MediMike Posted October 8, 2020 Share Posted October 8, 2020 Alright financial gurus. I'm in my late 30s and have that wonderful problem of making a bit too much $$$. Wife and I are looking at doing the backdoor Roth route as our MAGI precludes standard Roth contributions. We spoke with an advisor and Edward Jones who suggested I consolidate a fairly significant chunk of prior 403b and 401ks into IRAs sooner rather than later. My concern is that if I open up those IRAs and subsequently do the backdoor Roth the pro-rata rule will get me. Example 1: We open an IRA and find it with 12,000 and immediately concert to a Roth. We currently own no other IRAs so this is looked at as all post-tax money which has had no chance to grow so there is no taxation basis for it. Example 2: We roll over my old retirement savings into an IRA, let's say it's $88,000. This of course was all pre-tax money. We then fund an IRA with $12,000 and convert to a Roth immediately. In example 2, as I understand it, the government will look at the totality of our IRAs, see that 88% of it (in aggregate) is pre-tax money and then tax that $12,000 based on that figure. Would it make more sense to wait until after this tax season and the opening of a backdoor Roth to do the retirement conversions? Does that sound about right? Or am I way overthinking it? I understand 88% of $12k isn't all that much but if I don't like the idea of getting double dipped. Thanks all! Quote Link to comment Share on other sites More sharing options...
ohiovolffemtp Posted October 9, 2020 Share Posted October 9, 2020 A caution: be certain that your "advisor" is a CFP, better yet, an IRS "enrolled agent". These are folks who aren't just salespeople like many "financial advisors" are. They can give you the correct advice on this. 2 Quote Link to comment Share on other sites More sharing options...
CAAdmission Posted October 9, 2020 Share Posted October 9, 2020 You might want to wait until after the election - might effect what will happen with the tax code. Quote Link to comment Share on other sites More sharing options...
Boatswain2PA Posted October 9, 2020 Share Posted October 9, 2020 3 hours ago, CJAdmission said: You might want to wait until after the election - might effect what will happen with the tax code. Lots of people are doing backdoor Roths this year because they want to pay this year's income tax on the money. With Biden/Harris, taxes are going to go WAY UP! 2 Quote Link to comment Share on other sites More sharing options...
CAAdmission Posted October 9, 2020 Share Posted October 9, 2020 1 minute ago, Boatswain2PA said: Lots of people are doing backdoor Roths this year because they want to pay this year's income tax on the money. With Biden/Harris, taxes are going to go WAY UP! That's a whole different "backdoor." 1 Quote Link to comment Share on other sites More sharing options...
Boatswain2PA Posted October 9, 2020 Share Posted October 9, 2020 12 minutes ago, CJAdmission said: That's a whole different "backdoor." We survived 8 years of Obama/Biden. Dems survived 4 years of Trump. We will survive 4 years of Harris. As Barbara Bush said: What you do in YOUR house is far more important to your family than who lives in the WHITE house. 2 1 Quote Link to comment Share on other sites More sharing options...
MediMike Posted October 9, 2020 Author Share Posted October 9, 2020 37 minutes ago, Boatswain2PA said: Lots of people are doing backdoor Roths this year because they want to pay this year's income tax on the money. With Biden/Harris, taxes are going to go WAY UP! I have yet to see a single organization's projection showing a direct increase in taxes for anyone in my income range. If you happen to be pulling in >$400k then congrats, I'm glad it's a problem you have to worry about! "Still, Vice President Biden's current proposals feature no direct tax increases on the middle class or any household earning less than $400,000 per year. Moreover, any indirect tax increases on these households — which would stem from higher corporate taxes — would be relatively modest." - http://www.crfb.org/blogs/would-joe-biden-significantly-raise-taxes-middle-class-americans Where are you seeing anything on taxes for the lower/middle/lower-upper class going up? 1 Quote Link to comment Share on other sites More sharing options...
