I don't understand why a mega backdoor roth is superior to an index fund

Aug 23, 2021 19 Comments

I want to invest my bonus into an index fund with Vanguard as I already have a Roth/401k with Fidelity. I want to balance my investments between different companies in case any of them fail. Anyways, why is a megaback door superior to putting my money into a separate index fund. I've already maxxed Roth/401k/HSA for the year. I'm afraid of putting all my money with one company. #personalfinance #investments Please help thanks.

comments

Want to comment? LOG IN or SIGN UP
TOP 19 Comments
  • Mega backdoor Roth determines how your money will be taxed, not where you invest your money. Your Roth 401k provider should allow you to invest in index funds.

    The difference is you cannot withdraw the money until age 65 except in certain emergency situations.

    edit: Apparently you can withdraw the principal with fewer restrictions. But then you can’t put the principal back in so this is not recommended.
    Aug 23, 2021 2
  • Google
    yolo0x1A4

    Go to company page Google

    yolo0x1A4
    It makes me cringe how it’s called a “mega back door“ like it is some secret hedge fund private investment vehicle. The reality is the hedgies are fucking both vehicles over.

    Whoever named this technique i imagine is an elementary school math teacher.
    Aug 23, 2021 0
  • That’s not the right question. Roth refers to a tax deferral structure, index fund refers to an unmanaged mutual fund. You can own an index fund inside a Roth. Do you mean to ask should I invest in a roth, and defer taxes, or buy a diversified index fund in an after tax account?
    Aug 23, 2021 2
    • OP
      Yes, I am sorry. I did not word correctly. That is what i'm asking. Which is better? Diversified index fund after tax?
      Aug 23, 2021
    • Generic advice is to max out any account that offers tax deferral /avoidance benefits before investing in after tax accounts. But tax advantaged accounts have withdrawal rules, after tax accounts do not. It depends on when you “need” that money. If it is retirement money, fund the Roth first. If it is emergency fund/down payment/ kids college/new car money, put it in an after tax account.
      Aug 23, 2021
  • 🤦‍♂️🤦‍♂️🤦‍♂️🤣🤣🤣

    You can buy and sell whatever investments you want in your IRA. What are you even talking about?
    Aug 23, 2021 3
  • Square
    Infikyn7

    Go to company page Square

    Infikyn7
    Is loading up your Roth so much really worth it if you plan to retire in your 30s or 40s?
    Aug 23, 2021 1
    • New
      🥜tc🥜

      New

      🥜tc🥜
      My accountant says that Roth is the single greatest tax break you can ever get. I max out the mega back door every year. And then have a regular brokerage for everything else.

      You expect to live to 59.5, right?

      Also you can pull the principal at any time if u need it early.
      Aug 23, 2021