Types of Retirement Accounts: Which one to invest now?

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Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

I have always been investing in a traditional 401k and Roth IRA.

Is this the correct tax efficient approach? No one knows what my taxes will be at retirement. I am a 43 years male, Single, no kids.

So what annual salary now would you recommend the 2 types of account now and at what salary would you switch?
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David Jay
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Re: Types of Retirement Accounts: Which one to invest now?

Post by David Jay »

You have never posted your portfolio, so we don't really have enough information.

I will assume that your 401K plan only provides for pre-tax contributions. If this is the case and your marginal tax rate (tax rate on the last dollar you earn) is 22% or less, here is what I would recommend:
1. 401K to get employer match - if any (not all employers offer a match)
2. Roth IRA to $6000
2. 401K with any additional savings

If your company offers a Roth 401K then the recommendation may change. If your marginal tax rate is higher than 24%, the recommendation would almost certainly change.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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ruralavalon
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Re: Types of Retirement Accounts: Which one to invest now?

Post by ruralavalon »

Vanguard User wrote: Sun Jun 20, 2021 7:28 pm I have always been investing in a traditional 401k and Roth IRA.

Is this the correct tax efficient approach? No one knows what my taxes will be at retirement. I am a 43 years male, Single, no kids.

So what annual salary now would you recommend the 2 types of account now and at what salary would you switch?
Most people without both a pension will probably be in a lower tax bracket in retirement. For most people without a pension traditional 401k contributions will likely be better. But that depends.

Will you be eligible for both a significant pension and Social Security benefits? About how much do you currently have in traditional tax-deferred accounts? What is your profession or occupation? What is your current tax bracket, both federal and state? About how much (in dollars) do you contribute annually to investing? You are age 43, at what age do you expect that you might retire?

Please simply add this to your original post using the edit (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
Last edited by ruralavalon on Sun Jun 20, 2021 8:14 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

David Jay wrote: Sun Jun 20, 2021 8:02 pm You have never posted your portfolio, so we don't really have enough information.

I will assume that your 401K plan only provides for pre-tax contributions. If this is the case and your marginal tax rate (tax rate on the last dollar you earn) is 22% or less, here is what I would recommend:
1. 401K to get employer match - if any (not all employers offer a match)
2. Roth IRA to $6000
2. 401K with any additional savings

If your company offers a Roth 401K then the recommendation may change. If your marginal tax rate is higher than 24%, the recommendation would almost certainly change.
My employer offers both Traditional 401k and Roth 401k. I always used the Traditional 401k pre-tax. My tax bracket is indeed 22%. My employer matches $1 to $1 to 6%.

What is 401k with any additional savings? I know my plan once had this Savings Starter in it but that got discontinued.
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

ruralavalon wrote: Sun Jun 20, 2021 8:08 pm
Vanguard User wrote: Sun Jun 20, 2021 7:28 pm I have always been investing in a traditional 401k and Roth IRA.

Is this the correct tax efficient approach? No one knows what my taxes will be at retirement. I am a 43 years male, Single, no kids.

So what annual salary now would you recommend the 2 types of account now and at what salary would you switch?
Most people without both a pensions Social Security benefits will probably be in a lower tax bracket in retirement. For most people without a pension traditional 401k contributions will likely be better. But that depends.

Will you be eligible for both a significant pension and Social Security benefits? About how much do you currently have in traditional tax-deferred accounts? What is your profession or occupation? What is your current tax bracket, both federal and state? About how much (in dollars) do you contribute annually to investing? You are age 43, at what age do you expect that you might retire?

Please simply add this to your original post using the edit (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
I never had a Pension but will get SS benefits when I tap into it. I am looking to F.I.R.E between age 55-60.

I have $368,872.31 in my traditional 401k.
I have $141,035.35 in my Roth IRA.
I am in Support and Sales and I work from home.
22% Tax Bracket.
0% State Tax in Texas.
I contribute $19.5k max allowed for traditional 401k and $6k max allowed into my Roth IRA. Whatever is left over goes to Vanguard taxable VTSAX account.
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David Jay
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Re: Types of Retirement Accounts: Which one to invest now?

Post by David Jay »

Vanguard User wrote: Sun Jun 20, 2021 8:13 pmWhat is 401k with any additional savings?
I meant, up to $19,500. I see in your reply to "ruralavalon" that you are already contributing $19.5K, so this does not apply.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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ruralavalon
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Re: Types of Retirement Accounts: Which one to invest now?

Post by ruralavalon »

Vanguard User wrote: Sun Jun 20, 2021 8:19 pm
ruralavalon wrote: Sun Jun 20, 2021 8:08 pm
Vanguard User wrote: Sun Jun 20, 2021 7:28 pm I have always been investing in a traditional 401k and Roth IRA.

Is this the correct tax efficient approach? No one knows what my taxes will be at retirement. I am a 43 years male, Single, no kids.

So what annual salary now would you recommend the 2 types of account now and at what salary would you switch?
Most people without both a pensions Social Security benefits will probably be in a lower tax bracket in retirement. For most people without a pension traditional 401k contributions will likely be better. But that depends.

Will you be eligible for both a significant pension and Social Security benefits? About how much do you currently have in traditional tax-deferred accounts? What is your profession or occupation? What is your current tax bracket, both federal and state? About how much (in dollars) do you contribute annually to investing? You are age 43, at what age do you expect that you might retire?

Please simply add this to your original post using the edit (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
I never had a Pension but will get SS benefits when I tap into it. I am looking to F.I.R.E between age 55-60.

I have $368,872.31 in my traditional 401k.
I have $141,035.35 in my Roth IRA.
I am in Support and Sales and I work from home.
22% Tax Bracket.
0% State Tax in Texas.
I contribute $19.5k max allowed for traditional 401k and $6k max allowed into my Roth IRA. Whatever is left over goes to Vanguard taxable VTSAX account.
I suggest traditional 401k contributions.

The income tax code is progressive, with a lower tax rate for lower income. Retirement usually means that employment income has ended. Therefore, most people are in a lower tax bracket in retirement and for most people traditional deductible 401k contributions will probably be better.

Because the tax code is progressive, when you withdraw from your 401k in retirement the income is not all taxed at the marginal tax rate specified for your tax bracket. TFB blog post, "The case against Roth 401k". Because the tax code is progressive, "Until you know you can generate from your Traditional 401(k) enough income to fill the lower brackets, it doesn’t make sense to contribute to a Roth 401(k)." You currently have just $369k in a traditional tax-deferred account. "For people without a traditional defined benefit pension plan, it means the majority of the retirement savings should go to a Traditional 401(k), not Roth."

Wiki article, "Traditional vs Roth".

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA." Please see the wiki article "Prioritizing investments", link. Although you haven't stated the expense ratios of the funds offered in your employer's 401k plan, it seems that good funds are offered in that plan, link.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

David Jay wrote: Sun Jun 20, 2021 8:36 pm
Vanguard User wrote: Sun Jun 20, 2021 8:13 pmWhat is 401k with any additional savings?
I meant, up to $19,500. I see in your reply to "ruralavalon" that you are already contributing $19.5K, so this does not apply.
Oh ok.
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

ruralavalon wrote: Sun Jun 20, 2021 8:38 pm
Vanguard User wrote: Sun Jun 20, 2021 8:19 pm
ruralavalon wrote: Sun Jun 20, 2021 8:08 pm
Vanguard User wrote: Sun Jun 20, 2021 7:28 pm I have always been investing in a traditional 401k and Roth IRA.

Is this the correct tax efficient approach? No one knows what my taxes will be at retirement. I am a 43 years male, Single, no kids.

So what annual salary now would you recommend the 2 types of account now and at what salary would you switch?
Most people without both a pensions Social Security benefits will probably be in a lower tax bracket in retirement. For most people without a pension traditional 401k contributions will likely be better. But that depends.

