planning for next year.

[Pmrdoc46]

here is my situation. My taxable income is at the upper end of the 24% bracket. With the pending tax legislation I'm trying to plan if the back door Roth goes away. My goal is to invest 20k per yr in Roth. Currently I do 13k back door and get the rest through the 401k Roth option. If backdoor goes away I am trying to decide if I should go 100% Roth in 401k to get to 20k and put the 13k that I previously did bd with in non deduct IRA or my brokerage account. Sidenote my employer puts in 24k per yr in my 401k. I'm leaning toward the brokerage for several reasons, main one is I definitely will be retiring from full time medicine before I'm 60, currently 50. I can't predict the future but I am assuming with the state of our gov't debt rates have to go higher in the near future as they are pretty low now. I like the ltcg rate currently 15% vs ordinary income of 24% even considering the tax drag. Maybe I'm wrong. What say you?

[Tim]

"I like the ltcg rate currently 15% vs ordinary income of 24% even considering the tax drag."
Same.

[Pmrdoc46]

thanks Tim. looks to be a slow day on the forum. I will post this on boggleheads

[Lithium]

The popular wisdom seems to be to go with the taxable account, but honestly I think the right answer is "it depends." If you invest in low growth, tax inefficient assets then nondeductible IRA looks more attractive.

If this legislation passes, I mean to simulating this on a spreadsheet as that is the only real way to answer this in the form of math. There are other factors to consider, such as the loss of step up in basis, loss of ability to TLH (favoring taxable account), and superior asset protection (favoring ND IRA).

PS I suspect this will get locked on Bogleheads since it refers to pending legislation. I appreciate that we can actually discuss that on this forum before it's signed into law.

[CordMcNally]

It's a difficult question to answer because we don't know the future variables. You know your tax rates, etc. now but you don't know what they'll be in the future. You just try to make as educated guess as you can and then you just forget about it and live with whatever decision.

[spiritrider]

I think we go back to before the Backdoor Roth became available in 2010 and the ability to distribute just the employee after-tax contributions and earnings from IRS Notice 2014-54. I just realized how short a time these have been available. For some reason it has seemed like it has been status quo for a long time.

On an overall basis, Non-deductible traditional IRA contributions and employee after-tax contributions will generally only make sense if you have insufficient tax-advantaged space to place the tax-inefficient components of your asset allocation. Otherwise, you would be better off making tax-efficient taxable investments.

[Pmrdoc46]

pretty much what I have been thinking

[Pmrdoc46]

lithium completely right about boglehead forum.

[Dewangski1]

Do you have a tax deferred option like a traditional 401k? Sorry if I’m confused, but I would be maximizing this space before any nondeductible account. A few others things one to mind as well - 1.) as you push through your 24% bracket, you can use tax deferred to bring you back down, 2.) just because you see a lot of posts here about managing RMDs with traditional 401s doesn’t mean you should avoid one and there’s value in having different piles of money with different tax implications, 3.) retirement accounts make you wait until 59.5 to access the money, while taxable is at your disposal at any age if you plan on FIRE, and 4.) speaking of speculating on changes that could eventually occur, the rules around a Roth IRA could also change. I guess my take home would be not to over index on a Roth. Ideally, I’d like to have a few million in each spot - taxable, Roth and tax deferred

[Hatton]

Tax diversification is important. Having a taxable account bucket gives you a lot of freedom when you actually retire.

[Tim]

Tax diversification is important. Having a taxable account bucket gives you a lot of freedom when you actually retire.

For those that count your residence as an asset, in retirement a taxable is much preferable. You live in the residence, you don’t spend it on retirement. That is why Hatton paid cash for the house. Intentionally feathered the retirement nest.

[Random1]

With out knowing your other assets it is difficult to say. If you dont have much in a taxable account , I would start increasing the size of it. Assuming you have a mix of accounts IRA/ Roth. It gives you a good time to live off the taxable and do roth conversions between 60 to RMDs. You might be able to tax plan a little better. Five years of taxes on asset appreciation on a taxable account it not that substantial, but is leaves you options of letting you tax deferred accounts grow long untouched and converted to Roth.

We have been putting all new money into Roth 401k, even though I am in a high bracket, I have a large IRA and taxable account. I want diverse "piles" of money to pull from in retirement.

[JBME]

For those that count your residence as an asset, in retirement a taxable is much preferable. You live in the residence, you don’t spend it on retirement. That is why Hatton paid cash for the house. Intentionally feathered the retirement nest.

True. While the future is unknown, if you know yourself well and you are 99% certain that when you retire you will downsize in housing, then perhaps you can be okay with not having much in taxable. That would be because if you sell your house and then buy a new smaller place to live that 25-50% less, you can take all that equity and the gains and boom you have a taxable account. This is my plan at this time.

[Tim]

True. While the future is unknown, if you know yourself well and you are 99% certain that when you retire you will downsize in housing, then perhaps you can be okay with not having much in taxable. That would be because if you sell your house and then buy a new smaller place to live that 25-50% less, you can take all that equity and the gains and boom you have a taxable account. This is my plan at this time.

Yes, if the plan works. There have been many threads about downsizing. This typically requires the acceptance or plan of geographic arbitrage. So be it. Behavioral finance probably involve not only size, but a lower or less desirable area if you stay in the same basic area. It is difficult to choose to accept a cut in the standard's of amenities of both the house and neighborhood. What I (and other posters) have found is that the "great price" is also high for less but different amenities. If you can plan on moving from the higher COL to a less desirable location, that is an emotionally difficult choice to accept. The location of the property seems to follow the location, location. location ROT.
It is not only the house, you need to be moving to a different place. I hope you are planning on moving to a more rural type area. Can be done. We actually were "excited" about downsizing. Extremely disappointed in what the options would entail within 100 miles. Our tendency was more expensive with downsizing.

[Hatton]

For those that count your residence as an asset, in retirement a taxable is much preferable. You live in the residence, you don’t spend it on retirement. That is why Hatton paid cash for the house. Intentionally feathered the retirement nest.

Tim this not why I paid cash for my house.