CAAdmission Posted October 9, 2020 Share Posted October 9, 2020 3 hours ago, Boatswain2PA said: We survived 8 years of Obama/Biden. Dems survived 4 years of Trump. We will survive 4 years of Harris. As Barbara Bush said: What you do in YOUR house is far more important to your family than who lives in the WHITE house. That's what I really kind of laugh about in all this. Bush 1 was a milquetoast. Clinton was utterly amoral. Bush 2 was a dope. Obama was a dope/narcissist. Finally, Trump was billed as being an actual Hitler, an anti-Semite (with a Jewish son-in-law) a mega racist (which curiously never previously came to light) who was going to unleash Armageddon on LGBT people. I'd say he's a jerk and a hypermeganarcissist, but the world keeps turning. My life really didn't change much through any of them (except my retirement investment accounts were screaming upward prior to March). 1 1 Quote Link to comment Share on other sites More sharing options...
mmeyer17 Posted November 18, 2020 Share Posted November 18, 2020 The pro rata rule will definitely get you if you convert all of the 401k and 403b funds to an IRA the same year as doing the backdoor Roth. The calculation will be made on total assets in IRA accounts, so you will pay more taxes than necessary if you bring your assets over before doing the Roth conversion. The best way to go about it would be to fund the IRA with the $12k and then convert to Roth in 2020, and consolidate the other retirement accounts into the IRA in 2021. The benefit of having them in an IRA is lower fees and a wider array of investment options. Your Edwards Jones guy also benefits from you having those assets in an IRA (where he can manage them and take fees) vs in a 401k/403b (where he can't manage them), which is probably why he thinks they should be moved sooner rather than later. 1 Quote Link to comment Share on other sites More sharing options...
ohiovolffemtp Posted November 18, 2020 Share Posted November 18, 2020 Another thing you should definitely do is contribute to an HSA if you have a high deductible health plan. The money there is contributed pre-tax, i.e. reduces your taxable income. For those under 55, the contribution is $3,550 for an individual and $7,100 for a family. Being over 55 permits you to contribute another $1,000. This money can be withdrawn without tax to pay for healthcare expenses. After reaching age 65, it can also be withdrawn for any other purpose like an IRA withdrawal and is taxable, but is still tax-free if used for healthcare. So, it becomes like another IRA. 2 Quote Link to comment Share on other sites More sharing options...
MSPAC2 Posted November 18, 2020 Share Posted November 18, 2020 2 hours ago, ohiovolffemtp said: Another thing you should definitely do is contribute to an HSA if you have a high deductible health plan. The money there is contributed pre-tax, i.e. reduces your taxable income. For those under 55, the contribution is $3,550 for an individual and $7,100 for a family. Being over 55 permits you to contribute another $1,000. This money can be withdrawn without tax to pay for healthcare expenses. After reaching age 65, it can also be withdrawn for any other purpose like an IRA withdrawal and is taxable, but is still tax-free if used for healthcare. So, it becomes like another IRA. What happens to the HSA if you switch jobs that doesn’t offer it? Quote Link to comment Share on other sites More sharing options...
Mayamom Posted November 18, 2020 Share Posted November 18, 2020 My understanding is that it is portable. Quote Link to comment Share on other sites More sharing options...
ohiovolffemtp Posted November 19, 2020 Share Posted November 19, 2020 Yes, it is portable. Quote Link to comment Share on other sites More sharing options...
mgriffiths Posted November 19, 2020 Share Posted November 19, 2020 Not only is it portable, but if you have a HDHP and your employer doesn't offer an HSA you can still open one privately. 1 Quote Link to comment Share on other sites More sharing options...
