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Debt paydown vs. Mega backdoor Roth

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  • Debt paydown vs. Mega backdoor Roth

    Every year at the end of December I get a large bonus. After taxes, it will be in the ballpark of 120K. My plan was to pay down student loans, at the current rate they would all be paid of with next years bonus. We changed 401k plans last year and set it up to allow for the Mega Backdoor Roth. What are your thoughts on putting $33,350 into the Mega Backdoor Roth and thus taking an extra year to pay off student loans? My rates are all variable in the 3-4% range. I have not looked what they are at currently. Once I pay off another big chunk I will explore whether another refi would lower rates. Thanks for any advice.

  • #2
    Mega backdoor


    • #3
      Yeah, if you are making that much money and you're going to get a similar bonus next year I would take advantage of the Roth space early in your career.

      If you have any extra money and want to put it towards my mortgage just LMK.


      • #4
        Thanks q-school and MPMD. To clarify, I guess it is really not a bonus. I am paid a salary monthly that is about half of what I earn based on our comp. formula and the balance gets paid out at the end of the year.

        Also, MPMD, I will keep your offer in mind


        • #5
          With that rate I'd do MBDR.


          • #6
            You are locking your Roth money up for many years.

            A high earner needs all the tax deductions possible.

            Your student loan interest is non-deductible.

            Have you maxed out your tax deferred accounts and HSAs?

            Consider a taxable account for the money. If the investment goes down in a Roth all you can do is re-characterize.

            If the investment goes down in taxable account you can tax loss harvest.