{ "media_type": "text", "post_content": "If I’m confident that taxes will be higher in the future, would it make more sense to use a mega backdoor Roth IRA conversion and not contribute to a 401k at all? I’m in high tax state and our family MAGI prevents direct Roth IRA contributions.", "post_id": "5ebefd5580db620021c83cfb", "reply_count": 9, "vote_count": 1, "bowl_id": "59064a3cb12379001006592c", "bowl_name": "Personal Investment Chatter", "feed_type": "bowl" }

If I’m confident that taxes will be higher in the future, would it make more sense to use a mega backdoor Roth IRA conversion and not contribute to a 401k at all? I’m in high tax state and our family MAGI prevents direct Roth IRA contributions.

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1) you can contribute to a Roth IRA via “backdoor Roth” once you exceed the income limit

2) you should definitely do mega backdoor Roth, be careful not to exceed the total ~$60k limit though, I did and it sucks. Also do in service distributions for the rollover

3) for the first $18-19k you should still do traditional 401k. It doesn’t even matter whether taxes go up, your AGI is so low in retirement that you will be able to do withdrawals at zero or very minor tax rates. See Roth Conversion Ladders for more details

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Re. #2) does the brokerage/administrator not stop the contributions automatically when you hit your limit? Also why do you recommend in service vs. Rolling over on your own? How frequently do you do your inservice rollovers?

It's hard to predict with so many cooks in the kitchen. Choose the one that will best net you out the most return. You can always shuffle it into a Roth in the future.

So if you're phased out of a tIRA deduction, there is no benefit of contributing to a tIRA and not doing the Roth conversion.

If you have after-tax money in your 401k there is no reason not to do the mega back door conversion.

And I say this very generally. Of course you need to look into limits, tax implications of you've waited to do the conversion, etc.

If you have access to the mega-backdoor you should absolutely do it! That in conjunction with a regular (non-Roth) 401k is the best combination as you would be able to never pay tax on your (t) 401k contributions.

For Mega back door, should it happen in the same brokerage account ? For example, if I have 401k in fidelity, can I move my after tax dollar to vanguard’s IRA and use mega back door?

Sure

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