Posted: 8/28/2025 8:04:23 PM EDT
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OK, so my company has recently made available the mega backdoor Roth to us. I already max out my Roth IRA every year (now through backdoor), and my 401k. I just turned 54. I can start withdrawing from the Roth at 59.5 without penalty. Not much different than having a 5 year CD at this point. I have plenty of taxable investments that I socked away a bunch of money years and years ago. I'm strongly considering maxing out the mega backdoor Roth, and to start withdrawing from my taxable investments for anything I may need for expenses. My long term capital gains on my taxable account withdrawals will be 10%, but by investing heavily my post-tax funds into the mega backdoor Roth, I'm thinking that those investments will grow from now on tax-free, rather than me accumulating more 10% gains between now and whenever I decide to start withdrawing from my taxable accounts. I'm thinking this makes sense... any holes in my theory? Anything I haven't thought of? The math seems to work out, and life and finances is a math problem. I'm thinking I might have to start paying quarterly taxes I guess, but not sure about that yet. Thoughts?? |
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Originally Posted By DDiggler: My long term capital gains on my taxable account withdrawals will be 10%, Thoughts?? You need a plan. Just because you have a mega backdoor doesn’t mean that maxing it is the best option. Without providing details nobody can give you any sound advice. Married? Wife work? How much do you make? How much do you have saved in what type of accounts? When do you want to retire? How much debt? |
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Originally Posted By Morgan321: there is no 10% long term capital gains bracket. Unless you’re filthy rich you’ll pay 0% or 15%. You need a plan. Just because you have a mega backdoor doesn’t mean that maxing it is the best option. Without providing details nobody can give you any sound advice. Married? Wife work? How much do you make? How much do you have saved in what type of accounts? When do you want to retire? How much debt? Currently not married, that is almost certainly changing. You're right, I misremembered the long term cap gains... I'd be in the 15% group, and will be no matter what. I have aggressively saved in all my tax advantaged accounts, I max them all out every year and have been for a long while. I'm not that concerned about my retirement age right now; I enjoy what I do, I have lots of freedom and I'm good with stacking more money. No real debt that I'll be paying off; my house was paid off but I have about $80k in a HELOC frozen at 3% that I will NOT be paying more than minimum... I make much better investing. |
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Originally Posted By GlockPride: I usually say get out while you can. But I also know that every year you work pays extra dividends with more contributions and time for money to grow. I'm not considering stopping work right now. I'm considering putting a substantial portion of my net pay into the backdoor mega Roth so I can get tax-free gains, and drawing down my taxable investments where I'd be paying long term capital gains on any withdrawals. |
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Originally Posted By Accountant30339: I would highly recommend a fee only financial planner to help you with this decision. You’re in the situation of choosing where to save your money - any option for saving money is good but only one is the best path for a given situation. If you provide the details I mentioned you could get a pretty good idea which way is better here very quickly and for free. Without those details it’s just guessing what your best course of action is. Note that if you invest the same amount of money at the same time into the same investments in a tax free (roth) and a pretax (401k) account the only financial difference for you is determined by the tax bracket you were in when you contributed the money and when you withdraw the money. If you’re in the same tax bracket for both contribution and withdrawal then there is no financial advantage to either. If you’re in a higher bracket while working then a pretax contribution is better, if you’re in a higher bracket in retirement then a roth is better. |
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Originally Posted By Morgan321: If you’re in the same tax bracket for both contribution and withdrawal then there is no financial advantage to either. If you’re in a higher bracket while working then a pretax contribution is better, if you’re in a higher bracket in retirement then a roth is better. Some great information in this thread. OP: It boils down to you are asking the right questions now. Do you want to dive in and educate yourself fully or do you want to educate yourself enough to hire someone? (hint, all the information is there, now. It's just a matter of mindset and commitment.) Not a distraction: Just a note for others reading, the last 6 months we have been looking into this scenario in bold. It is extremely rare. |
