Now that you’re reading, I need bit of a help with understanding investments. I am in Seattle and make $160k base. I am contributing 12% to my 401k through Fidelity. That’s close to about $19500 I take it. I am also contributing about $3k into my HSA. Now I understand that I won’t be eligible for contributing to ROTH IRA because I make more than $139k. With that I have few questions: 1. Can I contribute to IRA? 2. If so, how can I contribute to IRA? Does it have to be through Amazon? 3. What is backdoor ROTH? 4. Are there any other retirement accounts I should contribute to? 5. For 401k currently they are being invested in Vanguard funds. Can I change them to any other ETFs like VOO? 6. Can I contribute to ROTH 401k? When I open my Fidelity contributions I see 3 fields I can choose from. PRE-TAX ROTH AFTER-TAX What are ROTH and AFTER-TAX in contributions? I was under the impression that ROTH itself is after tax. I currently set my PRE-TAX to 12%. Is there a way to set $ amount than percentage on fidelity? Also please suggest any other financial tips. TC: 250k #personalfinance #investments
You can do a backdoor Roth Ira with some paper work. Haven't done it, but I think the process is to contribute to a traditional Ira (with no tax benefit) and file paper work to have your custodian recharacterize it as a Roth Ira.
Do I have to create the traditional IRA account? Have you done traditional IRA? Also what are ROTH and AFTER-TAX contributions in 401k?
Create a traditional Ira account with fidelity. Contribute money to it and convert it to Roth IRA . You can’t contribute to Roth IRA but you can convert. Also you cannot claim this amount as non taxable
Wait I thought I can’t convert it to ROTH IRA because I make more than $139k pay. How to convert to ROTH IRA? Is that allowed by the way? You can’t claim the amount as non taxable but if you invest it and make profits then that will be non taxable right?
You can’t “contribute” directly to Roth IRA based on income limits but anyone can convert from traditional Ira to Roth IRA as long as that money is not claimed as non taxable. Once the money is in Roth IRA (doesn’t matter how) all gains there after are free of tax
Whatever Qualcomm said is right. But, beware you shouldn't have any other traditional IRA. And, money deposited in Roth IRA via backdoor can't be withdrawn upto 5 years from deposit. Principal can be withdrawn after 5 years and growth on retiring
So wait, 1. Create traditional IRA through Fidelity 2. Convert it to ROTH IRA 3. Invest that amount. Since the limit is $6k I can invest $6k every year and the capital gains isn’t taxed. Correct? I thought those making $139k plus can’t have Roth IRA but can have traditional IRA. You’re saying I shouldn’t have any other traditional IRA. What does it mean?
No Open traditional Open roth Deposit 6000 to traditional IRA Transfer 100 to roth Confirm with Fidelity, backdoor roth worked Then transfer the remaining 5900 Then invest that cash from Roth IRA to buy equity The rule is you cannot directly deposit to Roth IRA
~57k max is one can save in 401k 19.5k pre-tax 9.75k my employer match 27k around remaining is one can save towards after tax. It has to come from the paycheck too. This grow tax free upon withdrawal after 59.5 yrs old 6k max one contribute towards IRA
https://www.investopedia.com/retirement/401k-contribution-limits/ KEY TAKEAWAYS Employees can contribute up to $19,500 to their 401(k) plan for 2020 and 2021. Anyone age 50 or over is eligible for an additional catch-up contribution of $6,500 in 2020 and 2021. Employers can contribute up to $57,000 (catch-up at $63,500) in 2020 and in 2021 tht amount rises to $58,00 (or $64,500 with the catch-up contribution).
For starters 1. So we can’t choose what funds to invest in other than the funds the employer provides for 401k right? 2. Backdoor Roth means creating a traditional IRA and ROTH IRA and transferring funds from traditional IRA to ROTH IRA correct? For this we can contribute about $6k per year? 3. What is ROTH 401k? Can we contribute $19.5k post taxes per year on this as well? What’s the advantage of this? So basically it’s 401k (can invest in employer suggested funds), Traditional IRA to ROTH IRA ($6k per year that can be invested in any stocks or ETFs) and ROTH 401k ($19.5 post tax, which can be invested from fidelity along with 401k) Are these the only things? What is AFTER-TAX on fidelity then? There are PRE-TAX, ROTH, AFTER-TAX when choosing contributions for 401k. Please correct if I am wrong. Also how did you get those numbers? Amazon matches just 2% up until 4% of base. So in this scenario if my base is $160k then 4% of it is $6400 and Amazon contributes $3200. So total contribution here is my $19500 + $3200 which is about $22700 per year. $6k towards IRA. What is this $27k after tax you’re taking about?
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MEGA BACKDOOR
1. Backdoor Roth IRA Assuming you have no other traditional IRAs titled in your name (inherited IRAs do not count): Step 1: Open a traditional IRA at your favorite financial institution. Step 2: Contribute up to the max ($6k this year assuming you are under 50). Step 3: File IRS form 8606 with your tax return in the year you make the non-deductible traditional IRA contribution. Step 4: Open a Roth IRA at the same institution. Step 5: Roll over the funds in the traditional IRA to Roth. You should wait a bit between the contribution and the rollover to avoid the appearance of a step transaction. Very safe would be to wait one year. Very aggressive would be to do it the same day. I wait one month (one statement). Since you will have to pay tax on any gains in the period between the contribution and the rollover, I tend to keep the contribution funds in cash until after the rollover. 2. Mega Backdoor Roth 401k at Amazon You have the option at Amazon to make your annual 401k deferral either pre-tax (traditional 401k) or after-tax (Roth). Max deferral this year is $19,500 assuming you are under 50. In addition to the deferral, the Amazon plans allows you to contribute an additional 10% on an after-tax basis. What you want to do is call Fidelity (no way to do this online) and tell them you want your after-tax contributions automatically and immediately converted to Roth 401k. This has the effect of allowing you to get $35,500 into Roth this year ($19,500 deferral + $16,000 backdoor). The only caveat is that the 10% is per paycheck, so you would have to work all 12 months to get the full $16,000 ($1333 per month). Employer match is always pre-tax, regardless of whether you elect for Roth or not. If you did it right, you should have been able to get $41,500 total into Roth in 2020 - $6k Roth IRA and $35.5k Roth 401k.
How much is Amazon max employer contribution? I knew people do front load all 401k contribution so that all employer contribution will get sooner.
Employer contribution is miniscule - 50% match up to 4%, so 2%. It is done on a monthly basis (the most you can get in one month is $267 - $160k/12*2%) and then there is a true-up sometime in the spring.
Good question I just realized I have Roth contributions, but also make $170k base... wtf? Why do they make this so confusing lol
What are your ROTH contributions? Does FB use fidelity too?
Yeah FB uses Fidelity. Just discovered a small nuance! Roth 401k has no income limits. Only Roth IRA has income limits. Also, you can turn on pre-tax to Roth conversion in the Contributions settings on Fidelity’s website.