Will you be eligible for both a significant pension and Social Security benefits? About how much do you currently have in traditional tax-deferred accounts? What is your profession or occupation? What is your current tax bracket, both federal and state? About how much (in dollars) do you contribute annually to investing? You are age 43, at what age do you expect that you might retire?

Please simply add this to your original post using the edit (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
I never had a Pension but will get SS benefits when I tap into it. I am looking to F.I.R.E between age 55-60.

I have $368,872.31 in my traditional 401k.
I have $141,035.35 in my Roth IRA.
I am in Support and Sales and I work from home.
22% Tax Bracket.
0% State Tax in Texas.
I contribute $19.5k max allowed for traditional 401k and $6k max allowed into my Roth IRA. Whatever is left over goes to Vanguard taxable VTSAX account.
I suggest traditional 401k contributions.

The income tax code is progressive, with a lower tax rate for lower income. Retirement usually means that employment income has ended. Therefore, most people are in a lower tax bracket in retirement and for most people traditional deductible 401k contributions will probably be better.

Because the tax code is progressive, when you withdraw from your 401k in retirement the income is not all taxed at the marginal tax rate specified for your tax bracket. TFB blog post, "The case against Roth 401k". Because the tax code is progressive, "Until you know you can generate from your Traditional 401(k) enough income to fill the lower brackets, it doesn’t make sense to contribute to a Roth 401(k)." You currently have just $369k in a traditional tax-deferred account. "For people without a traditional defined benefit pension plan, it means the majority of the retirement savings should go to a Traditional 401(k), not Roth."

Wiki article, "Traditional vs Roth".

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA." Please see the wiki article "Prioritizing investments", link. Although you haven't stated the expense ratios of the funds offered in your employer's 401k plan, it seems that good funds are offered in that plan, link.
85% FXAIX.
15% VSCPX.

Above 2 index funds in 401k.
Looks like I don’t need to change 401k to Roth 401k.
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ruralavalon
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Re: Types of Retirement Accounts: Which one to invest now?

Post by ruralavalon »

Vanguard User wrote: Sun Jun 20, 2021 10:43 pm
ruralavalon wrote: Sun Jun 20, 2021 8:38 pm
Vanguard User wrote: Sun Jun 20, 2021 8:19 pm
ruralavalon wrote: Sun Jun 20, 2021 8:08 pm
Vanguard User wrote: Sun Jun 20, 2021 7:28 pm I have always been investing in a traditional 401k and Roth IRA.

Is this the correct tax efficient approach? No one knows what my taxes will be at retirement. I am a 43 years male, Single, no kids.

So what annual salary now would you recommend the 2 types of account now and at what salary would you switch?
Most people without both a pensions Social Security benefits will probably be in a lower tax bracket in retirement. For most people without a pension traditional 401k contributions will likely be better. But that depends.

Will you be eligible for both a significant pension and Social Security benefits? About how much do you currently have in traditional tax-deferred accounts? What is your profession or occupation? What is your current tax bracket, both federal and state? About how much (in dollars) do you contribute annually to investing? You are age 43, at what age do you expect that you might retire?

Please simply add this to your original post using the edit (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
I never had a Pension but will get SS benefits when I tap into it. I am looking to F.I.R.E between age 55-60.

I have $368,872.31 in my traditional 401k.
I have $141,035.35 in my Roth IRA.
I am in Support and Sales and I work from home.
22% Tax Bracket.
0% State Tax in Texas.
I contribute $19.5k max allowed for traditional 401k and $6k max allowed into my Roth IRA. Whatever is left over goes to Vanguard taxable VTSAX account.
I suggest traditional 401k contributions.

The income tax code is progressive, with a lower tax rate for lower income. Retirement usually means that employment income has ended. Therefore, most people are in a lower tax bracket in retirement and for most people traditional deductible 401k contributions will probably be better.

Because the tax code is progressive, when you withdraw from your 401k in retirement the income is not all taxed at the marginal tax rate specified for your tax bracket. TFB blog post, "The case against Roth 401k". Because the tax code is progressive, "Until you know you can generate from your Traditional 401(k) enough income to fill the lower brackets, it doesn’t make sense to contribute to a Roth 401(k)." You currently have just $369k in a traditional tax-deferred account. "For people without a traditional defined benefit pension plan, it means the majority of the retirement savings should go to a Traditional 401(k), not Roth."

Wiki article, "Traditional vs Roth".

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA." Please see the wiki article "Prioritizing investments", link. Although you haven't stated the expense ratios of the funds offered in your employer's 401k plan, it seems that good funds are offered in that plan, link.
85% FXAIX.
15% VSCPX.

Above 2 index funds in 401k.
Looks like I don’t need to change 401k to Roth 401k.
Correct.

Any additional investing can be a in a taxable brokerage account at a low cost fund firm like Vanguard, Fidelity or Schwab invested in very tax-efficient stock index funds. Wiki article "Tax-efficient Fund Placement", link. Examples include Vanguard Total Stock Market Index Fund (VTSAX) ER 0.04%and Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

I got this email today from Fidelity:


NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.

So there is a limit of $10k?
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

ruralavalon wrote: Mon Jun 21, 2021 7:52 am
Vanguard User wrote: Sun Jun 20, 2021 10:43 pm
ruralavalon wrote: Sun Jun 20, 2021 8:38 pm
Vanguard User wrote: Sun Jun 20, 2021 8:19 pm
ruralavalon wrote: Sun Jun 20, 2021 8:08 pm
Most people without both a pensions Social Security benefits will probably be in a lower tax bracket in retirement. For most people without a pension traditional 401k contributions will likely be better. But that depends.

Will you be eligible for both a significant pension and Social Security benefits? About how much do you currently have in traditional tax-deferred accounts? What is your profession or occupation? What is your current tax bracket, both federal and state? About how much (in dollars) do you contribute annually to investing? You are age 43, at what age do you expect that you might retire?

Please simply add this to your original post using the edit (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
I never had a Pension but will get SS benefits when I tap into it. I am looking to F.I.R.E between age 55-60.

I have $368,872.31 in my traditional 401k.
I have $141,035.35 in my Roth IRA.
I am in Support and Sales and I work from home.
22% Tax Bracket.
0% State Tax in Texas.
I contribute $19.5k max allowed for traditional 401k and $6k max allowed into my Roth IRA. Whatever is left over goes to Vanguard taxable VTSAX account.
I suggest traditional 401k contributions.

The income tax code is progressive, with a lower tax rate for lower income. Retirement usually means that employment income has ended. Therefore, most people are in a lower tax bracket in retirement and for most people traditional deductible 401k contributions will probably be better.

Because the tax code is progressive, when you withdraw from your 401k in retirement the income is not all taxed at the marginal tax rate specified for your tax bracket. TFB blog post, "The case against Roth 401k". Because the tax code is progressive, "Until you know you can generate from your Traditional 401(k) enough income to fill the lower brackets, it doesn’t make sense to contribute to a Roth 401(k)." You currently have just $369k in a traditional tax-deferred account. "For people without a traditional defined benefit pension plan, it means the majority of the retirement savings should go to a Traditional 401(k), not Roth."

Wiki article, "Traditional vs Roth".

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA." Please see the wiki article "Prioritizing investments", link. Although you haven't stated the expense ratios of the funds offered in your employer's 401k plan, it seems that good funds are offered in that plan, link.
85% FXAIX.
15% VSCPX.

Above 2 index funds in 401k.
Looks like I don’t need to change 401k to Roth 401k.
Correct.

Any additional investing can be a in a taxable brokerage account at a low cost fund firm like Vanguard, Fidelity or Schwab invested in very tax-efficient stock index funds. Wiki article "Tax-efficient Fund Placement", link. Examples include Vanguard Total Stock Market Index Fund (VTSAX) ER 0.04%and Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%.
I use the Vanguard taxable account VTSAX 100%.
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KingRiggs
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Re: Types of Retirement Accounts: Which one to invest now?

