Where to Invest Money Right Now?

[Marshall Tucker]

Kevo you seem determined to make this as hard as possible when it is really quite simple.. 401k always goes to traditional IRA before anything else unless you want to pay tax. That is like retirement 101. Once it is in a traditional IRA THEN you futz with converting to Roth. Nothing new here. if you have basis in either you fucked something up. Period.

for who is asking the question, for me, personally, I like the fidelity platform because it lets you establish both Trad and Roth, and lets you convert from one to the other in real time online with a few keystrokes, you have the ultimate in control. Another IRA vendor I USED to work with required all kinda shit to covert, forms filled out and mailed and sometimes medallion guarantees, which is pathetically antiquated.

I'm sure vanguard and others might allow such functionality, you'll certainly want to ask the questions beforehand.

[Kevo]

Kevo you seem determined to make this as hard as possible when it is really quite simple.. 401k always goes to traditional IRA before anything else unless you want to pay tax. That is like retirement 101. Once it is in a traditional IRA THEN you futz with converting to Roth. Nothing new here. if you have basis in either you fucked something up. Period.

Agreed, which is why I said-

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.

I should have said "you cannot roll traditional 401k into Roth IRA without having a taxable event. Don't do that".

[Mazderati]

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?

If you took my response as a slight it wasn't. I thought you were an accountant and thus familiar with pro-rata. I fumble through my own taxes every year but that is as far as it goes.

My wife ended up with a basis because she had both a Traditional IRA with nondeductible contributions and a Rollover IRA from a previous employer and no 401k to which to the Rollover IRA could be moved. She held on backdooring the Traditional IRA until the Rollover IRA could be moved to a 401k. If I understand correctly, taxes should only apply to any gains (not contributions) made in the Traditional IRA. If I don't, then classify under 'fucked something up.'

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

How did you go about setting up a 401k without being a business? When I talked with Fidelity they said opening a 401k account was not an option unless you were a business.

[Kevo]

^ it doesn't take much to be a business. You just need an EIN from the IRS, which is free and takes like 10 minutes to set up.

[jm2e]

As far as right now, with about a new cars worth of liquid cash in the bank, I aught to stick it in an index fund and happily pay the capital gains if the market recovers by the time I need it.
Or stick another $20k in EBonds if I’m more risk averse.
And unless I’m an idiot, it doesn’t sound like putting my perfectly good after-tax-cash into one of my pre-tax retirement accounts would be dumberer.


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[jackstraw]

^ it doesn't take much to be a business. You just need an EIN from the IRS, which is free and takes like 10 minutes to set up.

Do you do this? Who manages the 401k? Can you do it yourself? And what about the audits? You'd need to pay for those, no?

[Name Redacted]

^ it doesn't take much to be a business. You just need an EIN from the IRS, which is free and takes like 10 minutes to set up.

Doesn’t the business need to generate revenue?

[Kevo]

Do you do this? Who manages the 401k? Can you do it yourself? And what about the audits? You'd need to pay for those, no?

My solo 401k is set up with Vanguard. Yes, you can easily do it yourself.

Solo 401ks rarely get audited. It's not like the IRS can claim highly paid employees of my solo 401k disproportionately take advantage over low wage employees. I'm the only employee.

Doesn’t the business need to generate revenue?

Business revenue is needed if you want to contribute money in a given year.

No revenue is needed to set up the solo 401k and roll money into it.

[Kevo]

Also worth noting - no annual report needed for self directed 401k if plan assets are under $250k if you aren't taking distributions.

Over $250k you need to file Form 5500 EZ once per year. It takes a few minutes and you can submit online directly to the IRS for free.

[Marshall Tucker]

^ Jezus H Christ. These posts are just totally fucked up. Why would you ever move money FROM an IRA INTO a 401k? Stupid.

If you're interested in all this, please don't listen to Kevo. Period. If you have retirement funds, the minute you can, get them into a traditional IRA. Then futz with roths. ALWAYS do the max into the 401k you can while you have access to one.

If you are schedule C without employees, or 1065/1120s without employees, that is the ONLY time i know of that a solo-401k makes sense.

IMO, marginal rates are at historical lows and not likely to stay there for more than 10 years (I think rates will start rising at the end of this decade at the latest). The brilliance of Roths is that they get the money wholly outside the income tax system. so to the extent that you can move money into roths and stay in reasonable brackets (say to 24%) do so. if you are above $327k taxable income, well, good for you, good problems to have.

[hatchgreenchile]

When in doubt, work from the bottom up:

[zion zig zag]

This thread seems like a catch all place for investment questions at this point. My wife has various 401k’s floating around out there from past employers, I’d guess there are 3-4. No matter how many times she promises me she’ll gather the info so we can do something about it, or even know what is there, I just don’t think she ever will. Can someone like Fidelity, TD Ameritrade, etc. search via SS# and roll this over into something for us? Could we roll them into an IRA and then back door Roth?

Assuming this is the path, who is recommended?


