So I’ve read up on this topic but can someone help clarify this for me. It sounds like this lets one just contribute more in a year, why would i want to do this compared to just opening a roth or standard IRA? As far as i get it, MSFT will only match up to 9500 so what is the benefit? Meaning, why should I not just put in 19k in the 401 & other savings elsewhere? Thanks for the help
Traditional IRA and Roth has qualifing income limitation. Only way you can contribute to Roth is doing a backdoor ($6k per year) or mega backdoor ($35k per year if your employer allows such as Microsoft). Roth is tax free gains if the money you put through IRA is post tax.
How does one set this up through an employer that allows it (ie Msft). Do i go through fidelity or should i ping hr?
Yes through Fidelity. It's pretty easy and can be done online. Also if it gets confusing, give them a call and they will help you. This article does a good job explaining step by step process. https://thecollegeinvestor.com/17561/understanding-the-mega-backdoor-roth-ira/
Dang, MS compensation must be worse than I thought if you're still below the Roth contribution income limit...
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Dude you can only do 6k through non deductible IRA to Roth conversion. None of us are eligible for Roth or tax deduction IRA
Is there a situation you wouldn’t want to do this?
The reason I don't do mega backdoor is to not put too much money towards retirement. I am optimizing my 401k for getting $3M by the time I turn 60. I don't want to plan for more than this for my retirement. I want to spend the money now instead. Microsoft has a good 401k deal of contributing $9k for the $18k I contribute. $27k every year till I turn 40 will get me over $3M when I then 60 at 7% inflation adjusted YoY returns. I still do normal backdoor ($6k yearly), and use that money to invest in high risk trades such as IPO stocks. Since returns are tax free it makes sense to bet this on high risk high return investments.
What would you want to spend the money on? If you've a decent income you'll anyway have some money to invest beyond mortgage and basic living expenses?
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Well i do roth, so is the point that i save the tax on the gains? That would make a lot of sense lol