Post by KingRiggs »

I agree with posters above. In your tax bracket and contribution level, my order of investment would be:

1) Pre-tax 401k up to the match
2) Roth IRA up to the limit ($6k or $7k depending on age)
3) Max out the rest of the 401k (up to $19,500)
4) HSA if you can enroll in an eligible health care plan
5) Anything else in your taxable brokerage account at Vanguard.

There are only so many ways to save on taxes. Once you've maxed them, just keep investing as you are. VTSAX in a taxable account is very tax-friendly.
Advice = noun | Advise = verb | | Roth, not ROTH | | "Remember, there's always money in the banana stand." - George Bluth, Sr.
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

KingRiggs wrote: Mon Jun 21, 2021 3:01 pm I agree with posters above. In your tax bracket and contribution level, my order of investment would be:

1) Pre-tax 401k up to the match
2) Roth IRA up to the limit ($6k or $7k depending on age)
3) Max out the rest of the 401k (up to $19,500)
4) HSA if you can enroll in an eligible health care plan
5) Anything else in your taxable brokerage account at Vanguard.

There are only so many ways to save on taxes. Once you've maxed them, just keep investing as you are. VTSAX in a taxable account is very tax-friendly.
I never had HSA. Deductible on medical insurance is $800.
mikejuss
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Re: Types of Retirement Accounts: Which one to invest now?

Post by mikejuss »

Vanguard User wrote: Mon Jun 21, 2021 2:15 pm I got this email today from Fidelity:


NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.

So there is a limit of $10k?
Congrats--that's a sweet deal. You should definitely try to max out your pretax contributions ($19,500) and then to max out your extra contributions ($10,000).

This makes me wonder: how many Bogleheads have the option to make extra 401(k) contributions (ie, above the $19,500 threshold)? This seems like a very rare thing. Am I wrong about that?
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

mikejuss wrote: Mon Jun 21, 2021 3:09 pm
Vanguard User wrote: Mon Jun 21, 2021 2:15 pm I got this email today from Fidelity:


NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.

So there is a limit of $10k?
Congrats--that's a sweet deal. You should definitely try to max out your pretax contributions ($19,500) and then to max out your extra contributions ($10,000).

This makes me wonder: how many Bogleheads have the option to make extra 401(k) contributions (ie, above the $19,500 threshold)? This seems like a very rare thing. Am I wrong about that?
So what has changed? It’s an after tax up to $10k and no match. This isn’t different than me investing currently at a Vanguard taxable account with VTSAX and since when there was a $10k limit?
mikejuss
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Re: Types of Retirement Accounts: Which one to invest now?

Post by mikejuss »

Vanguard User wrote: Mon Jun 21, 2021 3:15 pm
mikejuss wrote: Mon Jun 21, 2021 3:09 pm
Vanguard User wrote: Mon Jun 21, 2021 2:15 pm I got this email today from Fidelity:


NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.

So there is a limit of $10k?
Congrats--that's a sweet deal. You should definitely try to max out your pretax contributions ($19,500) and then to max out your extra contributions ($10,000).

This makes me wonder: how many Bogleheads have the option to make extra 401(k) contributions (ie, above the $19,500 threshold)? This seems like a very rare thing. Am I wrong about that?
So what has changed? It’s an after tax up to $10k and no match. This isn’t different than me investing currently at a Vanguard taxable account with VTSAX and since when there was a $10k limit?
I believe--and Bogleheads wiser than mine can confirm--that the extra 401(k) money can be rolled over to your Roth IRA with no tax consequences and can grow tax-free in that account (unlike in your taxable account). I don't know why the limit is $10,000.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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ruralavalon
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Re: Types of Retirement Accounts: Which one to invest now?

Post by ruralavalon »

Vanguard User wrote: Mon Jun 21, 2021 2:15 pm I got this email today from Fidelity:


NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.

So there is a limit of $10k?
Does your employer's 401k plan permit non-Roth after-tax contributions? (The notice you received sounds like it.)

Also does your employer's 401k plan permit either (a) such contributions to be distributed while you are still working there (“in-service distribution”) or (b) the non-Roth after-tax contributions to be rolled over to the Roth 401k part of the plan (“in-plan Roth rollover”)?

TFB blog post "The Elusive Mega Backdoor Roth", link.

The White Coat Investor "The Mega Backdoor Roth IRA", link
Last edited by ruralavalon on Mon Jun 21, 2021 3:53 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
Vanguard User
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

mikejuss wrote: Mon Jun 21, 2021 3:24 pm
Vanguard User wrote: Mon Jun 21, 2021 3:15 pm
mikejuss wrote: Mon Jun 21, 2021 3:09 pm
Vanguard User wrote: Mon Jun 21, 2021 2:15 pm I got this email today from Fidelity:


NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.

So there is a limit of $10k?
Congrats--that's a sweet deal. You should definitely try to max out your pretax contributions ($19,500) and then to max out your extra contributions ($10,000).

This makes me wonder: how many Bogleheads have the option to make extra 401(k) contributions (ie, above the $19,500 threshold)? This seems like a very rare thing. Am I wrong about that?
So what has changed? It’s an after tax up to $10k and no match. This isn’t different than me investing currently at a Vanguard taxable account with VTSAX and since when there was a $10k limit?
I believe--and Bogleheads wiser than mine can confirm--that the extra 401(k) money can be rolled over to your Roth IRA with no tax consequences and can grow tax-free in that account (unlike in your taxable account). I don't know why the limit is $10,000.
Rolled over to Roth IRA meaning I can contribute $16k a year into it? If so, this is a game changer and it would be all over news media.
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

This was my email:


GET YOUR FULL COMPANY MATCH CONTRIBUTION WITH PRETAX AND ROTH

Consider contributing at least 6% of your pay in pretax and/or Roth contributions to receive the maximum Company match. Company will match dollar for dollar up to 6% of your pretax and/or Roth contributions. That’s “free” money!


LOOKING TO SAVE MORE?

Consider contributing up to the annual IRS dollar limit of $19,500 ($26,000 if you are 50 or older) in pretax and/or Roth.

NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.


NEW! ROTH IN-PLAN CONVERSION

If you choose to make after-tax contributions, consider a Roth In-Plan Conversion of those contributions to build the most potentially tax-free income possible. The automated Roth In-Plan Conversion with Daily Sweep feature makes this simple by converting after‑tax balances automatically.
mikejuss
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Re: Types of Retirement Accounts: Which one to invest now?

Post by mikejuss »

Vanguard User wrote: Mon Jun 21, 2021 3:52 pm
mikejuss wrote: Mon Jun 21, 2021 3:24 pm
Vanguard User wrote: Mon Jun 21, 2021 3:15 pm
mikejuss wrote: Mon Jun 21, 2021 3:09 pm
Vanguard User wrote: Mon Jun 21, 2021 2:15 pm I got this email today from Fidelity:


NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.

So there is a limit of $10k?
Congrats--that's a sweet deal. You should definitely try to max out your pretax contributions ($19,500) and then to max out your extra contributions ($10,000).

This makes me wonder: how many Bogleheads have the option to make extra 401(k) contributions (ie, above the $19,500 threshold)? This seems like a very rare thing. Am I wrong about that?
So what has changed? It’s an after tax up to $10k and no match. This isn’t different than me investing currently at a Vanguard taxable account with VTSAX and since when there was a $10k limit?
I believe--and Bogleheads wiser than mine can confirm--that the extra 401(k) money can be rolled over to your Roth IRA with no tax consequences and can grow tax-free in that account (unlike in your taxable account). I don't know why the limit is $10,000.
Rolled over to Roth IRA meaning I can contribute $16k a year into it? If so, this is a game changer and it would be all over news media.
"All over news media"? Ha--not so. Check out the "Mega Backdoor Roth" threads here for more info.
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

mikejuss wrote: Mon Jun 21, 2021 3:56 pm
Vanguard User wrote: Mon Jun 21, 2021 3:52 pm
mikejuss wrote: Mon Jun 21, 2021 3:24 pm
Vanguard User wrote: Mon Jun 21, 2021 3:15 pm
mikejuss wrote: Mon Jun 21, 2021 3:09 pm

Congrats--that's a sweet deal. You should definitely try to max out your pretax contributions ($19,500) and then to max out your extra contributions ($10,000).

