401k Maxout

Dec 8, 2021 13 Comments

Can we invest more than 19500 to 401k? Are tax brackets decided after the 401k deductions or before?
Where can we invest in order to reduce taxes?#investments #401k

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 TOP 13 Comments
  • Affirm
    izih772

    Go to company page Affirm

    izih772
    Mega backdoor Roth, or at least while it’s still available that is
    Dec 8, 2021 7
  • Google
    owqJ68

    Go to company page Google

    owqJ68
    Example of pure, unconverted after tax vs Roth:

    Roth - contribute 10k, it earns 5k every year in dividends and grows to 100k, then you take it out.
    You pay tax on the 10 when you earned it only.

    I'd you had done after-tax instead, you would pay tax on the 10k when you wanted it AND the 90k in profit when you pull it out!
    Dec 8, 2021 2
    • The reason to put money in after tax is to immediately convert it to a Roth. Your 401k plan has to support this so check with your administrator (@Google yours most definitely does, and is well documented internally)
      Dec 8, 2021
    • Google
      CommiDee🚩

      Go to company page Google

      CommiDee🚩
      Google now offers automatic Roth conversions so it's super easy to do the mega backdoor.
      Dec 8, 2021
  • Google
    owqJ68

    Go to company page Google

    owqJ68
    There are 3 places tax needs to be paid:
    1. When you earn the money.
    2. When the money has gains (like dividends)
    3. When you withdrawal the money from the retirement account.

    Traditional - you get 1 and 2.
    Roth - you get 2 and 3
    After-tax - you get 2 only.

    So having Roth is much better than after tax!
    Dec 8, 2021 1
    • You are omitting the key element, which is that for supporting 401k plans, you can do a distribution or rollover from an after-tax 401k to a Roth 401k or IRA. This turns it into a Roth

      Same goes for the after tax IRA, known as just the 'backdoor' up to 6k. Put in 6k after-tax, then immediately convert it to a Roth IRA
      Dec 8, 2021