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VUL better if Backdoor Roth Disappears?

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  • #16
    No.

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    • #17
      I think the fact that you’ve sunk $405k into something over the last 6 years that is now worth $375k should tell you all you need to know about whether or not that would be a good idea going forward. How much would that $405k be worth if you’d invested in even a 70/30 asset allocation over that same time frame?

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      • #18
        I agree that both buying the VUL, and continuing to fund it up until now was a mistake. I'm enlisting the help of James Hunt to figure out when is the best time for me to get out of that mistake. Investing that $405k 70/30 6 years ago would have been much better, investing it 100/0 maybe even better, investing it all in to Bitcoin probably the best, but I F'd up.

        My original question was poorly stated I guess. I just wondered if one fewer tax efficient retirement account available to high income earners would make the VUL look any better. If the terms "Backdoor IRA" and "Mega Backdoor IRA" become obsolete with the pending tax plan, this forum and the WCI podcast will have about half as much to talk about. The first answer to every "What should I fund first?" question will not be an option. I'm just looking to see what might replace that tax efficient retirement vehicle.

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        • #19
          Yes, a taxable account is not quite as superior to a VUL plan than the combo of a taxable account and BD Roth is. The taxable account is a steak dinner and the VUL is a sh*t sandwich. The BD Roth is a nice glass of champagne you get with the steak dinner.

          Anyway, it’s water under the bridge now. It sounds like you’re just reaching for a reason to justify the sunk cost fallacy honestly. Figure out how to cut your losses and use the best tools available.
          “Work” is a four letter word for good reason.

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          • #20
            Originally posted by BryanMD View Post
            I agree that both buying the VUL, and continuing to fund it up until now was a mistake. I'm enlisting the help of James Hunt to figure out when is the best time for me to get out of that mistake. Investing that $405k 70/30 6 years ago would have been much better, investing it 100/0 maybe even better, investing it all in to Bitcoin probably the best, but I F'd up.

            My original question was poorly stated I guess. I just wondered if one fewer tax efficient retirement account available to high income earners would make the VUL look any better. If the terms "Backdoor IRA" and "Mega Backdoor IRA" become obsolete with the pending tax plan, this forum and the WCI podcast will have about half as much to talk about. The first answer to every "What should I fund first?" question will not be an option. I'm just looking to see what might replace that tax efficient retirement vehicle.
            I guess I still don’t see how a VUL, either new or one you continue to fund, is better than even a taxable account if the Backdoor Roth goes away for high income people. I don’t see many/any VUL products where the after tax value is projected to be higher than the after tax value of a taxable account. Who cares if you have to pay some taxes from the taxable account if you end up with more money overall?

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            • #21
              Originally posted by jacoavlu View Post

              when liquidity matters
              True*

              *Principle amount is not subject to penalties.

              Only the earned amounts is subject to the 59 1/2 years w/d start - so, there still is quite a lot of liquidity availability if needed to tap if absolutely needed.

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              • #22
                Originally posted by StarTrekDoc View Post

                True*

                *Principle amount is not subject to penalties.

                Only the earned amounts is subject to the 59 1/2 years w/d start - so, there still is quite a lot of liquidity availability if needed to tap if absolutely needed.
                yeah and inevitably the person that contributes to roth when they couldn’t afford it, is going to also screw something up withdrawing and reporting.

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                • #23
                  Originally posted by BryanMD View Post
                  I agree that both buying the VUL, and continuing to fund it up until now was a mistake. I'm enlisting the help of James Hunt to figure out when is the best time for me to get out of that mistake. …

                  I'm just looking to see what might replace that tax efficient retirement vehicle.
                  I am wondering the same thing as Lithium “are you trying to justify the sunk cost fallacy?” While James Hunt has been recommended in this forum for evaluating complex life insurance questions, does your VUL really fall into this category?

                  You have a sunk cost of $405K. Your asset has a value of $375K for loss of $30K. If you get the cash value out now, you’ve paid $30K tuition in the personal finance school of hard knocks. If you want to cut your loss to $0, the most tax efficient way is to 1035 exchange the VUL into a low cost variable annuity. When the value reaches $405K, surrender the VA.