This makes me wonder: how many Bogleheads have the option to make extra 401(k) contributions (ie, above the $19,500 threshold)? This seems like a very rare thing. Am I wrong about that?
So what has changed? It’s an after tax up to $10k and no match. This isn’t different than me investing currently at a Vanguard taxable account with VTSAX and since when there was a $10k limit?
I believe--and Bogleheads wiser than mine can confirm--that the extra 401(k) money can be rolled over to your Roth IRA with no tax consequences and can grow tax-free in that account (unlike in your taxable account). I don't know why the limit is $10,000.
Rolled over to Roth IRA meaning I can contribute $16k a year into it? If so, this is a game changer and it would be all over news media.
"All over news media"? Ha--not so. Check out the "Mega Backdoor Roth" threads here for more info.
I knew about the Mega back door Roth.
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Re: Types of Retirement Accounts: Which one to invest now?

Post by wetgear »

Vanguard User wrote: Mon Jun 21, 2021 3:52 pm Rolled over to Roth IRA meaning I can contribute $16k a year into it? If so, this is a game changer and it would be all over news media.
It is a game changer, not sure why they limit it to 10k at your company thoug. It should be 58k - employee contributions to trad & roth- employer contributions. Either way this is a great and somewhat rare benefit that they just introduced.

https://www.bogleheads.org/wiki/After-tax_401(k)
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Re: Types of Retirement Accounts: Which one to invest now?

Post by ruralavalon »

The Mega Backdoor Roth is not a new idea, it's just new in your employer's plan.


Vanguard User wrote: Mon Jun 21, 2021 3:56 pm This was my email:


GET YOUR FULL COMPANY MATCH CONTRIBUTION WITH PRETAX AND ROTH

Consider contributing at least 6% of your pay in pretax and/or Roth contributions to receive the maximum Company match. Company will match dollar for dollar up to 6% of your pretax and/or Roth contributions. That’s “free” money!


LOOKING TO SAVE MORE?

Consider contributing up to the annual IRS dollar limit of $19,500 ($26,000 if you are 50 or older) in pretax and/or Roth.

NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.


NEW! ROTH IN-PLAN CONVERSION

If you choose to make after-tax contributions, consider a Roth In-Plan Conversion of those contributions to build the most potentially tax-free income possible. The automated Roth In-Plan Conversion with Daily Sweep feature makes this simple by converting after‑tax balances automatically.
That is excellent. Take advantage of this if you can afford the extra $10k contribution annually.

Making the extra $10k non-Roth after-tax contribution annually, and doing the in-plan Roth conversion, should be a higher priority than investing more in your taxable brokerage account. That contribution stays inside your 401k account, in a Roth sub-account.

This is entirely different than your Roth IRA at Vanguard. You can still contribute $6k annually to your Roth IRA at Vanguard.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
mikejuss
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Re: Types of Retirement Accounts: Which one to invest now?

Post by mikejuss »

ruralavalon wrote: Mon Jun 21, 2021 4:02 pm
Vanguard User wrote: Mon Jun 21, 2021 3:56 pm This was my email:


GET YOUR FULL COMPANY MATCH CONTRIBUTION WITH PRETAX AND ROTH

Consider contributing at least 6% of your pay in pretax and/or Roth contributions to receive the maximum Company match. Company will match dollar for dollar up to 6% of your pretax and/or Roth contributions. That’s “free” money!


LOOKING TO SAVE MORE?

Consider contributing up to the annual IRS dollar limit of $19,500 ($26,000 if you are 50 or older) in pretax and/or Roth.

NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.


NEW! ROTH IN-PLAN CONVERSION

If you choose to make after-tax contributions, consider a Roth In-Plan Conversion of those contributions to build the most potentially tax-free income possible. The automated Roth In-Plan Conversion with Daily Sweep feature makes this simple by converting after‑tax balances automatically.
That is excellent. Take advantage of this if you can afford the extra $10k contribution.

Making the extra $10k non-Roth after-tax contribution annually, and doing the in-plan Roth conversion, should be a higher priority than investing more in your taxable brokerage account. That stays inside your 401k account, in a Roth sub-account.

This is entirely different than your Roth IRA at Vanguard. You can still contribute $6k annually to your Roth IRA at Vanguard.
Ruralvision, there's an aspect to this that I don't understand. Am I correct that the non-Roth after-tax contributions need to be converted to Roth 401(k) contributions before they can then be rolled over to the Roth IRA? Why does the money have to pass through the Roth 401(k) bucket before reaching the Roth IRA bucket? Wouldn't it be easier to be able to simply roll over after-tax non-Roth contributions to the Roth IRA? It seems like there's an unnecessary step here. Aren't after-tax non-Roth contributions basically the same as Roth 401(k) contributions?
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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Re: Types of Retirement Accounts: Which one to invest now?

Post by ruralavalon »

mikejuss wrote: Mon Jun 21, 2021 4:09 pm
ruralavalon wrote: Mon Jun 21, 2021 4:02 pm
Vanguard User wrote: Mon Jun 21, 2021 3:56 pm This was my email:


GET YOUR FULL COMPANY MATCH CONTRIBUTION WITH PRETAX AND ROTH

Consider contributing at least 6% of your pay in pretax and/or Roth contributions to receive the maximum Company match. Company will match dollar for dollar up to 6% of your pretax and/or Roth contributions. That’s “free” money!


LOOKING TO SAVE MORE?

Consider contributing up to the annual IRS dollar limit of $19,500 ($26,000 if you are 50 or older) in pretax and/or Roth.

NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.


NEW! ROTH IN-PLAN CONVERSION

If you choose to make after-tax contributions, consider a Roth In-Plan Conversion of those contributions to build the most potentially tax-free income possible. The automated Roth In-Plan Conversion with Daily Sweep feature makes this simple by converting after‑tax balances automatically.
That is excellent. Take advantage of this if you can afford the extra $10k contribution.

Making the extra $10k non-Roth after-tax contribution annually, and doing the in-plan Roth conversion, should be a higher priority than investing more in your taxable brokerage account. That stays inside your 401k account, in a Roth sub-account.

This is entirely different than your Roth IRA at Vanguard. You can still contribute $6k annually to your Roth IRA at Vanguard.
Ruralvision, there's an aspect to this that I don't understand. Am I correct that the non-Roth after-tax contributions need to be converted to Roth 401(k) contributions before they can then be rolled over to the Roth IRA? Why does the money have to pass through the Roth 401(k) bucket before reaching the Roth IRA bucket? Wouldn't it be easier to be able to simply roll over after-tax non-Roth contributions to the Roth IRA? It seems like there's an unnecessary step here. Aren't after-tax non-Roth contributions basically the same as Roth 401(k) contributions?
Many plans do not permit in-service distributions. The notice Vanguard User quoted did not say that in-service distributions of the non-Roth after-tax contributions will are permitted.
Last edited by ruralavalon on Mon Jun 21, 2021 4:18 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
mikejuss
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Re: Types of Retirement Accounts: Which one to invest now?

Post by mikejuss »

ruralavalon wrote: Mon Jun 21, 2021 4:15 pmMany plans do not permit in-service distributions. The notice Vanguard User quoted did not say that in-service distributions of the non-Stop after-tax contributions will are permitted.
But once one has left an employer, can't one roll over all after-tax non-Roth and Roth contributions to one's Roth IRA? I may be missing your point.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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Re: Types of Retirement Accounts: Which one to invest now?