GetMeOuttaThisMess Posted November 19, 2020 Share Posted November 19, 2020 On 11/18/2020 at 3:48 AM, MSPAC2 said: What happens to the HSA if you switch jobs that doesn’t offer it? Many are now advocating these HCP’s (HSA specifically) as an additional retirement vehicle since the average post-retirement health care cost is estimated at >$200K. 1 Quote Link to comment Share on other sites More sharing options...
ohiovolffemtp Posted November 20, 2020 Share Posted November 20, 2020 On 10/9/2020 at 1:05 PM, MediMike said: I have yet to see a single organization's projection showing a direct increase in taxes for anyone in my income range. If you happen to be pulling in >$400k then congrats, I'm glad it's a problem you have to worry about! "Still, Vice President Biden's current proposals feature no direct tax increases on the middle class or any household earning less than $400,000 per year. Moreover, any indirect tax increases on these households — which would stem from higher corporate taxes — would be relatively modest." - http://www.crfb.org/blogs/would-joe-biden-significantly-raise-taxes-middle-class-americans Where are you seeing anything on taxes for the lower/middle/lower-upper class going up? The increased capital gains tax. Very simply, most of the investments people hold outside of IRA's, 401K's, etc (from which withdrawals are taxed at ordinary income tax rates) are stocks or mutual funds. They're sold to pay during retirement to pay for things, making them subject to the capital gains tax. That will affect these folks when they retire. Quote Link to comment Share on other sites More sharing options...
MediMike Posted November 20, 2020 Author Share Posted November 20, 2020 14 minutes ago, ohiovolffemtp said: The increased capital gains tax. Very simply, most of the investments people hold outside of IRA's, 401K's, etc (from which withdrawals are taxed at ordinary income tax rates) are stocks or mutual funds. They're sold to pay during retirement to pay for things, making them subject to the capital gains tax. That will affect these folks when they retire. Again, I'll switch to the ED from the ICU if you're making north of $400k+ https://www.reuters.com/article/uk-factcheck-biden-capital-gains-tax-idUSKBN26Z2CA 1 Quote Link to comment Share on other sites More sharing options...
Boatswain2PA Posted November 23, 2020 Share Posted November 23, 2020 On 10/8/2020 at 11:39 AM, MediMike said: Example 2: We roll over my old retirement savings into an IRA, let's say it's $88,000. This of course was all pre-tax money. We then fund an IRA with $12,000 and convert to a Roth immediately. Another option: Roll over everything into IRA, then convert all of this pretax money into a ROTH. Use the post tax money you would have put into ROTH tthis year to pay the taxes on the conversion. Then next year you can put post tax money into your empty IRA, and do backdoor. But no, dont mix pretax and post tax retirement money. 1 Quote Link to comment Share on other sites More sharing options...
Boatswain2PA Posted November 25, 2020 Share Posted November 25, 2020 On 10/9/2020 at 12:05 PM, MediMike said: Where are you seeing anything on taxes for the lower/middle/lower-upper class going up? Everything. National debt is $27.5 Trillion, and only 125 million taxpaying Americans to pay for it. It will have gone up another million dollars in the time I type this. How do we get out of that? Growing our way out of it is now impossible. We don't have enough people/countries to buy all this debt, so the fed reserve is printing money just to loan it to us to fill the gap in need. The only way out of this is massive inflation, which (after a painful lag) will cause rapid rise in income. So while you may think it's just the rich today who make >$400K, I don't see ANY way that in the near future this will be anything other than a modest income. Suddenly we are all paying that maximum tax rate.... Biden is one of the most centrist players in the Democrat party. Most of the rest of the party has gone hard left and wants to tax everything to give free everything to everyone (starting with free healthcare, free college, and paying off student loans). Biden will also be 78 years old at inauguration (if he makes it that long). Low chance he completes his first term, which leaves us with Harris who by some (admittedly biased) sources was the furthest left Senator (even left of Komrad Bernie). Speaking of Bernie. There are already 800,000 mail-in ballots requested in the Georgia senate run-off. That's 8% of the POPULATION of the state. Yeah, I know, dems/lefty's will say "there's no fraud in mail-in ballots". The reality is we have lost control of who votes. Without voter identification/in-person-voting there will be (if there isn't already) widespread voter fraud. I think the Dems will gain both seats in the Senate. This leaves Komrad Bernie, the guy who HONEYMOONED in the USSR (not Russia, but the actual USSR), who will be the Chairman of the Senate Budget Committee. Minor correction. Our national debt has gone up $3,000,000 since I started typing this. Quote Link to comment Share on other sites More sharing options...
