Where to Invest Money Right Now?

[climberevan]

So, here's a good one for you. I just spent 95 minutes on hold with Treasurydirect to unlock my account. I asked why it was locked, and the lady said "Well, your last name is Freeman, and sovereign citizens use Free Man, so that's probably why it was locked." I said, "Well, that's an awesome story, so it was worth waiting just for that."

[John_B]

So, here's a good one for you. I just spent 95 minutes on hold with Treasurydirect to unlock my account. I asked why it was locked, and the lady said "Well, your last name is Freeman, and sovereign citizens use Free Man, so that's probably why it was locked." I said, "Well, that's an awesome story, so it was worth waiting just for that."

That's great to hear. My account is currently locked due to their bizarre password entering scheme not matching with my password manager so I've got 95 minutes of hold music to look forward to.

[sirbumpsalot]

To start, surely we can agree that it is generally best for an individual to use all tax advantaged options available when investing for retirement? E.g., it generally wouldn't make sense to invest in a taxable brokerage account if you aren't maxing your 401k, HSA (if applicable) and IRA. Yes?

OK, assuming we are on the same page so far...

Say an individual has access to a qualified retirement account at work (for example, a 401k) and they max it out by making $20,500 in contributions per year. They also max out their HSA by contributing $3,600 per year. This hypothetical individual would like to invest more money above and beyond their 401k and HSA.

Ok, so how can they continue to invest in a tax advantaged way? They make more than $144k MAGI, so they cannot contribute to a Roth IRA. They also get no tax deduction towards contributing to a traditional IRA, because they have a qualified retirement plan at work and they make more than $78k MAGI.

If this person would like to continue investing in a tax advantaged account, the only options available to them are to make mega-backdoor Roth contributions through their 401k (only certain 401ks and payroll systems allow this) and/or they can make backdoor Roth contributions.

This hypothetical individual either already maxes out mega backdoor Roth or they don't have access to a mega backdoor Roth because their employer plan doesn't allow it.

So, a Backdoor Roth it is!

Cool, this individual is going to go through the process of making a nondeductible (i.e. taxed and not deducted) contribution to a traditional IRA, then converting the traditional IRA to a Roth IRA.

But wait, this individual already has money in a traditional IRA either from contributing to the IRA when they made less money in the past or from rolling over an old 401k into an IRA. If they were to try to convert from a traditional IRA to a Roth IRA, they'd run afoul of the pro rata rule.

Quoting directly from the Bogleheads wiki that I linked to above-

"If you have any other traditional IRAs, the taxable portion of any conversion you make is prorated over all your traditional IRAs; you cannot convert just the nondeductible amount.[3] There are three options for how to deal with an existing traditional IRA getting in the way of a backdoor Roth IRA:

-Convert the entire traditional IRA to Roth, and pay tax on the pre-tax amount of the conversion. For a small traditional IRA this may be the easiest and best option, but if the traditional IRA is large, this will result in a large tax bill. If you are making backdoor Roth IRA contributions, you are in a middle or high tax bracket, so this might be undesirable.
-Roll the pre-tax portion of the traditional IRA into your 401(k) or 403(b) or 457(b) at work, assuming it accepts rollovers. If the employer plan has poor investment options and/or high fees, this may be undesirable. However, if the employer plan is large and well-managed, it may have access to institutional share classes with even lower expenses than are available in the IRA.
-Start a business, open an Individual 401(k) that accepts rollovers, and roll over the traditional IRA into the Individual 401(k). The amount of the rollover is not limited by the amount earned by the business. For example, a $10M traditional IRA can be rolled into an Individual 401(k) opened on $10 of legitimately-earned self employment income.
In any case, you have until December 31st of the tax year in which you make the backdoor Roth IRA conversion to dispose of the traditional IRA. If you still have a traditional IRA balance on December 31st, then the pro-rata rule will apply to the conversion. For example, if you attempt to make a backdoor Roth IRA contribution of $6,000 while having a traditional IRA with a pre-tax balance of $50,000, then only 10.7% ($6,000 / ($50,000 + $6,000)) of the conversion step will apply to the non-deductible amount, and the remainder will be converted from the pre-tax amount. This will result in $5,357 ($6,000 * (1 - 10.7%)) of taxable income."

For our hypothetical individual, creating a self directed 401k and rolling the existing traditional IRA into it may be their best course of action so that they have access to a backdoor Roth IRA without creating taxable income for themself.