Post by ruralavalon »

mikejuss wrote: Mon Jun 21, 2021 4:17 pm
ruralavalon wrote: Mon Jun 21, 2021 4:15 pmMany plans do not permit in-service distributions. The notice Vanguard User quoted did not say that in-service distributions of the non-Stop after-tax contributions will are permitted.
But once one has left an employer, can't one roll over all after-tax non-Roth and Roth contributions to one's Roth IRA? I may be missing your point.
Vanguard User is just 43, and has not left this employer. Why not convert to Roth in-plan now so that gains are tax-free when withdrawn?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Types of Retirement Accounts: Which one to invest now?

Post by mikejuss »

ruralavalon wrote: Mon Jun 21, 2021 4:20 pm
mikejuss wrote: Mon Jun 21, 2021 4:17 pm
ruralavalon wrote: Mon Jun 21, 2021 4:15 pmMany plans do not permit in-service distributions. The notice Vanguard User quoted did not say that in-service distributions of the non-Stop after-tax contributions will are permitted.
But once one has left an employer, can't one roll over all after-tax non-Roth and Roth contributions to one's Roth IRA? I may be missing your point.
Vanguard User is just 43, and has not left this employer. Why not convert to Roth in-plan now so that gains are tax-free when withdrawn?
Hmm--by that logic, if I'm following it, it's pointless to ever move money from a Roth 401(k) to a Roth IRA.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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Re: Types of Retirement Accounts: Which one to invest now?

Post by ruralavalon »

mikejuss wrote: Mon Jun 21, 2021 4:24 pm
ruralavalon wrote: Mon Jun 21, 2021 4:20 pm
mikejuss wrote: Mon Jun 21, 2021 4:17 pm
ruralavalon wrote: Mon Jun 21, 2021 4:15 pmMany plans do not permit in-service distributions. The notice Vanguard User quoted did not say that in-service distributions of the non-Stop after-tax contributions will are permitted.
But once one has left an employer, can't one roll over all after-tax non-Roth and Roth contributions to one's Roth IRA? I may be missing your point.
Vanguard User is just 43, and has not left this employer. Why not convert to Roth in-plan now so that gains are tax-free when withdrawn?
Hmm--by that logic, if I'm following it, it's pointless to ever move money from a Roth 401(k) to a Roth IRA.
TFB blog post "Mega Backdoor Roth: Convert Within Plan or Out to Roth IRA?" , link.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

wetgear wrote: Mon Jun 21, 2021 4:00 pm
Vanguard User wrote: Mon Jun 21, 2021 3:52 pm Rolled over to Roth IRA meaning I can contribute $16k a year into it? If so, this is a game changer and it would be all over news media.
It is a game changer, not sure why they limit it to 10k at your company thoug. It should be 58k - employee contributions to trad & roth- employer contributions. Either way this is a great and somewhat rare benefit that they just introduced.

https://www.bogleheads.org/wiki/After-tax_401(k)
Oh ok. $58k for under 50?
Does this mean I can contribute $19.5k plus $10k in traditional 401k?
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

ruralavalon wrote: Mon Jun 21, 2021 4:02 pm The Mega Backdoor Roth is not a new idea, it's just new in your employer's plan.


Vanguard User wrote: Mon Jun 21, 2021 3:56 pm This was my email:


GET YOUR FULL COMPANY MATCH CONTRIBUTION WITH PRETAX AND ROTH

Consider contributing at least 6% of your pay in pretax and/or Roth contributions to receive the maximum Company match. Company will match dollar for dollar up to 6% of your pretax and/or Roth contributions. That’s “free” money!


LOOKING TO SAVE MORE?

Consider contributing up to the annual IRS dollar limit of $19,500 ($26,000 if you are 50 or older) in pretax and/or Roth.

NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.


NEW! ROTH IN-PLAN CONVERSION

If you choose to make after-tax contributions, consider a Roth In-Plan Conversion of those contributions to build the most potentially tax-free income possible. The automated Roth In-Plan Conversion with Daily Sweep feature makes this simple by converting after‑tax balances automatically.
That is excellent. Take advantage of this if you can afford the extra $10k contribution annually.

Making the extra $10k non-Roth after-tax contribution annually, and doing the in-plan Roth conversion, should be a higher priority than investing more in your taxable brokerage account. That contribution stays inside your 401k account, in a Roth sub-account.

This is entirely different than your Roth IRA at Vanguard. You can still contribute $6k annually to your Roth IRA at Vanguard.

MBR has been around. I knew that. So before this I did not have option for MBR?

I have a Roth IRA at Fidelity.
I have a taxable Vanguard account in VTSAX. What should I be doing now?
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Re: Types of Retirement Accounts: Which one to invest now?

Post by grabiner »

KingRiggs wrote: Mon Jun 21, 2021 3:01 pm I agree with posters above. In your tax bracket and contribution level, my order of investment would be:

1) Pre-tax 401k up to the match
2) Roth IRA up to the limit ($6k or $7k depending on age)
3) Max out the rest of the 401k (up to $19,500)
4) HSA if you can enroll in an eligible health care plan
5) Anything else in your taxable brokerage account at Vanguard.
Move HSA up to #2. You may not want to use a high-deductible plan just to get an HSA, depending on your health and the plan details. But if you do have a high-deductible plan, maxing out the HSA is better than any other investment except a matched 401(k). HSA contributions are tax deductible, and withdrawals are tax-free if used for medical expenses (which you expect to have, either while working or in retirement). In the OP's 22% tax bracket, $1000 in an HSA is better than $780 in a Roth IRA, which would have the same out-of-pocket cost.
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Re: Types of Retirement Accounts: Which one to invest now?

Post by ruralavalon »

mikejuss wrote: Mon Jun 21, 2021 4:24 pm
ruralavalon wrote: Mon Jun 21, 2021 4:20 pm
mikejuss wrote: Mon Jun 21, 2021 4:17 pm
ruralavalon wrote: Mon Jun 21, 2021 4:15 pmMany plans do not permit in-service distributions. The notice Vanguard User quoted did not say that in-service distributions of the non-Stop after-tax contributions will are permitted.
But once one has left an employer, can't one roll over all after-tax non-Roth and Roth contributions to one's Roth IRA? I may be missing your point.
Vanguard User is just 43, and has not left this employer. Why not convert to Roth in-plan now so that gains are tax-free when withdrawn?
Hmm--by that logic, if I'm following it, it's pointless to ever move money from a Roth 401(k) to a Roth IRA.
TFB blog post "Mega Backdoor Roth: Convert Within Plan or Out to Roth IRA?" , link.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Types of Retirement Accounts: Which one to invest now?

Post by wetgear »

Vanguard User wrote: Mon Jun 21, 2021 4:47 pm
wetgear wrote: Mon Jun 21, 2021 4:00 pm
Vanguard User wrote: Mon Jun 21, 2021 3:52 pm Rolled over to Roth IRA meaning I can contribute $16k a year into it? If so, this is a game changer and it would be all over news media.
It is a game changer, not sure why they limit it to 10k at your company thoug. It should be 58k - employee contributions to trad & roth- employer contributions. Either way this is a great and somewhat rare benefit that they just introduced.

