Retirement account investment question

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Feb 28, 2018 24 Comments

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!

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TOP 24 Comments
  • Tableau / Eng Johnny27
    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.
    Feb 28, 2018 7
    • Tableau / Eng Johnny27
      @Gen'x - yeah, this is why I mentioned the backdoor for the Roth IRA. No income limit.
      Feb 28, 2018
    • LinkedIn hash
      OP
      Thanks for the reply Johnny27!

      -New to mega backdoor, didn't know that. Seems like the only difference then is you can withdraw from personal investment anytime, from backdoor Roth at retirement (without penalty).
      -529s: don't yet have kids yet. At this point I am just looking to save taxes. If that means, putting money in 529s early, then I can do that too.
      -HSA : this is only for healthcare expenses incurred in the next year, right. I have almost no healthcare expenses in general.
      -regular Roth IRA: I don't think I am allowed to do regular IRA. I think I will start putting money through mega backdoor Roth.
      Feb 28, 2018
    • LinkedIn hash
      OP
      Thanks @topp! But I get a state tax deduction for 529, which I won't get for mega backdoor 401-k.
      Feb 28, 2018
    • Tableau / Eng Johnny27
      The tax deduction for your 529 contributions are likely to be pretty small and only for state taxes, not federal.
      Feb 28, 2018
    • LinkedIn hash
      OP
      That's true. I just read it's only a couple hundred dollars. Thanks 👍
      Feb 28, 2018
  • Amazon JoffBozes
    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
    Feb 28, 2018 6
    • Amazon JoffBozes
      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
      Feb 28, 2018
    • LinkedIn hash
      OP
      Great! Just read that. Thanks!
      Feb 28, 2018
    • Amazon JoffBozes
      No problem. Seriously you should use that Microsoft 401k like crazy. It's so good compared to Amazon's. I would probably apply to Microsoft at some point just because of it haha
      Feb 28, 2018
    • LinkedIn hash
      OP
      Oh really? How is Amazon's different?
      Feb 28, 2018
    • Amazon JoffBozes
      Ridiculous match. Ridiculous vesting and no mega backdoor Roth ira
      Mar 1, 2018
  • Square CcLs36
    A side question: How many years of relevant experiences do you have? Your TC is pretty high.
    Feb 28, 2018 4
    • OP might be 40+ and single too
      Feb 28, 2018
    • LinkedIn hash
      OP
      About 8 years of work experience. I am 30.
      Feb 28, 2018
    • That’s really awesome. What do you do for them?
      Feb 28, 2018
    • LinkedIn hash
      OP
      @BlondeGold, Software Engineer
      Feb 28, 2018
  • Tableau / Eng Johnny27
    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/
    Feb 28, 2018 1
    • LinkedIn hash
      OP
      Thanks! I will check that article.
      Feb 28, 2018
  • Microsoft XP
    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.
    Feb 28, 2018 1
    • LinkedIn hash
      OP
      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.
      Feb 28, 2018

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