I am interested in getting some advice on investing in tax-advantaged accounts. I currently max out my roth-401k (18k) and the company matches 9k pretax. I am currently single and so my tax rate is very high (my TC is 500k+ now). I read about mega backdoor roth and checked out other blind posts regarding this. A few questions if any of you could please answer: 1. Do you think mega backdoor roth is a better investment vehicle than investing in vanguard funds/other ETFs? 2. Is 18k (Roth) + 9k (pretax match) + 27k (mega backdoor Roth) better than 18k (traditional) + 9k (pretax match) + 27k (mega backdoor Roth)? I am thinking you can put in more money in tax-advantaged accounts in the former case but I might be missing something. 3. Is a 529 plan a better place to invest if you get state tax deductions? Thanks!
I would max traditional 401k and Backdoor Roth to balance (you should be able to get vanguard etf on the Roth). I wouldn’t do 529, first you can’t unless you have kids (afaik) and second, there are better investment vehicles without as many strings/side effects.
For the 529, I read that you can have yourself as the beneficiary and change it later. But thanks for the advice, I think I will go with backdoor Roth.
A side question: How many years of relevant experiences do you have? Your TC is pretty high.
Great article comparing 529s vs. Roth IRAs for paying for education: https://www.thesimpledollar.com/529-vs-roth-ira-which-is-best-for-college-savings/
Thanks! I will check that article.
Go pré tax 401k in Vanguard funds. Backdoor Roth ira in Vanguard funds. Mega backdoor Roth ira in Vanguard funds. And taxable in Vanguard funds. If you don't have access to Vanguard funds and you are with fidelity then you have the equivalent FSTMX etc.. In your taxable, hold etfs like ITOT and IXUS as they are more tax efficient
Thanks for the details. Currently I have been putting the pretax company match in tax efficient funds and the Roth-401k (18k) in high risk funds. Can you explain why you suggest the initial 18k in traditional vs Roth 401-k. Won't I be able to put more money in a tax advantaged account if I put everything in Roth?
At your income level, any pré tax money to take is good. You will be able later on to convert it to Roth, pay no tax if you are already retired on your taxable. Wait 5 years and access it. No tax ever paid. Google mad fientist Roth ira ladder conversion
Your 18k contributions to your 401k should not be Roth. It would make more sense to get the tax break now since your tax bracket is likely higher now than it will in your retirement. The 27k mega backdoor can be invested in any ETFs you want, no? 529s: well, this is for paying for future education for your kids. You have kids? Other tax protected investments to consider: - HSA accounts - "regular" Roth IRA backdoor: 5.5k. It makes sense if you don't have an existing traditional IRA.
Regular Roth IRA has a 125k income limit. There’s not a lot of options for those making a lot of money on W2 income.
Mega backdoor post tax 401 much better than 529. You can withdraw money from it for educational purposes without penalty.