That's it, that's the entire point of the discussion around solo/ self directed 401Ks in this thread.

I think you take the self-directed IRA (rollover 401k) accounts and roll them back into your current 401K and leave yourself with ONLY non-deductible traditional IRAs, then your tax-able event only affects those...and thats ok, because its the whole reason you convert to a ROTH, to go from a tax DEFERRED to a tax FREE treatment down the line.

Some people like self-directed IRAs over 401Ks...but I tend to treat mine the same way...index funds. So its no change rolling back into a 401K. Plus many 401K plans now allow brokerage accounts that allow certain stock trades.

[sirbumpsalot]

The rate update coming May 1st looks like it will be at 9.6%.
If you have cash sitting about and no immediate plan for it it's not a bad place to park $10k. Annual limit is actually $15k, 10 in direct purchase and 5 you can use your tax return for.

I have quite a bit from years back when the fixed rates were 1-3%. Those will be paying 10.6% to 12.6%. Never thought I'd see that.

[Kevo]

I think you take the self-directed IRA (rollover 401k) accounts and roll them back into your current 401K and leave yourself with ONLY non-deductible traditional IRAs, then your tax-able event only affects those...and thats ok, because its the whole reason you convert to a ROTH, to go from a tax DEFERRED to a tax FREE treatment down the line.

Some people like self-directed IRAs over 401Ks...but I tend to treat mine the same way...index funds. So its no change rolling back into a 401K. Plus many 401K plans now allow brokerage accounts that allow certain stock trades.

Sure, if your 401k allows roll ins and assuming it has a favorable fee structure, you can roll the IRA into a 401k.

If the 401k you have access to when has high fees and high expense ratios or doesn't allow roll ins, the solo 401k may be your best (or only) option.

[hatchgreenchile]

Backdoor Roth conversations are always funny to me. A nice combination of humble bragging about one's income and financial acumen with a nice little dollup of mild absurdity like the tax savings for someone with that kinda cheddar are really going to make a huge difference in their lives when the chips do get cashed in.

On the internet, everyone has deep, liquid pockets.
Mega backdoor is peak date heliski money. After maxing 401K/IRA/HSA, I'd find that much more appealing, rather then hoarding more for my geriatric days!

[summit]

I picked up at small holding of NFLX at $220. If it bounces up big I'll sell it right away. If not, I think it is likely to have better performance over the next year than last Q.

I don't get why FLNG is down.

[Boissal]

I have quite a bit from years back when the fixed rates were 1-3%. Those will be paying 10.6% to 12.6%. Never thought I'd see that.

Damn that's nice, I think the fixed rate peaked around 3.5% in the late 90s but has been below 1% and basically down to 0 for a while now. Government-backed security paying 10%? Yes please...

[4matic]

I picked up at small holding of NFLX at $220. If it bounces up big I'll sell it right away. If not, I think it is likely to have better performance over the next year than last Q.

If it’s down 20% in the next year that is still better than this quarter performance.

[summit]

If it’s down 20% in the next year that is still better than this quarter performance.

True. Thus a small position.

[skaredshtles]

Down 36% *today*?!?

Impressive... most impressive.

[4matic]

57 channels and nothing on. Algo driven content is soulless drivel.

[Kevo]

Just for clarification, was this one phone call to Fidelity/etc. or are you saying a 5 minute phone call with each plan administrator? I need to get it done either way, I just need the process as streamlined as possible to coax my wife into action.

I don't think you got an answer to this.

Who are you using for the Rollover IRA? Best to call them first or go online to get details on their rollover process (some have you fill out a form online for each rollover check that tells them how much money is coming in and where to invest it) and how rollover check should be made out. It's a fairly simple process- the check should be made out to something like "Fidelity Investments, FBO Mrs Zion Zig Zag" and NOT made out to "Mrs Zion Zig Zag".

If the check gets made out to her name it will look like an early withdrawal to the IRS, and your wife will immediately fill out forms with IRS proving the money was deposited to a qualified retirement account within 60 days. This is not needed so long as the check isn't made out to her name.

After your wife has the details from her IRA provider, your wife needs to call each of the 401k providers where she has old accounts and give them instructions for how to
Depending on the 401k provider, the check will either be sent directly to your wife, for her to forward in the mail or use a mobile app to deposit OR the 401k provider will send the check directly to the IRA provider.