https://www.bogleheads.org/wiki/After-tax_401(k)
Oh ok. $58k for under 50?
Does this mean I can contribute $19.5k plus $10k in traditional 401k?
Not quite: 19.5k total traditional and/or roth 401k. 10k "post tax" which can effectively become additional roth space but is not initially that. It must be rolled over in plan (to roth 401k) or out of plan to a roth IRA whichever your plan allows.
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

ruralavalon wrote: Mon Jun 21, 2021 4:20 pm
mikejuss wrote: Mon Jun 21, 2021 4:17 pm
ruralavalon wrote: Mon Jun 21, 2021 4:15 pmMany plans do not permit in-service distributions. The notice Vanguard User quoted did not say that in-service distributions of the non-Stop after-tax contributions will are permitted.
But once one has left an employer, can't one roll over all after-tax non-Roth and Roth contributions to one's Roth IRA? I may be missing your point.
Vanguard User is just 43, and has not left this employer. Why not convert to Roth in-plan now so that gains are tax-free when withdrawn?
Convert all of traditional 401k balance to Roth IRA at my Fidelity account?
Last edited by Vanguard User on Mon Jun 21, 2021 5:29 pm, edited 1 time in total.
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

wetgear wrote: Mon Jun 21, 2021 5:13 pm
Vanguard User wrote: Mon Jun 21, 2021 4:47 pm
wetgear wrote: Mon Jun 21, 2021 4:00 pm
Vanguard User wrote: Mon Jun 21, 2021 3:52 pm Rolled over to Roth IRA meaning I can contribute $16k a year into it? If so, this is a game changer and it would be all over news media.
It is a game changer, not sure why they limit it to 10k at your company thoug. It should be 58k - employee contributions to trad & roth- employer contributions. Either way this is a great and somewhat rare benefit that they just introduced.

https://www.bogleheads.org/wiki/After-tax_401(k)
Oh ok. $58k for under 50?
Does this mean I can contribute $19.5k plus $10k in traditional 401k?
Not quite: 19.5k total traditional and/or roth 401k. 10k "post tax" which can effectively become additional roth space but is not initially that. It must be rolled over in plan (to roth 401k) or out of plan to a roth IRA whichever your plan allows.
What account would up to the post tax $10k go to?
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

grabiner wrote: Mon Jun 21, 2021 4:53 pm
KingRiggs wrote: Mon Jun 21, 2021 3:01 pm I agree with posters above. In your tax bracket and contribution level, my order of investment would be:

1) Pre-tax 401k up to the match
2) Roth IRA up to the limit ($6k or $7k depending on age)
3) Max out the rest of the 401k (up to $19,500)
4) HSA if you can enroll in an eligible health care plan
5) Anything else in your taxable brokerage account at Vanguard.
Move HSA up to #2. You may not want to use a high-deductible plan just to get an HSA, depending on your health and the plan details. But if you do have a high-deductible plan, maxing out the HSA is better than any other investment except a matched 401(k). HSA contributions are tax deductible, and withdrawals are tax-free if used for medical expenses (which you expect to have, either while working or in retirement). In the OP's 22% tax bracket, $1000 in an HSA is better than $780 in a Roth IRA, which would have the same out-of-pocket cost.
I don’t qualify for HSA. I use my employers medical health and deductible is $800. I paid 7% marginal tax on Federal so only the taxable AGI is taxed. I also get Saver’s Credit.
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Re: Types of Retirement Accounts: Which one to invest now?

Post by wetgear »

Vanguard User wrote: Mon Jun 21, 2021 5:25 pm What account would up to the post tax $10k go to?
It starts in your 401k with a post tax designation. Where it ends up depends on what your plan allows and what you request be done to it but typically you have up to 3 options.

1) Leave it there (not ideal as you want to get it roth designation before it grows)
2) Rollover into a roth IRA (usually best as it gets roth designation and you can designate any funds for it)
3) Roll it into your roth 401k (also good because of roth designation but limited to funds available in 401k and sometimes you only get a single fund selection for your entire 401k when you typically would prefer more FI in trad and more equity in roth accounts)

You need to check your plan details but try for them in the preferential order of 2, 3, 1. Check out the mega back door links earlier in the thread also for more details.
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

wetgear wrote: Mon Jun 21, 2021 5:47 pm
Vanguard User wrote: Mon Jun 21, 2021 5:25 pm What account would up to the post tax $10k go to?
It starts in your 401k with a post tax designation. Where it ends up depends on what your plan allows and what you request be done to it but typically you have up to 3 options.

1) Leave it there (not ideal as you want to get it roth designation before it grows)
2) Rollover into a roth IRA (usually best as it gets roth designation and you can designate any funds for it)
3) Roll it into your roth 401k (also good because of roth designation but limited to funds available in 401k and sometimes you only get a single fund selection for your entire 401k when you typically would prefer more FI in trad and more equity in roth accounts)

You need to check your plan details but try for them in the preferential order of 2, 3, 1. Check out the mega back door links earlier in the thread also for more details.
So it it better to still invest in my taxable VTSAX at Vanguard after $19.5k and $6 OR $10k taxable post tax which starts in my traditional 401k and once the year is over. I send the up to $10k to my Roth IRA (FZROX)? I don’t have a Roth 401k account (I can create one but still limited to whatever funds are offered).

When would I do the MBR?
wetgear
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Re: Types of Retirement Accounts: Which one to invest now?

Post by wetgear »

Vanguard User wrote: Mon Jun 21, 2021 5:54 pm
wetgear wrote: Mon Jun 21, 2021 5:47 pm
Vanguard User wrote: Mon Jun 21, 2021 5:25 pm What account would up to the post tax $10k go to?
It starts in your 401k with a post tax designation. Where it ends up depends on what your plan allows and what you request be done to it but typically you have up to 3 options.

1) Leave it there (not ideal as you want to get it roth designation before it grows)
2) Rollover into a roth IRA (usually best as it gets roth designation and you can designate any funds for it)
3) Roll it into your roth 401k (also good because of roth designation but limited to funds available in 401k and sometimes you only get a single fund selection for your entire 401k when you typically would prefer more FI in trad and more equity in roth accounts)

You need to check your plan details but try for them in the preferential order of 2, 3, 1. Check out the mega back door links earlier in the thread also for more details.
So it it better to still invest in my taxable VTSAX at Vanguard after $19.5k and $6 OR $10k taxable post tax which starts in my traditional 401k and once the year is over. I send the up to $10k to my Roth IRA (FZROX)? I don’t have a Roth 401k account (I can create one but still limited to whatever funds are offered).

When would I do the MBR?
Taxable after everything else. https://www.bogleheads.org/wiki/Priorit ... nvestments So you'll have at least 35.5k in investments each year before putting anything in taxable.

You should do the rollovers for MBR as frequently as your plan allows and you have time for, you should make the contributions either early in the year or all year long up to the maximum whichever best suits your cash flow needs. Some plans don't allow rollovers and some allow rollovers as frequently as you'd like. Last time I had a company plan that allowed for MBR I did it every 2 weeks when after tax contributions were made to my 401k plan. That's both ideal and a little excessive, a couple of times a year likely has very similar results but is considerably less work. I had the advantage that I have frequent long drive times where I could call my 401k company to initiate the rollover without really taking up any personal time.
Topic Author
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Location: Sugar Land, Texas

Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

wetgear wrote: Mon Jun 21, 2021 6:11 pm
Vanguard User wrote: Mon Jun 21, 2021 5:54 pm
wetgear wrote: Mon Jun 21, 2021 5:47 pm
Vanguard User wrote: Mon Jun 21, 2021 5:25 pm What account would up to the post tax $10k go to?
It starts in your 401k with a post tax designation. Where it ends up depends on what your plan allows and what you request be done to it but typically you have up to 3 options.

1) Leave it there (not ideal as you want to get it roth designation before it grows)
2) Rollover into a roth IRA (usually best as it gets roth designation and you can designate any funds for it)
3) Roll it into your roth 401k (also good because of roth designation but limited to funds available in 401k and sometimes you only get a single fund selection for your entire 401k when you typically would prefer more FI in trad and more equity in roth accounts)

You need to check your plan details but try for them in the preferential order of 2, 3, 1. Check out the mega back door links earlier in the thread also for more details.
So it it better to still invest in my taxable VTSAX at Vanguard after $19.5k and $6 OR $10k taxable post tax which starts in my traditional 401k and once the year is over. I send the up to $10k to my Roth IRA (FZROX)? I don’t have a Roth 401k account (I can create one but still limited to whatever funds are offered).

When would I do the MBR?
Taxable after everything else. https://www.bogleheads.org/wiki/Priorit ... nvestments So you'll have at least 35.5k in investments each year before putting anything in taxable.