                  While the VA is tax-advantaged, I would not recommend it beyond getting back to the original basis. If you choose to allow it to grow, the gains are treated as income not as cap gains. There is a 10% penalty if earnings are withdrawn before age 59.5 . Worse, all gains come out first and basis last, no pro-rata removal.

                  Do yourself a favor - get your money out of the insurance product. If you have any unused tax-deferred vehicles through your employment like a 457 plan, consider that. I wouldn’t fixate on trying to keep your VUL assets in some type of tax efficient format.

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                  • #24
                    If the BDR and MBDR go away, we go back to the future before 2010. Where in a narrow set of Asset Allocation circumstances, non-deductible traditional IRA contributions and 401a, 401k, 403b or 457b employee after-tax contributions. Might make sense instead of tax-inefficient taxable investments.

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                    • #25
                      BDR was never an option for me. I have too much in TIRA and SEP IRA accounts. Transferring all that money into an individual 401k would have resulted in new fees, and those fees, even in a low cost 401k, would more than negate the value of the BDR many times over. In our early years, we maxed the retirement accounts and invested the extra in RE. Then later we maxed tax deferred first, then taxable, and then real estate.

                      One question, when we do a 500k Roth conversion later this year, which account should I preferentially convert? Does it matter? I have the following tax deferred accounts:

                      401k
                      403b
                      457b
                      SEP IRA
                      TIRA

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                      • #26
                        Originally posted by White.Beard.Doc View Post
                        BDR was never an option for me. I have too much in TIRA and SEP IRA accounts. Transferring all that money into an individual 401k would have resulted in new fees, and those fees, even in a low cost 401k, would more than negate the value of the BDR many times over. In our early years, we maxed the retirement accounts and invested the extra in RE. Then later we maxed tax deferred first, then taxable, and then real estate.

                        One question, when we do a 500k Roth conversion later this year, which account should I preferentially convert? Does it matter? I have the following tax deferred accounts:

                        401k
                        403b
                        457b
                        SEP IRA
                        TIRA
                        Is the 457 governmental or non-governmental? I probably would convert the SEP IRA and whatever the minimum distribution amount was from a non-governmental IRA first. Fees and available investments within each traditional retirement account would play a big role too.

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                        • #27
                          Originally posted by Hank View Post

                          Is the 457 governmental or non-governmental? I probably would convert the SEP IRA and whatever the minimum distribution amount was from a non-governmental IRA first. Fees and available investments within each traditional retirement account would play a big role too.
                          The 457b is non-governmental, but it is from a centuries old university with many billions (as in 11 figures) in their endowment. I will find out if the 457b allows a rollover. I know they have their own rules based on the plan document.

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                          • #28
                            Originally posted by White.Beard.Doc View Post
                            The 457b is non-governmental, but it is from a centuries old university with many billions (as in 11 figures) in their endowment. I will find out if the 457b allows a rollover. I know they have their own rules based on the plan document.
                            A plan document can have restrictions beyond non-mandatory tax code and IRS regulation requirements, but can not contravene mandatory requirements. For example, a governmental 457b can restrict non-prohibited in-service rollovers, but all non-governmental 457b plan rollovers are prohibited. In fact, allowing such a rollover would be a serious compliance violation, subject to plan disqualification.

                            A general rule is; that which is not prohibited is allowed but not required.

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                            • #29
                              Originally posted by StarTrekDoc View Post
                              When is taxable better than Roth?

                              ​​​​​
                              Tax loss harvesting, liquidity, 0% cap gains bracket in retirement...

                              But I will always do the backdoor Roth if the government will let me.

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                              • #30
                                I agree that both buying the VUL, and continuing to fund it up until now was a mistake. I'm enlisting the help of James Hunt to figure out when is the best time for me to get out of that mistake. …

                                I'm just looking to see what might replace that tax efficient retirement vehicle.

                                I would just take the hit and put it in VTI in a taxable account. Your account had a significant loss , in one of the best markets Paying taxes on a gain , is a whole lot better , than not paying taxes on a loss. I have never looked at a VUL policy as an investment. It is more of a benefit to my heirs when I die.

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