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  • Contribution Limits for Retirement Vehicles

    My spouse is an anesthesia fellow, and I'm a public sector employee. She can expect to make $300k - $500k annually within the next 4 years depending on which job pans out.

    From her job, we expect to have access to a 401k / 403b with an employee 1 to 1 match on 4-7%. Additionally, we could fund an HSA.

    Through my job, I have a solid Traditional DB plan ( I know these are exceedingly rare and many are on the path to insolvency. This one really is probably top 10 in the country.) I contribute 9% and employer does 18-30% depending on the ARC. I'll also (probably) have access to a DROP that will provide $400-800k in today's dollars (currently in my early 30s).

    Additionally, I have a 457 at work with no match. More importantly I also have option to fund a ROTH 457. So I can allocate my full $18k annually to this ROTH vehicle, and there's is no AGI phaseout / limit like regular ROTH IRAs.

    So my actual question (s) :

    I presume my traditional DB pension has no bearing on any sort of "other" saving she vehicles. Right ?

    Since I could conceivably do $18k to my ROTH 457, does this automatically preclude the backdoor ROTH ?

    HSAs appear to lack any sort of tethering to other savings plans. You just simply have to have the required HDHP insurance. Am I understanding this correctly ?

  • #2




    So my actual question (s) :

    I presume my traditional DB pension has no bearing on any sort of “other” saving she vehicles. Right ?

    Since I could conceivably do $18k to my ROTH 457, does this automatically preclude the backdoor ROTH ?

    HSAs appear to lack any sort of tethering to other savings plans. You just simply have to have the required HDHP insurance. Am I understanding this correctly ?
    Click to expand...


    DBP limits aren't related to the other contribution limits.

    IRAs are completely different than employer accounts (401k, 403b, 457, etc) and have no bearing on them (other than preventing deductibility of traditional IRA contributions if you have access to one).  The only thing that hinders the backdoor Roth IRA (non-deducted Trad IRA contribution followed by Roth conversion) is having pre-tax money in non-Roth IRAs: Trad IRA, SEP-IRA, and SIMPLE-IRA.

    If you have any of those, you can either convert them to Roth (and pay tax on amount converted at income level) or, if a person has self-employment income (like moonlighting paid on 1099s), can start an independent 401(k) and roll the pre-tax IRAs into it.

    HSAs require a qualifying HDHP which must not provide *any* benefit prior to meeting the minimum deductible except preventive care.  For 2017, requirements are deductible > $2,600 and OOP cap < $13,100 (meaning it's possible if the cap is too high, it doesn't qualify for HSA).  If there is an HRA or health FSA with it, it can only provide benefits after meeting the federal minimum deductible or in another limited fashion.

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    • #3
      Let me run another one by you. Wife starts getting attending salary August. Pro-rating the new higher salary for 5/12 of the year, the 7/12 of her fellow salary, plus my salary puts us right around $195k.  It looks like that 457 B plans do not count as add backs to your AGI for figuring your MAGI which is what actually determines your eligibility for ROTH IRA contributions.  So, can I just pour a bunch of money into my 457B, which will reduce my AGI (and thus MAGI) ensuring we can stay under the ROTH income limits for at least this 2017 year? And then do $5500 x 2 into our respective ROTHs?

       

      In the future, I'll still have access to a ROTH 457, which is nice in that there is no upper ceiling for income for eligibility. If the backdoor ROTH disappears (which seems like only a matter of time to me), I'll still have access to this ROTH 457 provided I stay in the public sector.The only downside readily apparent is that UNLIKE ROTH IRAs, a ROTH 457, is subject to RMDs at 70.5 just like most of the other QRPs.

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      • #4




        Let me run another one by you. Wife starts getting attending salary August. Pro-rating the new higher salary for 5/12 of the year, the 7/12 of her fellow salary, plus my salary puts us right around $195k.  It looks like that 457 B plans do not count as add backs to your AGI for figuring your MAGI which is what actually determines your eligibility for ROTH IRA contributions.  So, can I just pour a bunch of money into my 457B, which will reduce my AGI (and thus MAGI) ensuring we can stay under the ROTH income limits for at least this 2017 year? And then do $5500 x 2 into our respective ROTHs?