You should do the rollovers for MBR as frequently as your plan allows and you have time for, you should make the contributions either early in the year or all year long up to the maximum whichever best suits your cash flow needs. Some plans don't allow rollovers and some allow rollovers as frequently as you'd like. Last time I had a company plan that allowed for MBR I did it every 2 weeks when after tax contributions were made to my 401k plan. That's both ideal and a little excessive, a couple of times a year likely has very similar results but is considerably less work. I had the advantage that I have frequent long drive times where I could call my 401k company to initiate the rollover without really taking up any personal time.
I have never done a MBR before. Did I miss out on anything?
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anon_investor
Posts: 15122
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Re: Types of Retirement Accounts: Which one to invest now?

Post by anon_investor »

Vanguard User wrote: Mon Jun 21, 2021 6:13 pm
wetgear wrote: Mon Jun 21, 2021 6:11 pm
Vanguard User wrote: Mon Jun 21, 2021 5:54 pm
wetgear wrote: Mon Jun 21, 2021 5:47 pm
Vanguard User wrote: Mon Jun 21, 2021 5:25 pm What account would up to the post tax $10k go to?
It starts in your 401k with a post tax designation. Where it ends up depends on what your plan allows and what you request be done to it but typically you have up to 3 options.

1) Leave it there (not ideal as you want to get it roth designation before it grows)
2) Rollover into a roth IRA (usually best as it gets roth designation and you can designate any funds for it)
3) Roll it into your roth 401k (also good because of roth designation but limited to funds available in 401k and sometimes you only get a single fund selection for your entire 401k when you typically would prefer more FI in trad and more equity in roth accounts)

You need to check your plan details but try for them in the preferential order of 2, 3, 1. Check out the mega back door links earlier in the thread also for more details.
So it it better to still invest in my taxable VTSAX at Vanguard after $19.5k and $6 OR $10k taxable post tax which starts in my traditional 401k and once the year is over. I send the up to $10k to my Roth IRA (FZROX)? I don’t have a Roth 401k account (I can create one but still limited to whatever funds are offered).

When would I do the MBR?
Taxable after everything else. https://www.bogleheads.org/wiki/Priorit ... nvestments So you'll have at least 35.5k in investments each year before putting anything in taxable.

You should do the rollovers for MBR as frequently as your plan allows and you have time for, you should make the contributions either early in the year or all year long up to the maximum whichever best suits your cash flow needs. Some plans don't allow rollovers and some allow rollovers as frequently as you'd like. Last time I had a company plan that allowed for MBR I did it every 2 weeks when after tax contributions were made to my 401k plan. That's both ideal and a little excessive, a couple of times a year likely has very similar results but is considerably less work. I had the advantage that I have frequent long drive times where I could call my 401k company to initiate the rollover without really taking up any personal time.
I have never done a MBR before. Did I miss out on anything?
Just make after-tax contributions then convert them in-plan to Roth. If allowed doing an in-service rollover to a Roth IRA, is going to get cumbersome if you do it every pay check. In-plan Roth conversions are usually easier, that is what I do every pay check for my mega backdoor Roth.
wetgear
Posts: 859
Joined: Thu Apr 06, 2017 10:14 am

Re: Types of Retirement Accounts: Which one to invest now?

Post by wetgear »

Vanguard User wrote: Mon Jun 21, 2021 6:13 pm I have never done a MBR before. Did I miss out on anything?
Based on the email you received today from Fidelity you didn't miss anything because it has just now become available.
Vanguard User wrote: "NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.


NEW! ROTH IN-PLAN CONVERSION

If you choose to make after-tax contributions, consider a Roth In-Plan Conversion of those contributions to build the most potentially tax-free income possible. The automated Roth In-Plan Conversion with Daily Sweep feature makes this simple by converting after‑tax balances automatically.
It looks like maybe you need to fully max the trad 401k yearly contributions first and then do after tax contributions. Does your company do a year end "true up" for matching contributions? (i.e. does it matter when you get your contributions in for the match, even percent through the year or all in the beginning the year followed by 0%?) If not true up both getting full match and making after tax contributions could be tricky timing wise. Ideally you can contribute to both pre-tax and post tax evenly throughout the year so both hit the limit at the end of the year and this is likely but the phrasing "If you have already made the maximum pretax and/or Roth contribution possible" sort of indicates otherwise.

Using the automated roth in-plan conversion means once you set it up you don't have to actively do anything for the MBR rollover, just contribute, which saves you the regular phone calls.
Topic Author
Vanguard User
Posts: 2191
Joined: Wed May 26, 2021 5:46 pm
Location: Sugar Land, Texas

Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

anon_investor wrote: Mon Jun 21, 2021 6:21 pm
Vanguard User wrote: Mon Jun 21, 2021 6:13 pm
wetgear wrote: Mon Jun 21, 2021 6:11 pm
Vanguard User wrote: Mon Jun 21, 2021 5:54 pm
wetgear wrote: Mon Jun 21, 2021 5:47 pm

It starts in your 401k with a post tax designation. Where it ends up depends on what your plan allows and what you request be done to it but typically you have up to 3 options.

1) Leave it there (not ideal as you want to get it roth designation before it grows)
2) Rollover into a roth IRA (usually best as it gets roth designation and you can designate any funds for it)
3) Roll it into your roth 401k (also good because of roth designation but limited to funds available in 401k and sometimes you only get a single fund selection for your entire 401k when you typically would prefer more FI in trad and more equity in roth accounts)

You need to check your plan details but try for them in the preferential order of 2, 3, 1. Check out the mega back door links earlier in the thread also for more details.
So it it better to still invest in my taxable VTSAX at Vanguard after $19.5k and $6 OR $10k taxable post tax which starts in my traditional 401k and once the year is over. I send the up to $10k to my Roth IRA (FZROX)? I don’t have a Roth 401k account (I can create one but still limited to whatever funds are offered).

When would I do the MBR?
Taxable after everything else. https://www.bogleheads.org/wiki/Priorit ... nvestments So you'll have at least 35.5k in investments each year before putting anything in taxable.

You should do the rollovers for MBR as frequently as your plan allows and you have time for, you should make the contributions either early in the year or all year long up to the maximum whichever best suits your cash flow needs. Some plans don't allow rollovers and some allow rollovers as frequently as you'd like. Last time I had a company plan that allowed for MBR I did it every 2 weeks when after tax contributions were made to my 401k plan. That's both ideal and a little excessive, a couple of times a year likely has very similar results but is considerably less work. I had the advantage that I have frequent long drive times where I could call my 401k company to initiate the rollover without really taking up any personal time.
I have never done a MBR before. Did I miss out on anything?
Just make after-tax contributions then convert them in-plan to Roth. If allowed doing an in-service rollover to a Roth IRA, is going to get cumbersome if you do it every pay check. In-plan Roth conversions are usually easier, that is what I do every pay check for my mega backdoor Roth.
Can this be done automatically? The only money that will go to Roth IRA are if and only if I contribute beyond $19.5k right? So I can actually contribute $16k a year in my Roth IRA?
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Types of Retirement Accounts: Which one to invest now?

Post by anon_investor »

Vanguard User wrote: Mon Jun 21, 2021 6:47 pm
anon_investor wrote: Mon Jun 21, 2021 6:21 pm
Vanguard User wrote: Mon Jun 21, 2021 6:13 pm
wetgear wrote: Mon Jun 21, 2021 6:11 pm
Vanguard User wrote: Mon Jun 21, 2021 5:54 pm

So it it better to still invest in my taxable VTSAX at Vanguard after $19.5k and $6 OR $10k taxable post tax which starts in my traditional 401k and once the year is over. I send the up to $10k to my Roth IRA (FZROX)? I don’t have a Roth 401k account (I can create one but still limited to whatever funds are offered).

When would I do the MBR?
Taxable after everything else. https://www.bogleheads.org/wiki/Priorit ... nvestments So you'll have at least 35.5k in investments each year before putting anything in taxable.

