Explain IRA strategies to me
TC is $550k I’m diligent about maxing out my 401k and contributing to a taxable brokerage account, but talk to me about IRAs. By the time I was making enough money to fund beyond the 401k max I was beyond income limits, which is why I never really leveraged them. Do people with high comps contribute to them? How do you incorporate them into your retirement strategy? Thanks all.
Yes, he is a director!
Income limits apply only to Roth IRA, not traditional IRA. Use backdoor roth strategy to fund a traditional IRA, then convert it to roth.
Breakdown of TC? Is it all sign on bonus or actual recurring pay?
$470 salary (total with spouse), the rest of bonus & RSUs
Ah.... so you didn't post *your* TC at capitalone. That's not very helpful to people considering companies.
INSTRUCTIONS: https://www.physicianonfire.com/backdoor/ Some good threads on this. Check out this post! "Going into 35% tax bracket next year - how to save on tax? (Personal Finance)" https://www.teamblind.com/us/s/HESjC3vz The Backdoor Roth IRA fits nicely into an overall tax optimization strategy. 1. What other mechanisms can I take to reduce my taxes? These are fairly boring best practices Blind folks likely already take advantage of to optimize tax exposure. But nonetheless here’s some actionable things to get ahead of a potentially worsening tax environment: - $23k pre-tax which reduces taxable income by that amount from top marginal tax bracket - $4k HSA which also reduces my taxable income - Avoid selling stocks that have short term gains. Those gains get added to your taxable income. - Take advantage of the mega ($25-40k depending on company) and mini ($7k) Backdoor Roths. By housing money in these accounts, avoid the annual dividend income tax breakage (S&P 500 and total market indexes like VOO and VTI spit out a ~2% annual dividend yield which get taxed at a 15% qualified dividend tax rate). Roth assets also have favorable treatment from a RMD (required mandatory distribution) and estate tax perspective relative to other forms of inherited assets. - Set up and utilize 529 plan if you have kids. Utah is a good one for its investment options. Check out this post! "Are we overdoing retirement contributions? (Personal Finance)" https://www.teamblind.com/us/s/8ZhrgUPv Also Roth mini (OP - the one you’re interested in) and mega Backdoor principal AND Roth funds converted from pre-tax 401k are accessible immediately and within 5 years, respectively. So reduces regret of contributing as you retain some liquidity between now and traditional retirement age. Caveat being the gain is stuck till retirement. But it’s also nice that the gain can continue to marinate in Roth and compound/grow even if/after you pull out Roth contribution/converted principal. You’re essentially shielding the gain from being suspectible to 15% long term cap gains tax in retirement while trading off access to said gain till retirement. No one-size-fits-all answer to whether that’s a justified trade off vs. not. Personal planning decision. With high TC, feels pretty low regret to take advantage of some additional Roth space.
This is really helpful thank you!
I’ve summarized my learnings here if you need a more holistic starting point: https://shorturl.at/HR127 But all info generally easily sourced from Reddit, Bogle Heads, Blind etc.
Fund Robinhood traditional IRA with 6500, get a $195 match and then immediately roll it over to Roth IRA and then invest in stocks. 10 minute task overall. DM for Robinhood referral.
Lol not what this person asked at all. Back door conversion is taxable over the accounts if they have pre taxed traditional IRA sitting elsewhere too. Also the Robinhood match requires one to have Robinhood Gold membership which is $6.99/month and need to be Gold member for 12 months so $111 end of the day. Someone making $500K this is not worth it.
Search for Backdoor IRA. You can do it yourself or some employers provide it.