roth IRA. Is there a way with this rollover process that I could get some more money into my Roth?

[jm2e]

That’s good shit right there.


Sent from my iPhone using TGR Forums

[MakersTeleMark]

Take the tax hit and buy BTC, but I'll probably get mocked for that, but mark it dude.

[Kevo]

Anyone have advice regarding rolling a 401k over from a previous job? I didn't work there long prior to quitting so I believe I've only got about 4k in the plan. I already have been maxing out my Roth IRA. Is there a way with this rollover process that I could get some more money into my Roth?

Were your 401k contributions Roth (after tax) or traditional?

If you have Roth money in a 401k, you can easily roll it into your Roth IRA.

Employer contributions are always non-roth, so they need to be rolled into a traditional IRA. If you don't have one, it's easy to set up a tradional IRA at the same place where you have your Roth IRA.

Since the total amount you are dealing with is low enough to backdoor, if any money in your 401k is tradional, you can roll it into a tradional IRA and then backdoor into a Roth IRA so long as total Roth IRA contributions and rollover are less than $6k per year.

[Marshall Tucker]

I really don't see what you're acomplishing here. you are making a taxable contribution to a roth. "Backdoor" as I use the term just gets you around the $6k/7k limit but the contribution is taxable. Pro-rata may let some of the contribution become non-taxable, but again, who has basis in a 401k/IRA? If you do you generally fucked something up.

Yes, the pro rata rule.

You are allowed to contribute $6k per year to an IRA or Roth IRA. If you make enough money, you don't qualify for a Roth IRA and you also get no tax break from contributions to a regular IRA.

To get around this, you have toto first put money in an IRA and then roll it over into a Roth account.

So, you want to do $6k per year into your IRA, then roll it over into a Roth IRA.

If you end with a 0 balance in your IRA, then the IRS allows all of the money new money in the Roth IRA to grow tax free forever. If you roll over $6k out of a $60k balance IRA, the IRS says only 10% of the money that you put into the Roth IRA qualifies for "Roth" tax free growth.

Anyone wishing to get around the pro rata rule that has an existing IRA can roll the balance of the IRA first to a 401k (either employer sponsored or individual), then go through the backdoor process as stated above.

I have a self directed 401k I'm addition to my employer 401k for this reason- it allowed me to roll an IRA balance out of my IRA so that I had a clean slate for a backdoor roth.

The self directed 401k also allows me to contribute income from consulting that I do one the side into the self directed 401k as an employer contribution (I'm my own employer in this situation), above and beyond the employee maximum contribution that I'm limited to in my full time employer's plan.

Important to note that anyone can have a self directed 401k with or without side income though.

And yes, JM2E- I'm investing automatically, twice a month both inside and outside retirement accounts even though I have every expectation that the market could go lower.

[byates1]

Buy and hold BTC.

[Kevo]

I really don't see what you're acomplishing here. you are making a taxable contribution to a roth. "Backdoor" as I use the term just gets you around the $6k/7k limit but the contribution is taxable. Pro-rata may let some of the contribution become non-taxable, but again, who has basis in a 401k/IRA? If you do you generally fucked something up.

The entire point of a backdoor roth is to be able to legally contribute to a Roth IRA if your income is otherwise too high.

If you follow the pro-rata rule by rolling 100% of the balance of an IRA into a Roth, than none of the backdoor contribution is taxable, forever. A properly performed backdoor Roth contribution is not taxable and the money grows tax free once it is in the Roth IRA account.

See details here-
https://www.bogleheads.org/wiki/Backdoor_Roth

[John_B]

Alrighty. My income is absolutely not high enough to prevent me from contributing to a Roth so it looks like I'll be converting it to a standard Roth. Thanks for the quick explanation.

[Marshall Tucker]

If you follow the pro-rata rule by rolling 100% of the balance of an IRA into a Roth, than none of the backdoor contribution is taxable, forever.

Disagree. to get basis in the IRA for the pro-rata rule to apply you, by definition, made taxable contributions to the IRA. there is no "forever" that results from the pro-rata rule, it was already there.

[Kevo]

Alrighty. My income is absolutely not high enough to prevent me from contributing to a Roth so it looks like I'll be converting it to a standard Roth. Thanks for the quick explanation.

The question ultimately is whether the money in your 401k is a Roth or traditional contribution.

If Roth, rollover into Roth IRA is easy.

If not, rollover into traditional IRA is easy.

Be careful trying to take money from tradional 401k to Roth IRA. You can get taxed an penalized doing so.

[John_B]

The question ultimately is whether the money in your 401k is a Roth or traditional contribution.

If Roth, rollover into Roth IRA is easy.

If not, rollover into traditional IRA is easy.

Be careful trying to take money from tradional 401k to Roth IRA. You can get taxed an penalized doing so.

It's currently traditional so I'm planning on keeping it that way.

[Kevo]

Disagree. to get basis in the IRA for the pro-rata rule to apply you, by definition, made taxable contributions to the IRA. there is no "forever" that results from the pro-rata rule, it was already there.

Yes, the contribution to the IRA is money that I've already paid income tax on. When I backdoor and concert the tradional IRA into a Roth IRA it grows tax free going forward.

Have you never heard of backdoor Roth IRA contributions?