Any thoughts on the tradeoffs of investing the next dollar in a typical brokerage account vs investing more in a 401k using backdoor Roth for an individual considering early retirement?
Assume all the typical contribution limits are being maxed out for 401k, Roth IRA, and HSA. Also, assuming that early retirement of say 50, so this individual is building up assets in the brokerage account to bridge the gap from 50 to when they can start making 401k and Roth IRA withdrawals.
Over 30 years ago, I took a friend’s advice to save any kind of bonus income and forget you received it. I put those funds in a brokerage account until mega backdoor became available in our 401(k) plan. I max out the tax deferred portion and then keep contributing the same amount per paycheck for the remainder of the year to after-tax. I use year-end bonus income to capture the remaining amount of after-tax.
If your company’s plan record keeper is BofA Merrill (Benefits Online), the tech is there to do after-tax with automatic conversion to Roth once you check the box.
The other use of a mega back door Roth is college savings. By rolling the funds over into an Roth IRA, I can have access to the contributions penalty free for kids college expenses. I don't have to worry about over contributing to a 529 if my kids plans change and can use any unused funds for extra retirement money.
This was an interesting read but not applicable to most working young individuals. I would be more interested in a article revolving around guaranteed fixed annuities. This topic is gaining traction in YouTube discussions with higher interest rate environments.
Any thoughts on the tradeoffs of investing the next dollar in a typical brokerage account vs investing more in a 401k using backdoor Roth for an individual considering early retirement?
Assume all the typical contribution limits are being maxed out for 401k, Roth IRA, and HSA. Also, assuming that early retirement of say 50, so this individual is building up assets in the brokerage account to bridge the gap from 50 to when they can start making 401k and Roth IRA withdrawals.
Cheers!
Daniel, appreciate your work on explaining a mega back door Roth. A question remains: "Should you do it?"
This is fair. The questions of "Can you do it?" and "How to do it?" were answered, but "Should you do it?" went unanswered.
See my other comment for an example of should an individual do it.
Over 30 years ago, I took a friend’s advice to save any kind of bonus income and forget you received it. I put those funds in a brokerage account until mega backdoor became available in our 401(k) plan. I max out the tax deferred portion and then keep contributing the same amount per paycheck for the remainder of the year to after-tax. I use year-end bonus income to capture the remaining amount of after-tax.
If your company’s plan record keeper is BofA Merrill (Benefits Online), the tech is there to do after-tax with automatic conversion to Roth once you check the box.
The other use of a mega back door Roth is college savings. By rolling the funds over into an Roth IRA, I can have access to the contributions penalty free for kids college expenses. I don't have to worry about over contributing to a 529 if my kids plans change and can use any unused funds for extra retirement money.
This was an interesting read but not applicable to most working young individuals. I would be more interested in a article revolving around guaranteed fixed annuities. This topic is gaining traction in YouTube discussions with higher interest rate environments.