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Hello guys, I need u r help. I havev3.5 years of experience in us healthcare. I want to work as a BA. I have prepared it from YouTube. After getting proper understanding. I joined skill nation 5 days work shop, for SQL & Business analysis basics. But my problem is I am not able to crack the interview. I am very good exposure in us healthcare. Please give u r advices... thanks in advance... HCL Technologies Wipro Citiustech Healthcare Technologies Accenture Optum Infosys Cognizant
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@D2 - yes, if paying tax prior is an advantageous your case.
Remember:
Principle x Interest x Time x Income Tax =
Income Tax x Principle x Interest x Time
The game is:
1. What will your tax liability (rate) be today vs the future?
a. Will rates increase, decrease, or stay the same?
b. Will your income increase, decrease, or stay the same? (Bracket change)
The answer relies on the quality of your magic 8 ball. 🤷🏼♂️
I did... but was confused with articles discussing 401k limits, i.e., pre tax up to $18k, but then can contribute additional post-tax up to the IRS limit of $53k, with post-tax earnings tax deferred. My confusion was if those post-tax earnings are tax deferred, does that mean you do not pay taxes on them when withdrawn? No need for the snarky comment, D1. Trying to better understand this...
This is interesting info, thanks K1. Just to be explicit, a true Roth 401k has the same lack of capital gains as the traditional 401k but has the advantage of paying income tax when you contribute and not when you withdraw during retirement... right?
P1 - I haven't used an after tax actually, just wanted to understand it. However, similar to Maslow's hierarchy of needs, I use a similar methodology to saving/investing, post spending plan (budget based on rules of thumb expense percentages)
1. Savings (9 months expenses)
2. 401k to get match (I prefer Roth)
3. Max IRA (I prefer Roth)
4. Max 401k
5. Max HSA (Invest in aggressive funds)
6. Min to 529 (Ya never know)
7. All surplus to brokerage (Asset allocation a separate discussion)
As your portfolio grows, some things will also change slightly, for example, I wanted to maintain a cash or cash-equivalents position in my portfolio. After a lot of research and deliberation I chose10% of the portfolio to keep in cash. By this point, 10% exceeded the 9 months of expenses measurement I used originally.
However, to your question, I would follow the above steps, and at some point when you have the means, make an effort to Max the after tax account on top of the others. I myself am thinking through initiating it now.
OP-
1. correct on my recommendations. Reason being, the after tax is taxable until you convert it to a Roth IRA, so why do it if you don't have to? Get the accounts that are already shielded from tax first.
2. Sounds like that's not a rollover you found, but withdrawal. The rollover just means putting it in a dif retirement account, so no harm no foul.
A1 - your financial advisor was most surely talking about "Roth" (as in Roth vs Traditional) and not "After Tax" (which is different as described above)
And his/her analysis to your future earnings is the "magic 8 ball" I was referring to.
@K1 thanks for the insight
Pre = Traditional, Post = Roth. Just google it
Been a while since this topic has been around.
After tax 401k is NOT a Roth 401k. And it allows you to increase your contributions to a combined $53k per year. Yes, $53k instead of $18k!!!
Here's the deal tho, after tax 401k's get taxed on earnings. Whoever created this account must have been reading about 401k's on MSN or something, where they explain the benefit as "deferred taxes" which is NOT a benefit!
The benefit to a 401k or IRA (Roth or Traditional) is to be shielded from ALL capital gains tax.
So how is an after tax 401k useful? By rolling it into an IRA which DOES shield it from capital gains tax. You can do this with your account open in what's called an "in service transfer" or you can do it after you close the account.
It's a great way to increase your tax free earnings if you have the means! 👍🏼
Thanks for that details explanation KPMG. So the only benefit to continuation only to a Post-Tax 401k is for down the road when converting to a Roth IRA. But all capital gains until then are taxable, and would push into a Traditional IRA when rolled over? So instead of being taxed on both the contribution and gains down the road, you are only taxed on the gains?
When you roll it over ALL of it will go into a Roth.
Capital gains on this account are taxable, and you would include any capital gain tax, after you sell, in that year's tax liability.
The roll over does not have to be down the road, you can do it while you have the account open and are still employed through an "in service transfer".
There is a limit on how many times you can roll over per year (I believe) but the sooner you get it rolled over the better.
I see. That definitely helped clear things up! Thanks a ton KPMG
So you wouldn't recommend contributing a percentage to after-tax 401k until you have the means to max out the general rule of thumb listed above, and then the additional monies to contribute to the the aftertax account? PwC doesn't have a Roth 401k option, only pre and post tax 401k.
Did some research today on in service 401k rollovers since I have money in the after tax account, but looks like there is an IRS 59 1/2 age limit. Am I looking up the wrong options?
KPMG, thanks a ton for fielding all of these questions!
Essentially my questions is, is that tax deferred benefit on post-tax dollars only for what is above the $18k pre-tax limit...
@K1 what percentage do you contribute to pre vs after tax? Seems like everyone's case is different but curious the breakdown for someone as knowledgable as yourself
For what it's worth - (I am probably vastly over simplifying it) - I spoke to my financial advisor and he recommended that I contribute only post-tax. The reasoning as he explained it to me, was that as someone just starting out in my career, there is a high probability that in the future I will be earning more, and be in a higher tax bracket than I currently am.