Moderator EMEDPA Posted November 25, 2020 Moderator Share Posted November 25, 2020 On 10/9/2020 at 12:43 PM, CJAadmission said: That's what I really kind of laugh about in all this. Finally, Trump was billed as being ..... a mega racist (which curiously never previously came to light) You're kidding, right? Since his earliest days in real estate he has been refusing to let black folks live in some of his properties or have black contractors work on his buildings or his yachts. This was all known before the 2016 election. https://www.vox.com/2016/7/25/12270880/donald-trump-racist-racism-history 1 1 Quote Link to comment Share on other sites More sharing options...
Boatswain2PA Posted November 25, 2020 Share Posted November 25, 2020 9 hours ago, EMEDPA said: This was all known before the 2016 election. https://www.vox.com/2016/7/25/12270880/donald-trump-racist-racism-history This article has all the elements of a biased opinion piece instead of an actual news article. "On the campaign trail, Trump repeatedly made explicitly racist and otherwise bigoted remarks, from calling Mexican immigrants criminals and rapists, to proposing a ban on all Muslims entering the US, to suggesting a judge should recuse himself from a case solely because of the judge’s Mexican heritage. The trend has continued into his presidency. From stereotyping a Black reporter to pandering to white supremacists after they held a violent rally in Charlottesville, Virginia, to making a joke about the Trail of Tears, Trump hasn’t stopped with racist acts after his 2016 election. Most recently, Trump has called the SARS-CoV-2 coronavirus the “Chinese virus” and “kung flu” — racist terms that tap into the kind of xenophobia that he latched onto during his 2016 presidential campaign;"If you have the same intense bias as the reporter does, then this paragraph makes you feel good as it legitimizes what you already feel: Trump is a racist/bigot/xenophobe (don't forget transphobe, anti-semite, mysogenist...and throw in anything else your heart desires to make you feel better about hating him). If you LOVE Trump, then all of this of course is easily explained away because the reporter is so bad at being an actual REPORTER that they have taken so many things out of context, and twisted them in the most negative way possible, that this paragraph makes you feel good as it legitimizes what you already feel: Trump is America's savior and the media is evil/dishonest/fake/enemies of the state/part of the deep state....and throw in anything else your heart desires to make you feel better about hating them. I think in reality (if our emotions can allow some reality) this article highlights how terrible Trump is, AND how terrible much of our "media" is. Regarding the original two DOJ lawsuits against Trump LLC, even the NYT says "In fairness, those suits date from long ago, and the discriminatory policies were probably put in place not by Donald Trump but by his father. " https://www.nytimes.com/2016/07/24/opinion/sunday/is-donald-trump-a-racist.html Quote Link to comment Share on other sites More sharing options...
Boatswain2PA Posted November 25, 2020 Share Posted November 25, 2020 On 10/9/2020 at 12:05 PM, MediMike said: I have yet to see a single organization's projection showing a direct increase in taxes for anyone in my income range. Here's another one for you. Straight from Joe's website: Regulate possession of existing assault weapons under the National Firearms Act. Currently, the National Firearms Act requires individuals possessing machine-guns, silencers, and short-barreled rifles to undergo a background check and register those weapons with the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). Due to these requirements, such weapons are rarely used in crimes. As president, Biden will pursue legislation to regulate possession of existing assault weapons under the National Firearms Act. Nope, not exactly a tax. But if you have to register your firearm (and all magazines in excess of 10 rounds), it costs $200 per item to register class 3 weapons. How many folks making <$400K/year have scary looking semi-automatic weapons and magazines that carry greater than 10 rounds? Oh, and that would include your 13 round glock magazines.....$200 registration fee please (for EACH magazine). I sure don't have any. Lost them all overboard a few years ago. Quote Link to comment Share on other sites More sharing options...