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Originally Posted By SkiandShoot: Some great information in this thread. OP: It boils down to you are asking the right questions now. Do you want to dive in and educate yourself fully or do you want to educate yourself enough to hire someone? (hint, all the information is there, now. It's just a matter of mindset and commitment.) Not a distraction: Just a note for others reading, the last 6 months we have been looking into this scenario in bold. It is extremely rare. Originally Posted By SkiandShoot: Originally Posted By Morgan321: If you’re in the same tax bracket for both contribution and withdrawal then there is no financial advantage to either. If you’re in a higher bracket while working then a pretax contribution is better, if you’re in a higher bracket in retirement then a roth is better. Some great information in this thread. OP: It boils down to you are asking the right questions now. Do you want to dive in and educate yourself fully or do you want to educate yourself enough to hire someone? (hint, all the information is there, now. It's just a matter of mindset and commitment.) Not a distraction: Just a note for others reading, the last 6 months we have been looking into this scenario in bold. It is extremely rare. I don't think I'll be in a higher bracket. I will likely only withdraw what I need. I don't carry debt (unless it's advantageous to do so). My expenses are low. My savings from my paychecks grow really quickly now because of this. I do really like understanding finance, the numbers, and why certain approaches will work better than others. I like squeezing every bit of profit I can and not leaving pennies on the table. I'll be contributing to the mega back door to some extent for sure... like I said it's basically a 5 year tax free CD for me. The only question I have is whether I can just go all-out and max it out while I can and have it be advantageous to pull from my taxable investments, or if I should do all the math and try to estimate what I need to keep from my paycheck for expenses, and put the remainder in the mega. All my personal investments, plus my employer's plan, are all with Fidelity... and they keep calling me to see if I want to talk to one of their advisors. Maybe I'll take them up on that. |
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Originally Posted By DDiggler: The only question I have is whether I can just go all-out and max it out while I can and have it be advantageous to pull from my taxable investments, or if I should do all the math and try to estimate what I need to keep from my paycheck for expenses, and put the remainder in the mega. All my personal investments, plus my employer's plan, are all with Fidelity... and they keep calling me to see if I want to talk to one of their advisors. Maybe I'll take them up on that. You can rollover your backdoor roth 401k money into a Roth IRA and roth contributions can be withdrawn anytime for any reason. Read up on the 5 year rule though. Also for taxable investing look at your long term gains - if you need to sell to cover expenses you can sell positions that have more or less gains to maximize your tax situation. Ie. If you need $10k do you sell the position with a basis or $1k or the position with a basis of $9k? You really need a plan. The difference in taxes in your situation are enormous, easily multiple 6 figures between now and when you start SS. Fidelity offers great basic advice for free. You can also get the same advice here if you share your basic details. |
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Originally Posted By Morgan321: You can rollover your backdoor roth 401k money into a Roth IRA and roth contributions can be withdrawn anytime for any reason. Read up on the 5 year rule though. Also for taxable investing look at your long term gains - if you need to sell to cover expenses you can sell positions that have more or less gains to maximize your tax situation. Ie. If you need $10k do you sell the position with a basis or $1k or the position with a basis of $9k? You really need a plan. The difference in taxes in your situation are enormous, easily multiple 6 figures between now and when you start SS. Fidelity offers great basic advice for free. You can also get the same advice here if you share your basic details. What else am I missing from the details I've given above? Without uploading my W-2s 
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Originally Posted By DDiggler: What else am I missing from the details I've given above? Without uploading my W-2s When you want to quit working is the biggest factor to help determine tax implications. Beyond that what are your annual expenses and how much of what type of savings do you have now? I can’t understate how large the tax implications are. If you quit working and have low/zero income for a few years before starting SS you can do large roth conversions of your 401k and pay low (maybe zero) taxes on the conversion. You could also sell taxable investments and pay 0% long term cap. Gains on the profits. |