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[Marshall Tucker]

^ went down this road recently. You can do a fair amount on your own, provided you got stuff like her account statment and her SSN. Again, I've found fidelity very easy to work with. Vanguard and others probably good to but I really like fidelity and very low fees. and no, she'll never do it, and I got the strong impression with the fidelity people I talked to on the phone they see this all the time, husbands trying to get shit done. MIght also help if you had a letter from her, signed by her (alledgedly) saying to trust you with everything.

[Kevo]

^ Jezus H Christ. These posts are just totally fucked up. Why would you ever move money FROM an IRA INTO a 401k? Stupid.

If you're interested in all this, please don't listen to Kevo. Period. If you have retirement funds, the minute you can, get them into a traditional IRA. Then futz with roths. ALWAYS do the max into the 401k you can while you have access to one.

If you are schedule C without employees, or 1065/1120s without employees, that is the ONLY time i know of that a solo-401k makes sense.

IMO, marginal rates are at historical lows and not likely to stay there for more than 10 years (I think rates will start rising at the end of this decade at the latest). The brilliance of Roths is that they get the money wholly outside the income tax system. so to the extent that you can move money into roths and stay in reasonable brackets (say to 24%) do so. if you are above $327k taxable income, well, good for you, good problems to have.

You keep acting like you are an authority on retirement without understanding (or at least admitting) that there are specific circumstances that make moving money from a traditional IRA into a self directed 401k are advantageous.

You came back again with "just put money into a Roth". You do realize that there are people who can't directly contribute to a Roth account, but also get no deductions from contributing to a traditional IRA?

Is it so hard for you to imagine that these same people might have to zero out a traditional IRA before they can contribute via a backdoor Roth in respect to the pro rata rule, and that they are contributing to a backdoor Roth IRA after maxing out contributions to their 401k and HSA?

[4matic]

I been mostly cash for long time since selling out of bonds in 2020. Putting money to work the last few weeks.

Roughly 8-10% in each of the following:

BOND
PDI
EMB
FMSDX

Looking to by more FMSDX and start buying JEPI on opportunity.

All these are fairly high fee investments. PDI is 2% and FMSDX is .85%

Still have a lot of cash to deploy.

[Timberridge]

I sent a bunch of money to the IRS to invest in America today. I figure they'll buy guns, missiles, and toilet seats with it. It would be nice if I could just designate where it goes, instead of for that.

[NWFlow]

I'm in a bit of a weird situation living abroad, so without a 401k. I max my Roth each year, but from that weird heirarchy chart can i also contribute to a backdoor Roth? Otherwise, stuff just goes into a taxable acct...

[smmokan]

This thread seems like a catch all place for investment questions at this point. My wife has various 401k’s floating around out there from past employers, I’d guess there are 3-4. No matter how many times she promises me she’ll gather the info so we can do something about it, or even know what is there, I just don’t think she ever will. Can someone like Fidelity, TD Ameritrade, etc. search via SS# and roll this over into something for us? Could we roll them into an IRA and then back door Roth?

Assuming this is the path, who is recommended?


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Did this recently, moved four 401Ks (three myself, one my wife's) into an IRA. All you need to do is call, verify your info, and ask them to send an appropriately made-out check. My understanding is you'll have to have your wife call, but it's a 5-min phone call once you actually wade through the BS menus and speak to a human.

[Marshall Tucker]

You keep acting like you are an authority on retirement without understanding (or at least admitting) that there are specific circumstances that make moving money from a traditional IRA into a self directed 401k are advantageous.

You came back again with "just put money into a Roth". You do realize that there are people who can't directly contribute to a Roth account, but also get no deductions from contributing to a traditional IRA?

Is it so hard for you to imagine that these same people might have to zero out a traditional IRA before they can contribute via a backdoor Roth in respect to the pro rata rule, and that they are contributing to a backdoor Roth IRA after maxing out contributions to their 401k and HSA?

I've worked with individuals with W-2s up to $22 million, and i have NEVER ONCE seen an individual that cannot contribute to either a 401k, or a SEP, or an IRA. So pls. enlighten me. and no, I'm not the authority, but I've ceritanly not seen better here so far, so please, educate me Kevo.

[zion zig zag]

Did this recently, moved four 401Ks (three myself, one my wife's) into an IRA. All you need to do is call, verify your info, and ask them to send an appropriately made-out check. My understanding is you'll have to have your wife call, but it's a 5-min phone call once you actually wade through the BS menus and speak to a human.

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.

[AdironRider]

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.

And Marshall is a CPA if memory serves and is the authority here for all intents and purposes Kevo.

[Kevo]

I've worked with individuals with W-2s up to $22 million, and i have NEVER ONCE seen an individual that cannot contribute to either a 401k, or a SEP, or an IRA. So pls. enlighten me. and no, I'm not the authority, but I've ceritanly not seen better here so far, so please, educate me Kevo.

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.

[m2711c]

… step three, profit!

[grabtindy]

Anybody buying up ibonds? 7%+ w/ a $10k annual contribution limit.

[Boissal]

Anybody buying up ibonds? 7%+ w/ a $10k annual contribution limit.

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.