Boatswain2PA Posted November 25, 2020 Share Posted November 25, 2020 (edited) On 10/9/2020 at 12:05 PM, MediMike said: I have yet to see a single organization's projection showing a direct increase in taxes for anyone in my income range. He promises to repeal Trump's tax cuts. The Trump tax cuts included the 20% "pass through" deduction for independent contractors (that is a lot of us) who made LESS than $400K a year (specifically, I think it was ONLY for 1099 contractors who made LESS than $400K/year). So, if you are a small businessperson or 1099 contractor, Biden will take away your 20% deduction. Yeah, taxes are going up for a lot of people making less than $400K/year. Many of us here will have much higher taxes due to Biden/Harris administration (especially if both Georgia seats go blue). Edited November 25, 2020 by Boatswain2PA Quote Link to comment Share on other sites More sharing options...
Boatswain2PA Posted November 25, 2020 Share Posted November 25, 2020 (edited) On 10/9/2020 at 12:05 PM, MediMike said: I have yet to see a single organization's projection showing a direct increase in taxes for anyone in my income range. How about Wharton business school?https://budgetmodel.wharton.upenn.edu/issues/2020/3/6/biden-social-security We've already talked about the pending inflation/weak dollar that is going to come. You are already maxing out your social security payroll tax by making over $137,700. (For the novices, after you make $137,700, you and your employer stop paying the 12.4% social security tax on additional income. No, this isn't set up to benefit the rich, it's because social security doesn't want to have to pay us rich folks a large amount of benefits when we retire early). Biden's tax plan restarts this after $400K creating a donut hole for earners making between $137,700 and $400K. But there's a catch, the donut hole is designed to close with increases in the $137,700 limit over time until it catches the $400K. In other words, in the future EVERYONE will be forced to pay the 12.4% social security tax on 100% of their income. By the way, notice their key point that the Biden tax plan is going to reduce our GDP by 0.6% by 2030 and 0.8% by 2050. Absolutely no way we will be able to grow our way out of our debt. Edited November 25, 2020 by Boatswain2PA Quote Link to comment Share on other sites More sharing options...
JoeM Posted November 25, 2020 Share Posted November 25, 2020 11 hours ago, Boatswain2PA said: Everything. National debt is $27.5 Trillion, and only 125 million taxpaying Americans to pay for it. It will have gone up another million dollars in the time I type this. How do we get out of that? Growing our way out of it is now impossible. We don't have enough people/countries to buy all this debt, so the fed reserve is printing money just to loan it to us to fill the gap in need. The only way out of this is massive inflation, which (after a painful lag) will cause rapid rise in income. So while you may think it's just the rich today who make >$400K, I don't see ANY way that in the near future this will be anything other than a modest income. Suddenly we are all paying that maximum tax rate.... Biden is one of the most centrist players in the Democrat party. Most of the rest of the party has gone hard left and wants to tax everything to give free everything to everyone (starting with free healthcare, free college, and paying off student loans). Biden will also be 78 years old at inauguration (if he makes it that long). Low chance he completes his first term, which leaves us with Harris who by some (admittedly biased) sources was the furthest left Senator (even left of Komrad Bernie). Speaking of Bernie. There are already 800,000 mail-in ballots requested in the Georgia senate run-off. That's 8% of the POPULATION of the state. Yeah, I know, dems/lefty's will say "there's no fraud in mail-in ballots". The reality is we have lost control of who votes. Without voter identification/in-person-voting there will be (if there isn't already) widespread voter fraud. I think the Dems will gain both seats in the Senate. This leaves Komrad Bernie, the guy who HONEYMOONED in the USSR (not Russia, but the actual USSR), who will be the Chairman of the Senate Budget Committee. Minor correction. Our national debt has gone up $3,000,000 since I started typing this. What is your definition of who should be able to vote? 1 Quote Link to comment Share on other sites More sharing options...
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