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Originally Posted By Morgan321: you’ve given no details beyond that you have “a lot” of pretax savings. When you want to quit working is the biggest factor to help determine tax implications. Beyond that what are your annual expenses and how much of what type of savings do you have now? I can’t understate how large the tax implications are. If you quit working and have low/zero income for a few years before starting SS you can do large roth conversions of your 401k and pay low (maybe zero) taxes on the conversion. You could also sell taxable investments and pay 0% long term cap. Gains on the profits. That's the thing... I really don't have any plan on when I want to quit working. I like what I do, I'm a software engineer and I like the mental challenge it gives me and I can travel all I want. I just don't know. My annual expenses are about $24-32k per year, guesstimate. I put everything I can onto my credit card to get the perks and pay it off each month, and sometimes it's below $2k, a couple times a year it's about $3.5k but that's about the maximum (holiday season, when I'm traveling, etc). Might buy a nicer motorcycle next year, have some house improvements I'm thinking of, but those are all one-offs and discretionary... in general though that's my expenses. I have about $600k in taxable investments... $300k of which is earmarked and won't be touched but the other $300k is what I was considering spending down. It seems like I'm getting to the point though, with my low spending rate, that I may take a tax hit if I work until I collect SS because getting SS will lower the amount I can withdraw cap-gains tax-free from my taxable accounts though, right? I guess this is more complicated than I thought. |
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OP, this may help.... 1) Figure out what your 401K balance will be at retirement. There are many online calculators that can help you do this. 2) Take that future 401K amount and plug it into an RMD calculator and see how much the govt will force you to withdraw, and pay ordinary income taxes upon, in retirement. I recently did this and discovered that I will be in a much higher tax bracket in retirement. Therefore, I have reduced my 401K contribution to the amount needed to get the company match and will be putting the rest of my "retirement contribution" into a brokerage and ROTH account, going forward. Having all three types of accounts (401K, Roth, and Brokerage), will allow me to pull from different buckets to manage my "taxable income" in retirement. That's really what you a trying to accomplish.... Accountant |
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Originally Posted By DDiggler: That's the thing... I really don't have any plan on when I want to quit working. …. It seems like I'm getting to the point though, with my low spending rate, that I may take a tax hit if I work until I collect SS because getting SS will lower the amount I can withdraw cap-gains tax-free from my taxable accounts though, right? I guess this is more complicated than I thought. If you don’t know at least roughly when you will retire then no way to know what will work out the best for you. If you could at least narrow it down to “around 60” or “when I start SS” you could plan much better. It’s not complicated once you set the big variable (when you plan to retire). I would strongly encourage you to make a detailed plan that involves retiring a few years prior to starting SS so that you can capitalize on those years of low income to save a small fortune in taxes. Keep in mind if you make too much money while collecting SS you pay taxes on a larger fraction of your SS. One thing seems to be a safe bet: you have enough savings to live on for many years so you’re probably best off delaying SS as long as possible. ETA: you didn’t say how much you make…. If you’re maxing your 401k at $31k per year you can still do another $39k minus your employer matching via mega backdoor roth. Get both? |
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Nobody ever retired and wished they didn't have so much money in tax free Roth. I do exactly what you are proposing. I max out my 401k contributions (regular 401k, $7500 catchup contribution, and around $35k in Mega Backdoor Roth) along with maxing out HSA contribution, backdoor Roth IRA, and ESPP (company stock) purchase. I don't get a real paycheck until around July/August. I live off my savings account (taxable) for the first 7-8 months of the year, then replenish it as best I can with the final 4-5 months of paychecks. This ensures I am fully maximizing the ability to shove money into Roth status accounts, fully taking advantage of company financial benefits while I am working. During retirement, you will draw down on taxable and pre-tax funds first for income, leaving Roth with the ability to continue to grow tax free even while in retirement. I am a fan of your proposed strategy. I would also take a hard look at your taxable investments, and see if there are any that you really don't want to hold long term through retirement. I would liquidate those first, as needed for income. |
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I'm 65 and retired with about 20% of my portfolio in a Roth. There has never been one day that I wish I had less of it in a Roth. My way of saying I don't see any real downside to taking advantage of this if you are in a financial position to do so. It is also my understanding that you would even have access to your principal investment amount prior to 59.5 without penalty should you have the need to tap it before then. |