The conversations with the old 401k providers are generally very seamless once you understand the rollover process with your IRA provider.

Lastly, it's important to make sure the money is actually invested and doesn't stay in a cash settlement account once it hits the IRA.

[jm2e]

In summary:
1. Make sure the catcher has the right kind of mitt.
2. Tell the pitcher where to throw the ball and what kind of spin to put on it.


Sent from my iPhone using TGR Forums

[Marshall Tucker]

You want money in a Roth. The money going in is taxable. or previously taxed. that fuckin simple.

-these are really pretty cut-and-paste and link jobs though. good for you.

To start, surely we can agree that it is generally best for an individual to use all tax advantaged options available when investing for retirement? E.g., it generally wouldn't make sense to invest in a taxable brokerage account if you aren't maxing your 401k, HSA (if applicable) and IRA. Yes?

OK, assuming we are on the same page so far...

Say an individual has access to a qualified retirement account at work (for example, a 401k) and they max it out by making $20,500 in contributions per year. They also max out their HSA by contributing $3,600 per year. This hypothetical individual would like to invest more money above and beyond their 401k and HSA.

Ok, so how can they continue to invest in a tax advantaged way? They make more than $144k MAGI, so they cannot contribute to a Roth IRA. They also get no tax deduction towards contributing to a traditional IRA, because they have a qualified retirement plan at work and they make more than $78k MAGI.

If this person would like to continue investing in a tax advantaged account, the only options available to them are to make mega-backdoor Roth contributions through their 401k (only certain 401ks and payroll systems allow this) and/or they can make backdoor Roth contributions.

This hypothetical individual either already maxes out mega backdoor Roth or they don't have access to a mega backdoor Roth because their employer plan doesn't allow it.

So, a Backdoor Roth it is!

Cool, this individual is going to go through the process of making a nondeductible (i.e. taxed and not deducted) contribution to a traditional IRA, then converting the traditional IRA to a Roth IRA.

But wait, this individual already has money in a traditional IRA either from contributing to the IRA when they made less money in the past or from rolling over an old 401k into an IRA. If they were to try to convert from a traditional IRA to a Roth IRA, they'd run afoul of the pro rata rule.

Quoting directly from the Bogleheads wiki that I linked to above-

"If you have any other traditional IRAs, the taxable portion of any conversion you make is prorated over all your traditional IRAs; you cannot convert just the nondeductible amount.[3] There are three options for how to deal with an existing traditional IRA getting in the way of a backdoor Roth IRA:

-Convert the entire traditional IRA to Roth, and pay tax on the pre-tax amount of the conversion. For a small traditional IRA this may be the easiest and best option, but if the traditional IRA is large, this will result in a large tax bill. If you are making backdoor Roth IRA contributions, you are in a middle or high tax bracket, so this might be undesirable.
-Roll the pre-tax portion of the traditional IRA into your 401(k) or 403(b) or 457(b) at work, assuming it accepts rollovers. If the employer plan has poor investment options and/or high fees, this may be undesirable. However, if the employer plan is large and well-managed, it may have access to institutional share classes with even lower expenses than are available in the IRA.
-Start a business, open an Individual 401(k) that accepts rollovers, and roll over the traditional IRA into the Individual 401(k). The amount of the rollover is not limited by the amount earned by the business. For example, a $10M traditional IRA can be rolled into an Individual 401(k) opened on $10 of legitimately-earned self employment income.
In any case, you have until December 31st of the tax year in which you make the backdoor Roth IRA conversion to dispose of the traditional IRA. If you still have a traditional IRA balance on December 31st, then the pro-rata rule will apply to the conversion. For example, if you attempt to make a backdoor Roth IRA contribution of $6,000 while having a traditional IRA with a pre-tax balance of $50,000, then only 10.7% ($6,000 / ($50,000 + $6,000)) of the conversion step will apply to the non-deductible amount, and the remainder will be converted from the pre-tax amount. This will result in $5,357 ($6,000 * (1 - 10.7%)) of taxable income."

For our hypothetical individual, creating a self directed 401k and rolling the existing traditional IRA into it may be their best course of action so that they have access to a backdoor Roth IRA without creating taxable income for themself.


That's it, that's the entire point of the discussion around solo/ self directed 401Ks in this thread.