You should do the rollovers for MBR as frequently as your plan allows and you have time for, you should make the contributions either early in the year or all year long up to the maximum whichever best suits your cash flow needs. Some plans don't allow rollovers and some allow rollovers as frequently as you'd like. Last time I had a company plan that allowed for MBR I did it every 2 weeks when after tax contributions were made to my 401k plan. That's both ideal and a little excessive, a couple of times a year likely has very similar results but is considerably less work. I had the advantage that I have frequent long drive times where I could call my 401k company to initiate the rollover without really taking up any personal time.
I have never done a MBR before. Did I miss out on anything?
Just make after-tax contributions then convert them in-plan to Roth. If allowed doing an in-service rollover to a Roth IRA, is going to get cumbersome if you do it every pay check. In-plan Roth conversions are usually easier, that is what I do every pay check for my mega backdoor Roth.
Can this be done automatically? The only money that will go to Roth IRA are if and only if I contribute beyond $19.5k right? So I can actually contribute $16k a year in my Roth IRA?
A rollover is NOT considered a contribution. You would technically be making a $10k after tax contributing to your 401k.

So I do regular backdoor Roth, that gets $6k into my Roth IRA, I also do a variation of my mega backdoor Roth, where I make after-tax contributions to my 401K, then make in-plan Roth conversion of those after-tax funds, so I end up with funds now in my Roth 401k.
wetgear
Posts: 859
Joined: Thu Apr 06, 2017 10:14 am

Re: Types of Retirement Accounts: Which one to invest now?

Post by wetgear »

Vanguard User wrote: Mon Jun 21, 2021 6:47 pm 1) Can this be done automatically?
2)The only money that will go to Roth IRA are if and only if I contribute beyond $19.5k right?
3)So I can actually contribute $16k a year in my Roth IRA?
I numbered your questions so it's easier to address them individually.
1) Maybe, depends on your plan so you'll need to read those documents especially the new ones from Fidelity.
2) Maybe, depends on your plan so you'll need to read those documents but the email sort of hints that they will need to be in excess of the 19.5k.
3) No you can still only contribute 6k to the roth IRA yearly but you can possibly Mega back door in another 10k (it's semantics but important semantics)

Addressing all 3, the email you received from Fidelity seems to only mention converting the after tax 401k contributions into a Roth 401k so it may be stuck in the 401k until you leave your company but once again that will be detailed in your plan documents. If it can only go from after tax 401k to Roth 401k that's still really good and you should take full advantage of it, it's only minorly inferior to rolling it into a roth IRA.
Topic Author
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Posts: 2191
Joined: Wed May 26, 2021 5:46 pm
Location: Sugar Land, Texas

Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

wetgear wrote: Mon Jun 21, 2021 6:32 pm
Vanguard User wrote: Mon Jun 21, 2021 6:13 pm I have never done a MBR before. Did I miss out on anything?
Based on the email you received today from Fidelity you didn't miss anything because it has just now become available.
Vanguard User wrote: "NEW! AFTER-TAX CONTRIBUTIONS

If you have already made the maximum pretax and/or Roth contribution possible (including catch-up contributions if eligible), consider making an after-tax contribution to save even more for your retirement. You can contribute up to $10,000 annually after-tax. After-tax contributions are not matched.


NEW! ROTH IN-PLAN CONVERSION

If you choose to make after-tax contributions, consider a Roth In-Plan Conversion of those contributions to build the most potentially tax-free income possible. The automated Roth In-Plan Conversion with Daily Sweep feature makes this simple by converting after‑tax balances automatically.
It looks like maybe you need to fully max the trad 401k yearly contributions first and then do after tax contributions. Does your company do a year end "true up" for matching contributions? (i.e. does it matter when you get your contributions in for the match, even percent through the year or all in the beginning the year followed by 0%?) If not true up both getting full match and making after tax contributions could be tricky timing wise. Ideally you can contribute to both pre-tax and post tax evenly throughout the year so both hit the limit at the end of the year and this is likely but the phrasing "If you have already made the maximum pretax and/or Roth contribution possible" sort of indicates otherwise.

Using the automated roth in-plan conversion means once you set it up you don't have to actively do anything for the MBR rollover, just contribute, which saves you the regular phone calls.
Based on email, $19.5k is requirement or at least that is what I am reading. So why is up to $10k after tax contributions better in my 401k than up to $10k on a Vanguard taxable account?

I do have True Up and I remember maxing out before December one year so I still got the full match in the follow March.
Topic Author
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Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

anon_investor wrote: Mon Jun 21, 2021 7:01 pm
Vanguard User wrote: Mon Jun 21, 2021 6:47 pm
anon_investor wrote: Mon Jun 21, 2021 6:21 pm
Vanguard User wrote: Mon Jun 21, 2021 6:13 pm
wetgear wrote: Mon Jun 21, 2021 6:11 pm

Taxable after everything else. https://www.bogleheads.org/wiki/Priorit ... nvestments So you'll have at least 35.5k in investments each year before putting anything in taxable.

You should do the rollovers for MBR as frequently as your plan allows and you have time for, you should make the contributions either early in the year or all year long up to the maximum whichever best suits your cash flow needs. Some plans don't allow rollovers and some allow rollovers as frequently as you'd like. Last time I had a company plan that allowed for MBR I did it every 2 weeks when after tax contributions were made to my 401k plan. That's both ideal and a little excessive, a couple of times a year likely has very similar results but is considerably less work. I had the advantage that I have frequent long drive times where I could call my 401k company to initiate the rollover without really taking up any personal time.
I have never done a MBR before. Did I miss out on anything?
Just make after-tax contributions then convert them in-plan to Roth. If allowed doing an in-service rollover to a Roth IRA, is going to get cumbersome if you do it every pay check. In-plan Roth conversions are usually easier, that is what I do every pay check for my mega backdoor Roth.
Can this be done automatically? The only money that will go to Roth IRA are if and only if I contribute beyond $19.5k right? So I can actually contribute $16k a year in my Roth IRA?
A rollover is NOT considered a contribution. You would technically be making a $10k after tax contributing to your 401k.

So I do regular backdoor Roth, that gets $6k into my Roth IRA, I also do a variation of my mega backdoor Roth, where I make after-tax contributions to my 401K, then make in-plan Roth conversion of those after-tax funds, so I end up with funds now in my Roth 401k.
So up to $10k goes to my traditional 401k and then it with MBR it goes to my Roth IRA account including the gains without a penalty/tax?
Topic Author
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Posts: 2191
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Location: Sugar Land, Texas

Re: Types of Retirement Accounts: Which one to invest now?

Post by Vanguard User »

wetgear wrote: Mon Jun 21, 2021 7:09 pm
Vanguard User wrote: Mon Jun 21, 2021 6:47 pm 1) Can this be done automatically?
2)The only money that will go to Roth IRA are if and only if I contribute beyond $19.5k right?
3)So I can actually contribute $16k a year in my Roth IRA?
I numbered your questions so it's easier to address them individually.
1) Maybe, depends on your plan so you'll need to read those documents especially the new ones from Fidelity.
2) Maybe, depends on your plan so you'll need to read those documents but the email sort of hints that they will need to be in excess of the 19.5k.
3) No you can still only contribute 6k to the roth IRA yearly but you can possibly Mega back door in another 10k (it's semantics but important semantics)

Addressing all 3, the email you received from Fidelity seems to only mention converting the after tax 401k contributions into a Roth 401k so it may be stuck in the 401k until you leave your company but once again that will be detailed in your plan documents. If it can only go from after tax 401k to Roth 401k that's still really good and you should take full advantage of it, it's only minorly inferior to rolling it into a roth IRA.
I plan to retire F.I.R.E between age 55-60 and stay with this company. So I can take the Rule of 55/72t and do that anytime from 55-60 right?

3. $6k a year into Roth IRA but with MBR I can do another up to $10 so isn't that $16k a year principal contributions?
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