         

        In the future, I’ll still have access to a ROTH 457, which is nice in that there is no upper ceiling for income for eligibility. If the backdoor ROTH disappears (which seems like only a matter of time to me), I’ll still have access to this ROTH 457 provided I stay in the public sector.The only downside readily apparent is that UNLIKE ROTH IRAs, a ROTH 457, is subject to RMDs at 70.5 just like most of the other QRPs.
        Click to expand...


        Sure, you can put as much as you want into a 457 and take the adjustment (aka above-the-line deduction) to reduce your AGI.  Be sure it's one worth putting into: acceptable investment options, low fees, and a favorable distribution schedule on separation from the company (i.e. can withdraw over 5 years so as not to take a tax hit all at once).  Here's a useful flowchart for evaluating whether to use your 403(b), from a WCI Blog (Guest) Post:



        Why would backdoor Roth disappear?  If there's a possibility you could be over the income limit to contribute directly to Roth, don't bother and just do backdoor.  Unless you have pre-tax IRA money (traditional, SIMPLE, SEP) or you'd use the funds within 5 years - which you should p much never do, except in catastrophe, and then you've got bigger problems than this - just do backdoor Roth so as not to risk having to make a recharacterization, withdraw excess contributions, or pay the penalty.

        Btw please stop capitalizing Roth...what do you think it stands for?  Retiring On The House? ;-)

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        • #5







          Let me run another one by you. Wife starts getting attending salary August. Pro-rating the new higher salary for 5/12 of the year, the 7/12 of her fellow salary, plus my salary puts us right around $195k.  It looks like that 457 B plans do not count as add backs to your AGI for figuring your MAGI which is what actually determines your eligibility for ROTH IRA contributions.  So, can I just pour a bunch of money into my 457B, which will reduce my AGI (and thus MAGI) ensuring we can stay under the ROTH income limits for at least this 2017 year? And then do $5500 x 2 into our respective ROTHs?

           

          In the future, I’ll still have access to a ROTH 457, which is nice in that there is no upper ceiling for income for eligibility. If the backdoor ROTH disappears (which seems like only a matter of time to me), I’ll still have access to this ROTH 457 provided I stay in the public sector.The only downside readily apparent is that UNLIKE ROTH IRAs, a ROTH 457, is subject to RMDs at 70.5 just like most of the other QRPs.
          Click to expand…


          Sure, you can put as much as you want into a 457 and take the adjustment (aka above-the-line deduction) to reduce your AGI.  Be sure it’s one worth putting into: acceptable investment options, low fees, and a favorable distribution schedule on separation from the company (i.e. can withdraw over 5 years so as not to take a tax hit all at once).  Here’s a useful flowchart for evaluating whether to use your 403(b), from a WCI Blog (Guest) Post:



          Why would backdoor Roth disappear?  If there’s a possibility you could be over the income limit to contribute directly to Roth, don’t bother and just do backdoor.  Unless you have pre-tax IRA money (traditional, SIMPLE, SEP) or you’d use the funds within 5 years – which you should p much never do, except in catastrophe, and then you’ve got bigger problems than this – just do backdoor Roth so as not to risk having to make a recharacterization, withdraw excess contributions, or pay the penalty.

          Btw please stop capitalizing Roth…what do you think it stands for?  Retiring On The House?

          .


          Thanks for the flow chart

          I do realize that Roth is named after a Senator Roth now, but at one point in time I assumed it was an acronym of sorts. So now, it's imprinted in my DNA to think of it as such.

          Regarding my DB, it's for a large municipality. It's actually really well funded, and has (despite an 8.5% discount rate historically [and now more realistically 7]) has hit the required returns - I think to the tune of 9% net annually over the last 30 years.

          And back to the 457, it's governmental, and thus not subject to creditors. I'll have to delve more into the actual available investments, but last I checked a year or two ago there were a fair amount of "cheap enough" index funds that were all maybe 5-20 basis points over their Vanguard / Fidelity equivalents.

          The 457 is also super flexible for loans. In fact, you can withdraw up to 50% of the value and pay yourself back over a period of 1-5 years with interest (but back to yourself). I finished off some lingering student loans of my own accruing interest at 6.8%, and paid back myself the interest into the 457.

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          • #6
            Sounds like a pretty decent deal. You'll probably want to use it more since you'll need to increase tax efficiency now that you'll be in the top tax bracket next year.

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            • #7




              Btw please stop capitalizing Roth…what do you think it stands for?  Retiring On The House?
              Click to expand...


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