[Kevo]

You want money in a Roth. The money going in is taxable. or previously taxed. that fuckin simple.

-these are really pretty cut-and-paste and link jobs though. good for you.

So we've gone from "^ Jezus H Christ. These posts are just totally fucked up. Why would you ever move money FROM an IRA INTO a 401k? Stupid." to "You want money in a Roth. The money going in is taxable. or previously taxed. that fuckin simple."

Way to completely ignore the thing that you were arguing about in the first place. You could admit that there are certain situations that make moving money from an IRA into a 401k NOT stupid and not "just totally fucked up", but you have ignored the issue at hand and doubled down. Great work. I'm glad that you aren't my CPA.

[heckacali]

CPA fight!

[JimmyCarter]

CPA fight!

It’s the WNBA of MMA

[Marshall Tucker]

to the extent that it is helpful, to someone eralier that was asking, alledgedly,

Once Ms. TM had a Trad IRA at Fidelity, She, or possibly someone she'd given permission to, might have established a Roth IRA online in about 3 minutes, and effected a transfer from the trad to the roth. You know. if you might want to be able to do that sort of thing quickly. and entirely online.

And Kevo. The problem with you is that as I read your "advice" I've not seen one thing as a professional that has impressed me. not one. You link and you re-hash and you bring nothing new to the rap gaak.

You're kinda just like SYJ.

[AdironRider]

Kevo is a tech worker that just discovered bogleheads.org and Marshall actually does this for a living. Trust whoever you want.

I didn't take Marshall as saying Kevo was wrong per se, just it was incredibly pendantic, overly complicated, and rarely applicable. Basically the best kind of financial advice

[Kevo]

And Kevo. The problem with you is that as I read your "advice" I've not seen one thing as a professional that has impressed me. not one. You link and you re-hash and you bring nothing new to the rap gaak.

You're kinda just like SYJ.

I'm not trying to provide something new or impress you. There's nothing impressive about following simple flow charts for retirement tax strategy, and by nature tax law is pedantic.

I've linked to documentation from the IRS and Bogleheads to reference a specific methodology for following the pro rata rule that is applicable to people wanting to backdoor Roth IRA who already have an existing traditional or rollover IRA.

You claimed this methodology was fucked up and stupid and provided nothing to disprove what I've referenced. It seems you were caught outside your depth in subject matter that you should know at a professional level.

And Adironrider, I've been low cost investing for the entirety of my adult life.

[Marshall Tucker]

you were caught outside your depth in subject matter that you should know at a professional level.

Fuck you. Dickwad. In 30 years as a CPA i've never once seen the "pro-rata rule" mean a fucking thing outside a CPE presetnation, and you're a fucking idiot if you have basis in an IRA. Great cutting and pasting, though, I'm sure the story of your career.

Dipshit.

OK, populance, I'm done arguing with this fucktard. Listen to him at your own detriment.

Cheers!
MT

[Kevo]

Fuck you. Dickwad. In 30 years as a CPA i've never once seen the "pro-rata rule" mean a fucking thing outside a CPE presetnation, and you're a fucking idiot if you have basis in an IRA. Great cutting and pasting, though, I'm sure the story of your career.

Dipshit.

OK, populance, I'm done arguing with this fucktard. Listen to him at your own detriment.

Cheers!
MT

You keep thinking this is about basis, but basis in the IRA is not the issue at hand.

Have you performed backdoor Roth IRA conversions for yourself or advised a client on how to do so?

If you attempt to convert after-tax traditional IRA contributions to a Roth IRA, but there are existing pre-tax IRA dollars, you will be subject to taxation on a prorated basis.

Nice work with the freakout and name calling and not reading or addressing the documentation I linked.

[MakersTeleMark]

You keep thinking this is about basis, but basis in the IRA is not the issue at hand.

Have you performed backdoor Roth IRA conversions for yourself or advised a client on how to do so?

If you attempt to convert after-tax traditional IRA contributions to a Roth IRA, but there are existing pre-tax IRA dollars, you will be subject to taxation on a prorated basis.

Nice work with the freakout and name calling and not reading or addressing the documentation I linked.

Let me just end this now. If you invest in a backdoor frontdoor reacharound ROTH IRA, you are still losing money to inflation. Period. Pick your own method of rape.

[skaredshtles]

Remember seeing a really good doco some years back about a couple of guys who cornered this market and got rich...